Nebraska 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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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.
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).
An irrevocable trust is simply a kind of trust that cannot be changed or canceled after the document has been signed. This sets it apart from a revocable trust, which can be altered or terminated and only becomes irrevocable when the trust maker, or grantor, dies.
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.
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).
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 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.
An irrevocable trust cannot be changed or modified without the beneficiary's permission. Essentially, an irrevocable trust removes certain assets from a grantor's taxable estate, and these incidents of ownership are transferred to a trust.
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).