Presenting a live 90-minute teleconference with interactive Q&A S-Corp Trusts in Estate Planning: Drafting Grantor, Testamentary, Qualified Sub S and Electing Small Business Trusts Navigating Interest Expense and NII Issues and Overcoming Challenges to Maintain Tax Attributes TUES DAY, JULY 29, 2014 1pm East ern | 12pm Cent ral | 11am Mount ain | 10am Pacific Today’s faculty features: Langdon T . Owen, Jr., S hareholder, Parsons Kinghorn Harris , S alt Lake City Louis Vlahos, Partner, Farrell Fritz , Uniondale, N.Y . The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Some S-Corporation Estate Planning and Estate Administration Issues Langdon Owen Parsons Kinghorn Harris, pc (801) 363-4300 lto@pkhlawyers.com
T he S-E le c tio n (i) no mo re tha n 100 sha re ho lde rs, (ii) a ll sha re ho lde rs a re individua ls (o the r tha n no nre side nt a lie ns o r, in mo st c a se s, the ir spo use s), de c e de nts’ e sta te s, b a nkruptc y e sta te s, c e rta in limite d kinds o f trusts, c e rta in c ha ritie s, o r the c o rpo ra tio n’ s sto c k ma y b e 100% o wne d b y a no the r S-c o rpo ra tio n (iii) the re is o nly o ne c la ss o f sto c k. As lo ng a s the e c o no mic s a re the sa me (suc h a s rig hts to divide nds o r liq uida ting distrib utio ns), the re ma y b e diffe re nt c la sse s va rying o nly a s to vo ting rig hts. 6
Use o f T rusts, g e ne ra lly Mo re re stric tive tha n with L L Cs F o rc e d to fit the pla n to the b e st a va ila b le trust type F a ilure to pla n pro pe rly c a n de stro y the S- e le c tio n Ofte n will ha ve a g re e me nts a mo ng sha re ho lde rs to re stric t tra nsa c tio ns je o pa rdizing the e le c tio n 7
T ype s o f a va ila b le trusts a vo ting trust a g ra nto r trust a trust with a de e me d o wne r o the r tha n the g ra nto r a will re c ipie nt trust, tha t is, a te sta me nta ry trust re c e iving the sto c k pursua nt to the will c e rta in ta x-e xe mpt trusts suc h a s fo r q ua lifie d pla ns o r fo r c e rta in c ha ritie s a q ua lifie d sub c ha pte r S trust o r QSST a n e le c ting sma ll b usine ss trust o r E SBT 8
No ne le c tive T rusts Vo ting trust: ma y b e use ful in e sta b lishing ma na g e me nt c o ntro l o ve r the c o rpo ra tio n Gra nto r trusts: trusts whe re so me sig nific a nt po we r is re se rve d b y the g ra nto r (o r the g ra nto r’ s spo use ) the g ra nto r is ta xe d o n the trust’ s inc o me 9
Use ful Gra nto r T rust T ype s re vo c a b le e sta te pla nning trusts “de fe c tive ” irre vo c a b le trusts inte ntio na lly c re a te d to ha ve o ne o r mo re o f the pro sc rib e d po we rs in the g ra nto r; de e me d o wne r trusts a re tre a te d simila rly g ra nto r-re ta ine d a nnuity trusts o r g ra nto r- re ta ine d unitrusts (GRAT s a nd GRUT s) c ha rita b le re ma inde r trusts, ho we ve r, c a nno t b e g ra nto r trusts a nd still q ua lify 10
Gra nto r trust e ffe c ts Ho lding pe rio ds fo r no n e le c tive trusts g ra nto r trusts ma y c o ntinue to ho ld the S-c o rp sto c k fo r up to two ye a rs a fte r the de a th o f de e me d o wne r, the g ra nto r. A will re c ipie nt trust o nly q ua lifie s a s a sha re ho lde r fo r two ye a rs b e g inning o n the da y the sto c k is tra nsfe rre d to it fro m the e sta te . I f a de c e de nt’ s e sta te is unre a so na b ly pro lo ng e d, the e sta te is de e me d te rmina te d a fte r the e xpira tio n o f a re a so na b le pe rio d fo r a dministra tio n. T he e sta te is the n tre a te d a s a trust. 11
