A Kansas Irrevocable Trust, also known as a Qualifying Subchapter-S Trust (SST), is a legal arrangement governed by the state laws of Kansas and the Internal Revenue Code (IRC) Section 1361(d)(3). It refers to a specific type of trust that allows the qualifying beneficiary to become a shareholder of an S corporation without jeopardizing the corporation's status as an S corporation for tax purposes. The primary purpose of a Kansas Irrevocable Trust, SST, is to facilitate the transfer of ownership of an S corporation to a beneficiary who is eligible to become a shareholder under the Subchapter-S rules. By utilizing this trust, the S corporation can maintain its favorable tax treatment while allowing the trust beneficiary to participate in the corporation's profits and growth. The Kansas Irrevocable Trust, SST, distinguishes itself by meeting specific requirements set forth by the IRS. These requirements include: 1. Irrevocability: The trust must be irrevocable, meaning that once the trust is established, the granter cannot change its terms or revoke it without the beneficiary's consent. 2. Eligible beneficiary: The trust must have only one income beneficiary who is a U.S. citizen or resident alien. This beneficiary must be entitled to receive the trust's entire income and principal distributions during their lifetime. 3. Subchapter-S corporation shares: The trust beneficiary must receive and hold common stock shares of the S corporation. The beneficiary's interest in the S corporation should be limited to only one class of stock, typically the common stock. 4. Distributions: All income generated by the S corporation should be distributed to the trust beneficiary annually. The beneficiary is responsible for reporting these distributions on their personal tax return. While there may not be different types of Kansas Irrevocable Trusts, Costs, the term refers to the specific trust arrangement meeting the above-listed requirements. It's important to note that Kansas law may have additional provisions or regulations that apply to these trusts, so consulting with a qualified estate planning attorney or tax professional is advisable to ensure compliance with both federal and state laws. In summary, a Kansas Irrevocable Trust, SST, is a legal tool allowing the transfer of S corporation ownership to a qualifying beneficiary while maintaining the corporation's tax status. By adhering to specific IRS requirements, this trust ensures efficient income distribution and the preservation of tax advantages associated with S corporations.
Kansas Irrevocable Trust which is a Qualifying Subchapter-S Trust
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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.
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.
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.
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).
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.
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.
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).
Background. 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. 1361(d)(3)(B)).
A trust may be "qualified" or "non-qualified," according to the IRS. A qualified plan carries certain tax benefits. To be qualified, a trust must be valid under state law and must have identifiable beneficiaries. In addition, the IRA trustee, custodian, or plan administrator must receive a copy of the trust instrument.
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.