Puerto Rico Irrevocable Trust, also known as a Qualifying Subchapter-S Trust, is a legal entity established under Puerto Rico law. It offers individuals and businesses unique opportunities for asset protection, tax planning, and wealth management. This type of trust is particularly attractive for those who want to take advantage of Puerto Rico's beneficial tax incentives and financial advantages. The Puerto Rico Irrevocable Trust, as a Qualifying Subchapter-S Trust, complies with the rules and regulations set forth by the United States Internal Revenue Code, specifically Section 1361(b)(3)(B). It allows the trust to be treated as an S corporation shareholder, allowing it to enjoy certain advantages associated with S corporations, such as pass-through taxation. There are different variations or types of Puerto Rico Irrevocable Trusts that can be established based on the specific needs and goals of the settler (the person creating the trust). Some of these variations may include: 1. Irrevocable Life Insurance Trust (IIT): This type of trust is commonly used to hold life insurance policies. By transferring a life insurance policy into an IIT, the insured can exclude the policy's value from their taxable estate while ensuring the policy's benefits are protected and distributed according to their wishes. 2. Charitable Remainder Trust (CRT): A CRT enables individuals to provide for themselves or their beneficiaries while also supporting charitable causes. It involves transferring assets to the trust, with the income generated being paid out to the beneficiary for a specific period. Once the trust term ends, the remaining assets are donated to the designated charity. 3. Dynasty Trust: A Dynasty Trust is designed to preserve and grow wealth for multiple generations. It allows individuals to transfer assets into the trust, which will be managed and distributed according to the terms specified. By utilizing Puerto Rico's favorable tax laws, the trust assets can potentially grow and benefit future generations of beneficiaries. 4. Irrevocable Granter Retained Annuity Trust (GREAT): A GREAT enables individuals to transfer assets into the trust while retaining an income stream in the form of an annuity payment for a specific term. This arrangement allows individuals to reduce their taxable estate while potentially minimizing gift tax consequences. These are just a few examples of the various types of Puerto Rico Irrevocable Trusts that can be established. Each type of trust offers different benefits and advantages, and the choice ultimately depends on the specific objectives and circumstances of the settler. It is advisable to consult with a qualified attorney or financial advisor to understand the options and create a trust structure that aligns with individual requirements.
Puerto Rico Irrevocable Trust which is a Qualifying Subchapter-S Trust
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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.
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.
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)).
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.
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.
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.
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).
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).
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.