Estate Planning With S Corp Trusts After Tax Reform: QSSTs, ESBTs, and the 20% QBI Deduction

Navigating Tax Reform Changes and Pass-Through Income Deductions

Note: CPE credit is not offered on this program

Recording of a 90-minute CLE webinar with Q&A


Conducted on Tuesday, November 5, 2019

Recorded event now available

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Program Materials

This CLE webinar will provide estate planning counsel and advisers with a practical guide to the estate planning opportunities in using S corporation (S-corp) trusts particularly in light of the 20% pass-through Qualified Business Income (QBI) deduction for pass-through entities. The panelist will describe the forms of trusts available for holding S-corp stock, especially the Qualified Sub-S Trust (QSST) and the Electing Small Business Trust (ESBT), and will detail the activities eligible for the QBI deduction, explain the changes in ESBT and QSST treatment contained in the new law, and offer useful guidance on planning tools for pass-through entities to restructure business activities to qualify for tax savings. The panelist will also discuss how the limit on excess business loss operates for S-corps and trusts that hold their shares.

Description

Only certain types of trust can hold S-corp stock, and assuring that any trust qualifies will be critical to maintaining the important S-corp pass-through tax treatment. It is important to understand the rules relating to trusts holding S-corp stock in the planning process because the status of a trust can change over time and require special elections and special trust structures to maintain qualification. The key elections and structures are the ESBT and the QSST, each of which has different tax treatment. The relatively new QBI deduction will have different treatment under each of these forms of trust.

The 20% QBI deduction for pass-through entities contained in the tax reform law creates significant opportunities, and no small amount of additional complexity, for estate planners and advisers to clients whose estate plans include trusts to hold and transfer S corp stock. Estate planning counsel should be looking now at potential changes to existing trusts to take advantage of new tax-saving opportunities for S corp trusts.

The law also permits ESBTs to have nonresident beneficiaries, even if the ESBT holds S corp stock, and clarifies that ESBTs making charitable contributions apply individual charitable deduction limits rather than those of Section 642(c). Both of these provisions may create planning opportunities for estate plans in which an S corp ownership interest is a significant component.

Estate planning counsel must be adept at applying the new provisions to current and future estate plans involving S corporations. For existing ESBTs, trustees and their advisers should determine whether the trust document allows for realignment of beneficiaries to enable the use of a QSST or, in the absence of this power, whether a modification of the original trust is appropriate.

Listen as Langdon T. Owen, Jr., Shareholder at Cohne Kinghorn, provides a practical guide to the challenges and opportunities in using trusts to hold S corporation stock arising from the new tax overhaul bill.

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Outline

  1. Rules for trusts, especially QSSTs and ESBTs, holding S-corp stock
  2. Application of the new 20% deduction on qualified pass-through business income
  3. Differences between ESBT and QSST tax treatment
  4. Evaluating existing S corporation trust structures to see if they still achieve optimal tax benefits

Benefits

The panelist will review these and other crucial issues:

  • Maintaining trust qualification to hold S-corp stock
  • How does the 20% pass-through income deduction work in the context of QSSTs and ESBTs?
  • When would it make sense to have an ESBT hold S corporation stock?
  • Drafting QSST and ESBT trust documents to maximize tax benefits
  • Charitable deduction opportunities under the new law

Faculty

Owen, Langdon
Langdon T. Owen, Jr.

Shareholder
Cohne Kinghorn

Since 1977, Mr. Owen has represented clients in transactions of up to tens of millions of dollars in a wide variety of...  |  Read More

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