Hawaii Irrevocable Trust which is a Qualifying Subchapter-S Trust
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How to fill out Irrevocable Trust Which Is A Qualifying Subchapter-S Trust?
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FAQ
An irrevocable grantor trust can own S corporation stock if it meets IRS regulations. The trust must contain language stating that all the ordinary income the trust earns along with the original trust assets are owned by the trust grantor.
Specifically, S corporation shareholders must be individuals, specific trusts and estates, or certain tax-exempt organizations (501(c)(3)). Partnerships, corporations, and nonresident aliens cannot qualify as eligible shareholders.
Irrevocable trusts are often set up as grantor trusts, which simply means that they are not recognized for income tax purposes (all of the income tax attributes of the trust, such as income, loss, gains, etc. is passed on to the grantor of the trust).
As an initial matter, as long as the business owner is living, his or her revocable trust is treated as a grantor trust for income tax purposes, and as such, is an eligible S corporation shareholder.
Four eligible trust typesGrantor trusts. An important caveat is that these trusts must have one deemed owner who is a U.S. citizen or resident and meet certain other requirements.Testamentary trusts. This trust type is established by your will.QSSTs.ESBTs.
Three commonly used types of ongoing trusts qualify as S corporation shareholders: grantor trusts, qualified subchapter S trusts (QSSTs) and electing small business trusts (ESBTs).
The main difference between an ESBT and a QSST is that an ESBT may have multiple income beneficiaries, and the trust does not have to distribute all income. Unlike with the QSST, the trustee, rather than the beneficiary, must make the election.
For example, if a trust is a grantor trust to one individual, it is eligible as an S corporation shareholder, even though it is irrevocable (rather than revocable).
A Qualified Subchapter S Trust, commonly referred to as a QSST Election, or a Q-Sub election, is a Qualified Subchapter S Subsidiary Election made on behalf of a trust that retains ownership as the shareholder of an S corporation, a corporation in the United States which votes to be taxed.
The two-year limitation for S corporations to have as a shareholder either a testamentary trust or living trust that becomes irrevocable can be avoided by electing to convert the trust to a Qualified Subchapter S Trust, commonly referred to as a QSST.