Missouri Irrevocable Trusts, specifically those that qualify as Subchapter-S Trusts, are legal entities created to protect and manage assets for the benefit of designated beneficiaries. These trusts are governed by specific provisions outlined in the Missouri Revised Statutes (Chapter 456). A Qualifying Subchapter-S Trust is a type of irrevocable trust that meets certain criteria set forth by the Internal Revenue Service (IRS) to qualify for S corporation shareholders. By electing such status, the trust can benefit from pass-through taxation, similar to that of a partnership or sole proprietorship, where income is not directly taxed at the trust level, but instead flows through to the individual beneficiaries. To qualify as a Missouri Subchapter-S Trust, the trust must meet the following criteria: 1. Eligible Trustee: The trustee of the trust must be an individual or an eligible entity, such as a bank or trust company. 2. Limited Number of S Corporation Shareholders: The trust must have one or more beneficiaries who are eligible individuals, estates, or certain tax-exempt organizations. Generally, the trust can have up to 100 shareholders. 3. Permitted Types of Shareholders: The trust cannot have partnerships, corporations, or non-resident alien shareholders as beneficiaries. 4. Single Class of Stock: The trust must have only one class of stock. 5. Resident Alien Status: The trust must be solely for the benefit of resident aliens or U.S. citizens. Missouri offers various types of Subchapter-S Trusts which can include: 1. Marital Trusts: Created to provide for a surviving spouse while also preserving assets for other beneficiaries. 2. Generation-Skipping Trusts: Designed to transfer wealth to future generations by "skipping" the immediate beneficiaries' generation, while minimizing estate and gift taxes. 3. Charitable Remainder Trusts: Allows for the donation of assets to a charitable organization, with beneficiaries receiving income from the trust during their lifetime. 4. Special Needs Trusts: Created to provide for individuals with disabilities while preserving their eligibility for government benefits. 5. Spendthrift Trusts: Offers protection from creditors by limiting a beneficiary's access to trust assets. 6. Life Insurance Trusts: Used to hold life insurance policies outside the estate, minimizing estate taxes and providing liquidity for beneficiaries. Missouri Irrevocable Trusts, classified as Qualifying Subchapter-S Trusts, provide numerous benefits that help with tax planning, asset protection, and estate planning strategies. Consulting with an experienced attorney is crucial to determine the most suitable trust type and comply with legal requirements, ensuring the financial security of beneficiaries while maximizing tax advantages.
Missouri Irrevocable Trust which is a Qualifying Subchapter-S Trust
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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.
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)).
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.
An irrevocable trust that is setup as a grantor trust, qualified subchapter S trust or as an electing small business trust may own shares of an S corporation.
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).
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.
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).
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.
Testamentary trusts. These trusts, which are established by your will, are eligible S corporation shareholders 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.
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.
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