What is a qualified Subchapter S trust election?
What is a qualified Subchapter S trust election?
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.
Can an S corp be a beneficiary of a trust?
Only estates, individuals, and certain trusts can own shares in an S corp. However, the number of beneficiaries of an electing small business trust (ESBT) or voting trust are all counted as shareholders for an S corp. If you fail to comply with these strict ownership rules, your S corp. will lose its tax advantages.
What is the difference between ESBT and QSST?
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. It cannot be a QSST; It cannot be a tax-exempt trust; and.
How is QSST status elected?
1361(d)(3), for a trust to qualify as a QSST, its terms must require that during the life of the current income beneficiary, the trust will have only one income beneficiary; and all of the trust’s accounting income must either be required by the terms of the trust instrument to be distributed, or actually be …
Is a Qualified Subchapter S trust irrevocable?
Only estates and certain types of trusts can own shares of an S corporation. 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.
What is the purpose of an ESBT?
An electing small business trust (ESBT) within the meaning of section 1361(e) is treated as two separate trusts for purposes of chapter 1 of the Internal Revenue Code. The portion of an ESBT that consists of stock in one or more S corporations is treated as one trust.
What happens to an S corporation when the owner dies?
Upon the Death of an S Corporation Owner. However, in an S Corporation when the owner dies, the shareholder heirs only receive a step-up of basis in the corporate stock equal to the fair market value of the company at the date of death.
What type of trusts can hold S Corp stock?
In general, living trusts and testamentary trusts may hold S corporation stock only for two (2) years after the date of death of the grantor. After death, the trusts become ineligible shareholders and the corporation will lose its S-election due to the Grantor’s death.
What is the purpose of a QSST?
Since the purpose of the QSST is to effectively treat the current income beneficiary as the owner of the S Corporation stock, a net passive activity loss from the S Corporation to the QSST should be passed through to the current income beneficiary who will then apply the passive activity rules to his or her own …
How do you elect to be ESBT?
To qualify as an ESBT, a trust must meet only three requirements:
- All of the trust’s beneficiaries must be individuals or estates eligible to be S shareholders.
- No interest in the trust may be acquired by purchase; these interests must be acquired by gift, bequest, etc.
- The Trust must elect to be an ESBT.
Can a QSST be a complex trust?
Under this scenario, the subtrust would elect QSST status, while the original trust could continue to be a complex trust. If the original trust has multiple beneficiaries, then a separate S corporation subtrust would need to be created for each beneficiary.
What are qualified Subchapter’s trusts and electing small trusts?
Welcome to the world of Qualified Subchapter S Trusts, or QSSTs. In order for a trust to be a QSST, it must meet the following conditions: The Subchapter S income must be distributed 100 percent to the trust’s income beneficiary.
Who are the beneficiaries of an s trust?
All beneficiaries must be individuals, estates, or charitable organizations. The S stock may not be purchased by the trust. The trust may not be a QSST or a tax-exempt trust. Each potential income beneficiary counts toward the total allowable number of shareholders any S corporation may have.
Can a qualified Subchapter’s Trust hold stock in an S corporation?
One of these, the qualified Subchapter S trust (QSST), is modeled after the grantor trust. It is eligible to hold stock in an S corporation, and, under the S corporation rules, it is treated as a Subpart E trust (Sec. 1361(d); Regs.
Can a QSST have more than one beneficiary?
A QSST may only have one income beneficiary, who must be a U.S. citizen or resident, during the lifetime of that beneficiary. If the trust beneficiary is a nonresident alien (a citizen of another country who doesn’t live in the U.S.) or a corporation, that trust can’t be a QSST. One trust instrument may create multiple QSSTs.