answersLogoWhite

0


Best Answer
Copy

Historically, S corporations were required to be owned by a few individuals. Over time, the concept of individuals was expanded such that some limited types of trusts were allowed to be shareholders and own stock in S corporations. The two most common types of trusts that can qualify as shareholders in S corporations are Qualified Subchapter S Trusts (QSSTs) and Electing Small Business Trusts (ESBTs). The two types of trusts are generally created by individuals who are seeking to transfer business interests to their family. Qualified Subchapter S TrustsQSSTs) The qualifying requirements for a QSST are statutorily defined under I.R.C. §1361(d)(3), and are as follows: # There is only one income beneficiary and he or she is a U.S. citizen or resident. # All income of the trust is required to be distributed currently to the one income beneficiary. # All corpus distributions must go to the one beneficiary. # The beneficiary's income interest must terminate at the earlier of the beneficiary's death or trust's termination. # An election to be treated as an eligible S corporation shareholder must be made. Additionally, in order to qualify as a QSST, the income beneficiary must make a QSST election using IRS Form 2553. The election must be filed within the 2-month and 16-day period beginning on the date the stock of the S corporation is transferred to the trust or the first day of the first taxable year for which the subchapter S election is effective, whichever is later. The income beneficiary of the QSST is required to sign his or her consent on Form 2553. Thus, it's important to note that the existence of a QSST requires the cooperation of the beneficiary. From a tax perspective, QSSTs are preferred because QSSTs are taxed as an ordinary grantor trust. In other words, the beneficiary is taxed only on the income that the beneficiary himself receives, instead of being taxed on the proportional share of income owned by the trust. This difference in amounts can be substantial. Further, because all of the trust corpus must go to the beneficiary, income cannot accumulate in the trust. For this reason and well as the desire to have multiple beneficiaries, many choose the ESBT as their trust of choice. Electing Small Business Trusts (ESBTs) Irrevocable trusts can also qualify as shareholders in an S corporation by electing to be treated as ESBTs. To become an ESBT, a trust must meet the requirements of IRC §1361(e) which are as follows: # All beneficiaries of the trust must be individuals, estates or charitable organizations described. # The S corporation stock in the trust may not be acquired by purchase # QSSTs and tax-exempt trusts cannot be ESBTs - the trust cannot be an electing QSST with regard to any stock, even stock in another S corporation; and # Each potential current beneficiary of the trust is treated as a shareholder for the purpose of the S corporation eligibility rules. In order to qualify as an ESBT, the trustee makes an election using IRS Form 2553. The ESBT election must generally be filed within the two month and 16 day period beginning on the day that the S corporation stock is transferred to the trust. From a tax perspective, an ESBT can be extremely harsh on its beneficiaries. While an ESBT can have multiple beneficiaries and can accumulate trust income, I.RC. §641(d) requires that the ESBT be taxed at the trust level on its proportionate share of taxable income of the S corporation. This tax is a flat rate equal to the highest individual marginal rate, which is currently at 35% for 2009. This is true regardless of whether the beneficiaries, themselves, receive any actual income. Finally, it is important to note that because most irrevocable trusts may elect to become (or at least partially become) one of the two types of trusts discussed above, it may be beneficial to add QSST language to future irrevocable trusts that allows the trustee to make such an election. Historically, S corporations were required to be owned by a few individuals. Over time, the concept of individuals was expanded such that some limited types of trusts were allowed to be shareholders and own stock in S corporations. The two most common types of trusts that can qualify as shareholders in S corporations are Qualified Subchapter S Trusts (QSSTs) and Electing Small Business Trusts (ESBTs). The two types of trusts are generally created by individuals who are seeking to transfer business interests to their family. Qualified Subchapter S TrustsQSSTs) The qualifying requirements for a QSST are statutorily defined under I.R.C. §1361(d)(3), and are as follows: # There is only one income beneficiary and he or she is a U.S. citizen or resident. # All income of the trust is required to be distributed currently to the one income beneficiary. # All corpus distributions must go to the one beneficiary. # The beneficiary's income interest must terminate at the earlier of the beneficiary's death or trust's termination. # An election to be treated as an eligible S corporation shareholder must be made. Additionally, in order to qualify as a QSST, the income beneficiary must make a QSST election using IRS Form 2553. The election must be filed within the 2-month and 16-day period beginning on the date the stock of the S corporation is transferred to the trust or the first day of the first taxable year for which the subchapter S election is effective, whichever is later. The income beneficiary of the QSST is required to sign his or her consent on Form 2553. Thus, it's important to note that the existence of a QSST requires the cooperation of the beneficiary. From a tax perspective, QSSTs are preferred because QSSTs are taxed as an ordinary grantor trust. In other words, the beneficiary is taxed only on the income that the beneficiary himself receives, instead of being taxed on the proportional share of income owned by the trust. This difference in amounts can be substantial. Further, because all of the trust corpus must go to the beneficiary, income cannot accumulate in the trust. For this reason and well as the desire to have multiple beneficiaries, many choose the ESBT as their trust of choice. Electing Small Business Trusts (ESBTs) Irrevocable trusts can also qualify as shareholders in an S corporation by electing to be treated as ESBTs. To become an ESBT, a trust must meet the requirements of IRC §1361(e) which are as follows: # All beneficiaries of the trust must be individuals, estates or charitable organizations described. # The S corporation stock in the trust may not be acquired by purchase # QSSTs and tax-exempt trusts cannot be ESBTs - the trust cannot be an electing QSST with regard to any stock, even stock in another S corporation; and # Each potential current beneficiary of the trust is treated as a shareholder for the purpose of the S corporation eligibility rules. In order to qualify as an ESBT, the trustee makes an election using IRS Form 2553. The ESBT election must generally be filed within the two month and 16 day period beginning on the day that the S corporation stock is transferred to the trust. From a tax perspective, an ESBT can be extremely harsh on its beneficiaries. While an ESBT can have multiple beneficiaries and can accumulate trust income, I.RC. §641(d) requires that the ESBT be taxed at the trust level on its proportionate share of taxable income of the S corporation. This tax is a flat rate equal to the highest individual marginal rate, which is currently at 35% for 2009. This is true regardless of whether the beneficiaries, themselves, receive any actual income. Finally, it is important to note that because most irrevocable trusts may elect to become (or at least partially become) one of the two types of trusts discussed above, it may be beneficial to add QSST language to future irrevocable trusts that allows the trustee to make such an election.

