Owning S Corporation Shares in a Trust can be tricky business. There are three types of trusts that can qualifiy with the IRS to own shares of an S Corporation: 1. The Qualified Subchapter S Trust (QSST) 2. Electing Small Business Trust (ESBT) 3. Grantor Trust. There are different benefits and pitfalls for using each of these S Corporation Trust options. Read here for an overview of the compared characteristics of the QSST, ESBT and Grantor Trust. After selecting the correct Trust to own your S Corporation shares you must also make a timely IRS election to further qualify the trust.
Without proper trust planning and proper IRS election, your S Corporation could be recharacterized as a C Corporation. This is likely to have significant negative income tax consequences that can and should be avoided with advanced planning.
Please feel free to contact Douglas L. Kaune, Esq. to discuss your particular Estate and Trust case to determine the appropriate planning for you and your family.