A New York Qualified Subchapter-S Trust for the Benefit of a Child, also known as a Crummy Trust Agreement, is a type of irrevocable trust designed to minimize taxes and protect the assets of a child. This legal arrangement offers numerous advantages to parents or guardians seeking to transfer assets to their children while maintaining control over distribution and tax management. The primary purpose of a New York Qualified Subchapter-S Trust for the Benefit of a Child with Crummy Trust Agreement is tax efficiency. By creating this trust, the parent can take advantage of tax benefits associated with the Subchapter-S Corporation (S Corp) while ensuring the child's future financial security. This structure allows the parent or guardian to transfer assets or shares of a closely-held family business into the trust, limiting their exposure to gift and estate taxes. One key feature of a Crummy Trust Agreement is the ability to utilize the annual gift tax exclusion. Each year, individuals can gift a specific amount of money without incurring gift taxes. The Crummy power, named after the landmark case Crummy v. Commissioner, allows beneficiaries of the trust to withdraw a portion of the gift for a limited period, typically 30 days. This withdrawal right ensures the gift qualifies for the annual gift tax exclusion and provides flexibility for the trust's creator. Different variations of a New York Qualified Subchapter-S Trust for the Benefit of a Child with Crummy Trust Agreement exist, offering unique benefits and flexibility. Some common types include: 1. Crummy Power Trust: This type of trust grants the beneficiaries the right to withdraw assets gifted to the trust within a specific timeframe, ensuring the gift qualifies for the annual gift tax exclusion. 2. Minor's Trust: Designed explicitly for minors, this trust provides financial support and asset management until the child reaches a specific age or milestone, such as turning 21 or completing college. 3. Educational Trust: Focused on funding the beneficiary's education, this trust provides suitable distributions to cover tuition fees, books, and other educational expenses. 4. Health and Welfare Trust: This trust prioritizes the beneficiary's health and well-being, covering medical expenses, insurance premiums, and essential living costs. 5. Special Needs Trust: Created for beneficiaries with disabilities, this trust ensures that essential government benefits are not compromised while providing supplemental funds for the individual's comfort and care. 6. Testamentary Trust: Established through a will, this trust takes effect upon the death of the testator, allowing assets to pass to the trust for the benefit of the child. It provides continuity in asset management and can incorporate the benefits of a Crummy Trust Agreement. In conclusion, a New York Qualified Subchapter-S Trust for the Benefit of a Child with a Crummy Trust Agreement offers tax advantages, asset protection, and flexibility for parents or guardians wishing to transfer assets to their children. Various types of trusts exist within this framework, each tailored to meet specific needs and goals. Consulting with an experienced estate planning attorney is crucial to forming a trust structure that aligns with individual circumstances and objectives.
New York Qualified Subchapter-S Trust for Benefit of Child with Crummey Trust Agreement
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Thus, if a grantor wants to leave S corp stock to a trust for her family members after her death without terminating the company's election, the trust must qualify either as an electing small business trust (ESBT) or as a qualified subchapter s trust (QSST).
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.
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.
This trust type is established by your will. It's an eligible S corporation shareholder 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.
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.
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 electing small business trust (ESBT) within the meaning of section 1361(e) is treated as two separate trusts for purposes of chapter 1 of the Internal Revenue Code. The portion of an ESBT that consists of stock in one or more S corporations is treated as one trust.
The benefit of a QSST from a tax perspective is that the income beneficiary is treated as the deemed owner over the portion of the trust that consists of stock in the S corporation. This means that the trust's allocable portion of the S corporation income is reported directly by the beneficiary.
The QSST may be useful for estate planning purposes. It may also be useful for holding S stock for the benefit of a minor or incompetent. Individuals, estates, and certain trusts are subject to a net investment income tax, which is an additional tax of 3.8%.