User Avatar

Wiki User

โˆ™ 2009-04-16 14:48:55
This answer is:
๐Ÿ™
0
๐Ÿคจ
0
๐Ÿ˜ฎ
0
๐Ÿ˜‚
0
User Avatar

Add your answer:

Earn +5 pts
Q: Can a family trust own shares in a S corp?
Write your answer...
Submit

Related Questions

Who owns Okeelanta Corp.?

Members of the Fanjul family own Okeelanta Corp.


What is share in company how many shares do companies own?

A company can issue shares, which is like slicing the ownership of the company up into thousands or millions of pieces. If you own 10 shares of Apple Corp (10 shares is worth about $1000 US, currently) you've got part ownership of Apple Corp. However, since Apple has several billion shares outstanding, you would only own a very small part of the company. It's up to the company to decide how many shares to sell. Of course the more shares they sell, the less each share is worth.


When a stock splits does the dividend go down?

Yes and no. Here's an example to illustrate: Let's say that you own 100 shares of XYZ Corp., which pays 50¢ per share in dividends. That means that you get $50 in dividends for your 100 shares. Now the stock splits 2-for-1. You now have 200 shares of XYZ Corp., but the dividend is now 25¢ per share. However, your total dividend for the amount of stock you own is still $50.


Can a co trustee buy quit claim property from trust and transfer into own personal trust?

Can a co trustee of a living trust quit claim property from a family living trust into her own personal trust


How many shares of stock does Russell Haley own in Thermogenesis Corp?

This is a value subject to change. You can consult the most recent Financial Report of the company to see the holdings of the major stockholders.


Can one person in a family trust borrow mortgage funds in their own name?

You need to review the provisions of the trust to determine how it operates.


Make a poem about family?

You are born in it You create your own later Those you love and trust


How many shares would you own after a 1 to 10 reverse split if you own 500 shares?