Gra nto r T rust E ffe c ts, c o nt’ d Re sults if no t distrib ute d time ly I f trust is no t dispo se d o f prio r to e nd o f the two -ye a r pe rio d, the S e le c tio n will b e disq ua lifie d. Ma y time ly e le c t a fo rm o f e le c tive trust to ma inta in S e le c tio n T he e sta te o f the g ra nto r (de e me d o wne r) will b e tre a te d a s the sto c kho lde r prio r to distrib utio n. 12
E le c tive T rusts QSST o r E SBT trusts re q uire the filing o f spe c ia l e le c tio ns QSST is, e sse ntia lly, a sing le b e ne fic ia ry trust ma rita l trusts mino r g ift trusts c ha rita b le re ma inde r trusts Othe r trusts fo r sing le b e ne fic ia rie s 13
QSST Qua lific a tio n a c tua lly distrib ute inc o me to o nly o ne c urre nt inc o me b e ne fic ia ry, o r b e re q uire d to distrib ute to b ut o ne b e ne fic ia ry inc o me b e ne fic ia ry must b e a U.S. Citize n o r re side nt during the life o f the c urre nt inc o me b e ne fic ia ry, the re will b e b ut o ne c urre nt inc o me b e ne fic ia ry (se pa ra te sha re s c a n wo rk) 14
QSST Qua lific a tio n, c o nt’ d must re q uire a ny princ ipa l distrib ute d during the c urre nt inc o me b e ne fic ia ry’ s life time must o nly g o to tha t b e ne fic ia ry inc o me inte re st te rmina te s o n the e a rlie r o f de a th o r the te rmina tio n o f the trust distrib utio n o f the e ntire trust to the c urre nt b e ne fic ia ry if the trust te rmina te s while the c urre nt inc o me b e ne fic ia ry is a live 15
QSST E le c tio n Curre nt inc o me be ne fic iar y must time ly e le c t QSST tre a tme nt, g e ne ra lly within two mo nths a nd 16 da ys a fte r the sto c k is tra nsfe rre d to the trust, o r a fte r the S e le c tio n is e ffe c tive if the S e le c tio n is ma de while the trust ho lds the sto c k se pa ra te QSST e le c tion is re quire d for e ac h S- c orp he ld b y the trust c o ntinue s in e ffe c t fo r suc c e ssive b e ne fic ia rie s, unle ss the b e ne fic ia ry a ffirma tive ly re fuse s c o nse nt c urre nt inc o me b e ne fic ia ry ma y unila te ra lly te rmina te the S e le c tio n b y re fusing c o nse nt; o the r sha re ho lde rs c a nno t (so lve b y a g re e me nt) 16
Slide Intentionally Left Blank
E SBT E SBT is a multiple b e ne fic ia ry trust ma y sprinkle o r a c c umula te inc o me c re dit-she lte r trusts g ra nto r trusts with multiple b e ne fic ia rie s whic h c o ntinue a fte r the de a th o f the g ra nto r 18
E SBT Qua lific a tio n o nly individua ls, e sta te s, o r c e rta in c ha ritie s a s b e ne fic ia rie s Be ne fic ia rie s inc lude pre se nt, re ve rsio na ry, o r re ma inde r b e ne fic ia rie s o the r trusts a re lo o ke d thro ug h a nd the ir b e ne fic ia rie s a re tre a te d a s the b e ne fic ia rie s po te ntia l re c ipie nts unde r a n e xe rc ise o f a po we r o f a ppo intme nt a re no t tre a te d a s b e ne fic ia rie s (fo r this purpo se ) until e xe rc ise d no nre side nt a lie ns a re pe rmitte d a s e lig ib le , b ut no t a s po te ntia l c urre nt b e ne fic ia rie s (se e b e lo w) No ta x e xe mpt trusts o r CRAT s o r CRUT s 19
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