New York Irrevocable Trust — Qualifying Subchapter-S Trust A New York Irrevocable Trust, also known as a Qualifying Subchapter-S Trust (SST), is a specialized legal arrangement that combines the benefits of an irrevocable trust structure with the tax advantages of a Subchapter-S corporation. This type of trust is specifically designed to hold S corporation stock and provide a tax-efficient method of transferring and managing assets. In New York, there are various types of Irrevocable Trusts that can be classified as Qualifying Subchapter-S Trusts, including: 1. Irrevocable Life Insurance Trust (IIT): An IIT is established to hold life insurance policies outside the taxable estate of the insured. By funding the trust with life insurance, the proceeds can be used to provide liquidity and financial security to beneficiaries while minimizing estate taxes. 2. Charitable Remainder Trust (CRT): A CRT is a trust created to benefit both charitable organizations and individual beneficiaries. By transferring assets into the trust, donors can receive immediate tax deductions, generate income for themselves or others, and ultimately pass the remaining assets to the chosen charitable cause. 3. Qualified Personnel Residence Trust (PRT): A PRT allows an individual to transfer their primary residence or vacation home into an irrevocable trust while retaining the right to live in it for a specified period. This can help reduce estate taxes while potentially preserving the family home or other valuable real estate for future generations. 4. Special Needs Trust (SET): An SET is established to protect the assets of individuals with disabilities while ensuring their eligibility for government benefits like Medicaid and Supplemental Security Income (SSI). The trust can provide for supplemental care, housing, and lifestyle needs without jeopardizing access to crucial support programs. 5. Dynasty Trust: A Dynasty Trust is created to provide for multiple generations, potentially perpetually, while minimizing estate taxes. By utilizing generation-skipping transfer tax exemptions and allowing the trust assets to grow over time, wealthy families can effectively preserve wealth for their descendants. These various types of New York Irrevocable Trusts that qualify as Subchapter-S Trusts provide unique advantages depending on the specific objectives of the trust creator. Whether it's transferring wealth, reducing estate taxes, or ensuring the financial security of loved ones, a qualified estate planning attorney can guide individuals towards the most suitable trust structure to meet their needs.
New York 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.
Four eligible trust typesGrantor trusts. An important caveat is that these trusts must have one deemed owner who is a U.S. citizen or resident and meet certain other requirements.Testamentary trusts. This trust type is established by your will.QSSTs.ESBTs.
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).
Specifically, S corporation shareholders must be individuals, specific trusts and estates, or certain tax-exempt organizations (501(c)(3)). Partnerships, corporations, and nonresident aliens cannot qualify as eligible shareholders.
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).
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.
As an initial matter, as long as the business owner is living, his or her revocable trust is treated as a grantor trust for income tax purposes, and as such, is an eligible S corporation shareholder.
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).
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.
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.