50


Can a subsidiary own shares in its holding company?

If a subsidiary own shares in holding company that would be considered as treasury.


Does BICC General own BICC Cables Corp.?

BICC Cables Corp. is a division of BICC General


What is the ticker symbol for silver?

what is the ticker symbol for silver. Answer: SLV SLV is not physical silver it is an ETF. iShares Silver Trust (the Trust) owns silver transferred to the Trust in exchange for shares issued by the Trust (Shares). Each Share represents a fractional undivided beneficial interest in the net assets of the Trust. The assets of the Trust consist primarily of silver held by the Trust's custodian on behalf of the Trust. The sponsor of the Trust is iShares Delaware Trust Sponsor LLC (the Sponsor). The trustee of the Trust is The Bank of New York Mellon (the Trustee) and the custodian of the Trust is JPMorgan Chase Bank N.A., London branch (the Custodian). The activities of the Trust are limited to issuing Baskets of Shares in exchange for the silver deposited with the Custodian as consideration, selling silver as necessary to cover the Sponsor's fee, Trust expenses not assumed by the Sponsor and other liabilities and delivering silver in exchange for Baskets of Shares surrendered for redemption. Each deposit of silver for the creation of Baskets of Shares and each surrender of Baskets of Shares for the purpose of withdrawing Trust property (including if the trust agreement terminates) must be accompanied by a payment to the Trustee of a fee. To answer your question specifically, the ETF I mentioned are designed to move based on the price of gold. And that's about 99% of the case. However, as with all ETFs, there's a minuscule difference between the price of the ETF and the underlying assets. That is due to the way ETFs trade. Large market makers trade them to hold their values close to the values of the assets they own. Sometimes the value of the ETF can be slightly different.


Do real estate investment trusts qualify for 1031 exchanges?

The trust can qualify if it sells a property and wants to buy another. The individuals who own shares in the REIT cannot use section 1031 to defer the taxes on their income or other gains from the trust.


Who own Walmart now the son dead does Sam Walton family own Walmart?

Walmart is a publicly traded corporation. This means that it is owned by the shareholders; and anyone can buy shares of stock in the company. Surely, the Walton family owns some of the stock.


Who buy shares of a company are know as its?

People who own shares in a company are known as its stockholders or shareholders.


How much shares dOes kaizer Motaung own at kaizer chiefs?

60


How do you replace shareholder?

Buy the shares they own.


Is shares an assets?

Yes you own stock


Does Chinese own Costco Wholesale Corp?

James Sinegal


What does the Fanjul family own?

Members of the Fanjul family control a number of cane sugar companies, including Flo-Sun Sugar, Okeelanta Corp., Osceola Farms, New Hope Sugar, and Kendall Sugar Cane


Should a Trustee for a family trust be paid?

Yes. There is a lot of work involved in being a trustee. The trustee needs to keep an account of all the money coming into the trust and all the money going out. The trustee must be extremely careful to not co-mingle their own funds with the funds of the trust or pay any of their own bills with trust funds. The account books for the trust should be made available to the trustor and the beneficiaries of the trust.


Who are equity shareholders?

Equity shareholders are investors that own the shares of the firm. As an investor you need to pay to get ownership of the shares. The shares are either bought from another investor, or from the firm, when the shares are issued.


Who owns majority shares at easy Jet?

Sir Stelios Haji-Ioannou and family own 34% of Easy Jet and receives the lion's share of the dividends


In the UK what percentage of people own shares?

More than 23 percent of the population in the UK own shares. The number is growing rapidly since in 1973 only 7 percent of the adult population owned shares.


Can a corporation own an s Corporation?

No, only actual people can be shareholders of an S corp. Actually, I had this same question and called the IRS because I noticed there may be a loop hole. My question to the IRS is can an LLC that opts to be taxed as a Sole Proprietor own stock in an S Corp. They affirmed that in fact an LLC taxed at the sole proprietor level can own stock in an S Corp. However, if the LLC files form 2553 can't own stock in an S Corp.


Are shares real property?

Generally, (investment) shares are personal property unless you are referring to shares in real property. If three people own real property together, their shares are real property.