An Illinois Qualified Subchapter-S Trust for the Benefit of a Child with a Crummy Trust Agreement is a legally recognized trust structure that serves to optimize tax benefits while providing financial security for a child beneficiary. It combines the advantages of a Qualified Subchapter-S Trust (SST) with a Crummy Trust (named after Donald Crummy, the taxpayer who first tested the concept in court). In Illinois, the Qualified Subchapter-S Trust is established for the purpose of holding shares of stock in an S Corporation. This type of trust allows income and deductions to flow through to the trust's beneficiary, typically a child. By doing so, the trust can take advantage of income tax rates potentially lower than those of the parent, all while securing the child's future. What makes the Illinois Qualified Subchapter-S Trust unique is the incorporation of a Crummy Trust Agreement. A Crummy Trust utilizes the annual gift tax exclusion to allow contributions to the trust without incurring gift tax liability. The trust is structured in a way that grants the beneficiary a limited period to withdraw the funds (typically 30 days) after a contribution is made. If the beneficiary does not exercise this withdrawal right, the assets remain in the trust, protected against future estate taxes. There are several types of Illinois Qualified Subchapter-S Trusts for the Benefit of a Child with Crummy Trust Agreements, each designed to meet different needs and circumstances: 1. Revocable Illinois Qualified Subchapter-S Trust with Crummy Trust Agreement: This trust allows the granter to retain the right to alter or revoke the trust during their lifetime. It provides flexibility and control over the assets while benefiting from the tax advantages and estate planning benefits. 2. Irrevocable Illinois Qualified Subchapter-S Trust with Crummy Trust Agreement: Unlike the revocable trust, this variant cannot be altered or revoked once established, ensuring the assets and tax benefits are protected. However, it necessitates careful consideration and planning, as it relinquishes control over the trust assets. 3. Testamentary Illinois Qualified Subchapter-S Trust with Crummy Trust Agreement: This type of trust is established through a will and only goes into effect upon the granter's passing. It allows the granter to name a trustee, determine beneficiary criteria, and manage assets posthumously, ensuring the child's financial security. Overall, an Illinois Qualified Subchapter-S Trust for the Benefit of a Child with a Crummy Trust Agreement is a comprehensive estate planning tool that leverages the advantages of the Qualified Subchapter-S Trust and the flexibility of the Crummy Trust to secure a child's financial future while minimizing tax burdens.
Illinois Qualified Subchapter-S Trust for Benefit of Child with Crummey Trust Agreement
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Crummey Trust, Definition This type of trust is typically used by parents who want to make financial gifts to minor or adult children, though anyone can establish one on behalf of a beneficiary.
Net investment income tax of a QSST 1411(a)(2)). The tax also applies to QSSTs to the extent the net investment income is retained in the trust. Although the S corporation income of a QSST is taxed to the individual income beneficiary, capital gain on the sale of the S corporation stock is taxed at the trust level.
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.
This trust type is established by your will. It's an eligible S corporation shareholder for up to two years after the transfer and then must either distribute the stock to an eligible shareholder or qualify as a QSST or ESBT.
Crummey trusts are typically used by parents to provide their children with lifetime gifts while sheltering their money from gift taxes as long as the gift's value is equal to or less than the permitted annual exclusion amount.
However, where income is derived by a discretionary trust, the income can be distributed to various family members and split between them. Where there are children in the family, this would provide an opportunity for significant tax savings by distributing income of the trust to the children.
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.
Thus, if a grantor wants to leave S corp stock to a trust for her family members after her death without terminating the company's election, the trust must qualify either as an electing small business trust (ESBT) or as a qualified subchapter s trust (QSST).
A QSST is one of several types of trusts that are eligible to hold stock in an S corporation. Its two primary requirements are (1) there can be only one beneficiary of the trust and (2) all income must be distributed at least annually (Sec.
A Crummey Trust allows you to take advantage of the gift tax exclusions and simultaneously minimize your estate taxes. You do not have to provide an opportunity for the beneficiary to withdraw the entire balance of the trust until a certain age. A Crummey trust can have multiple beneficiaries.