North Carolina Irrevocable Trust, also known as a Qualifying Subchapter-S Trust (SST), is a legal entity established in accordance with North Carolina state laws and the Internal Revenue Code (IRC). This type of trust is designed to hold and manage assets for the benefit of beneficiaries while also qualifying for special tax treatment under Subchapter-S of the IRC. Unlike a standard irrevocable trust, which is taxed as a separate entity, an SST is a "pass-through" entity for tax purposes. This means that the trust's income, deductions, and credits are passed through to the trust beneficiaries, who then report them on their individual tax returns. By electing SST status, the trust can avoid the double taxation that commonly occurs with other types of trusts. The North Carolina Irrevocable Trust has various types, each serving specific purposes based on a trustee's intention: 1. Standard SST: This is the most common type of North Carolina Irrevocable Trust. It provides income and asset protection to beneficiaries while allowing them to qualify for favorable tax treatment. It requires a qualified trustee to ensure compliance with North Carolina state laws and IRS regulations. 2. Educational SST: This type of trust is specifically designed to use trust assets for the education and related expenses of the beneficiaries. The trust can be set up to provide funding for tuition, books, supplies, and other educational needs of beneficiaries. 3. Medical SST: A Medical SST allows for the management of trust assets to cover medical and healthcare expenses of beneficiaries. This type of trust can help cover medical bills, insurance premiums, and other healthcare-related costs. 4. Special Needs SST: Special Needs Costs are created to provide for the supplemental needs of beneficiaries with disabilities or special needs. The trust assets are used to enhance the quality of life for the beneficiary without jeopardizing eligibility for government benefits such as Medicaid or SSI. Setting up a North Carolina Irrevocable Trust as a Qualifying Subchapter-S Trust requires careful planning and adherence to legal and tax regulations. It is recommended to consult with an experienced estate planning attorney or tax professional who can provide guidance and assistance tailored to individual circumstances. Properly structured Costs can provide significant tax benefits and protection for both the trust assets and beneficiaries.
North Carolina 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.
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.
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.
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).
Designing a QSSTThe trust must have only one income beneficiary during the life of the current income beneficiary, and that beneficiary must be a U.S. citizen or resident;All of the income of the trust must be (or must be required to be) distributed currently to the one income beneficiary;More items...?
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.
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).
If a trust is not one of the trusts specifically authorized by the Internal Revenue Code, however, and becomes a shareholder, the Corporation ceases to be a qualified S corporation and will be taxed as an ordinary C corporation.