Trusts as S Corporation Shareholders: Elections, Eligibility, and Avoiding Loss of Subchapter S Status

QSSTs, ESBTs, Grantor Trusts, and Testamentary Trusts

Note: CLE credit is not offered on this program.

A live 110-minute CPE webinar with interactive Q&A


Tuesday, September 28, 2021 (in 5 days)

1:00pm-2:50pm EDT, 10:00am-11:50am PDT

or call 1-800-926-7926

This course will cover types of trusts eligible to hold S Corporation shares, including Qualified Subchapter S Trusts (QSSTs) and Electing Small Business Trusts (ESBTs), making the corresponding QSST and ESBT elections, and avoiding common scenarios where S status is inadvertently terminated when a trust holds shares.

Description

Trusts are viable S corporation shareholders. Grantor trusts, testamentary trusts, QSSTs, and ESBTs, are all eligible to hold S corporation shares. Owning S corporation stock through a trust, or transferring the shares to a trust at death, can be an effective method of transferring ownership. IRC Section 645(b)(2) provides a two-year transition period for certain trusts upon the death of an S corporation shareholder.

A Qualified Subchapter S Trust (QSST) can be an S corporation shareholder. A QSST must meet specific criteria, including having a single income beneficiary and distributing all income currently to the said beneficiary. An Electing Small Business Trust (ESBT) could be a better alternative for owners wanting to distribute or accumulate income to multiple beneficiaries, for example, children. Both QSSTs and ESBTs require timely, properly filed elections. Both are allowed to hold property other than the S corporation stock creating a bifurcated reporting obligation.

There are many circumstances involving trusts that can create the inadvertent termination of the S election. These include leaving S corporation stock to an ineligible shareholder (a foreign trust, IRA, NRA) or even including a defective provision in the trust document. Tax advisers working with S corporations and S corporation shareholders need to recognize the caveats of establishing trusts as shareholders of S corporations for living and testamentary trusts.

Listen as our panel of Subchapter S veterans explains the concerns and considerations of having a trust as an S corporation shareholder.

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Outline

  1. Trusts as S corporation shareholders: overview
  2. Trust eligibility
  3. QSSTs
  4. ESBTs
  5. Practical considerations
  6. Avoiding inadvertent terminations of S status

Benefits

The panel will review these and other critical issues:

  • General reporting requirements and bifurcated reporting when a QSST or ESBT holds other assets
  • Properly filing QSST and ESBT elections
  • Eligibility requirements for a QSST and ESBT
  • Trust language to avoid jeopardizing S corporation status

Faculty

DeStefano, John
John F. DeStefano

Of Counsel
Baker & Hostetler

Mr. DeStefano raws on his background in private equity finance and portfolio management at a multibillion-dollar...  |  Read More

Simons, Jana
Jana L. Simons, J.D., LL.M. (Tax), CFP®

Attorney
Meadows Collier Reed Cousins Crouch & Ungerman

Ms. Simons represents individuals and multi-generational families. She primarily focuses on tax planning, drafting...  |  Read More

Weeg, Christopher
Christopher C. Weeg, J.D., LL.M., CPA

Comiter Singer Baseman & Braun

Mr. Weeg is an attorney and a CPA with a focus on tax and estate planning. His law practice includes drafting wills and...  |  Read More

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