A New Mexico Irrevocable Trust is a legal entity established in the state of New Mexico that operates as a Qualifying Subchapter-S Trust. This type of trust is primarily utilized for estate planning purposes, providing individuals with asset protection, tax benefits, and the ability to pass on their wealth to beneficiaries in a tax-efficient manner. One type of New Mexico Irrevocable Trust is the Family Irrevocable Trust. This trust allows families to retain control over their assets while still enjoying the benefits of a trust structure. By transferring assets into the trust, families can safeguard their wealth from potential creditors, lawsuits, and estate taxes. Additionally, this type of trust can facilitate the smooth transfer of assets to succeeding generations, ensuring the family's long-term financial well-being. Another type of New Mexico Irrevocable Trust is the Charitable Lead Trust. This trust is designed to support charitable causes while still providing benefits to the granter or their beneficiaries. By donating a portion of the trust's income to a charity or philanthropic organization for a specified period, the granter can reduce their overall tax liability. It allows individuals to generate a charitable deduction upfront while ultimately preserving and distributing their wealth to their chosen beneficiaries. Furthermore, there is the Medicaid Asset Protection Trust (MAP). This type of Irrevocable Trust is specifically designed for individuals who wish to protect their assets from being used for Medicaid eligibility. By transferring assets into the trust, individuals can effectively remove those assets from their estate and potentially accelerate Medicaid eligibility. This strategy can be particularly useful for individuals who anticipate the need for long-term care in the future, as it helps preserve assets and allows access to Medicaid benefits when required. In conclusion, a New Mexico Irrevocable Trust, which falls under the category of a Qualifying Subchapter-S Trust, offers numerous benefits such as asset protection, tax advantages, and smooth estate transfer. The Family Irrevocable Trust, Charitable Lead Trust, and Medicaid Asset Protection Trust are some variations of this type of trust, each serving specific purposes according to individuals' unique financial goals and circumstances. Planning and establishing an appropriate trust structure with the guidance of legal professionals can help individuals make the most of their assets and secure their financial future.
New Mexico Irrevocable Trust which is a Qualifying Subchapter-S Trust
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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)).
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.
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 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.
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.
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).
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.
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.
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).