Post by Sapphire Capital on Oct 24, 2008 20:46:23 GMT 4
GPS: Navigation: Mapping the Use of Trusts in S Corporations
David R. Nave
Pitcairn Financial Group; Montgomery County Community College - Central Campus
Journal of Passthrough Entities, Vol. 11, No. 4, 2008
Abstract:
As we celebrate the golden anniversary of the S corporation, it is an appropriate time to check our "GPS" to provide a roadmap of trusts eligible to hold S corporation shares in 2008 and the potential "potholes" that are associated with these entities. This article examines the use of grantor trusts in S corporations with a detailed discussion of IDGTs and GRATs. It discusses and demonstrates potential planning opportunities using IDGTs and GRATs. It discusses the use of grantor charitable lead trusts and through a detailed example demonstrates how this strategy may achieve a shareholders philanthropic goals. A discussion of the issues with voting trusts and estates as shareholders. Finally a detailed discussion of QSSTs and ESBTs. The advantages and disadvantages of each. The use of a nongrantor charitable lead trust with an ESBT.
It has been fifty years since the enactment of Subchapter S. Numerous S corporations have been created and to some extent are still the entity of choice to family controlled businesses. Creative planning for the shareholders almost always involves the use of trusts. While we have come a long way in fifty years, we still have many "potholes" to avoid when using trusts in an S corporation.
The consequences of a trust not being an eligible shareholder can be significant. Not only will the trust be ineligible to hold S stock but the corporation's S election will terminate. Therefore, it is important for the tax advisor to turn on his "GPS" and navigate the road map of trusts as part of the planning process.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1271767
David R. Nave
Pitcairn Financial Group; Montgomery County Community College - Central Campus
Journal of Passthrough Entities, Vol. 11, No. 4, 2008
Abstract:
As we celebrate the golden anniversary of the S corporation, it is an appropriate time to check our "GPS" to provide a roadmap of trusts eligible to hold S corporation shares in 2008 and the potential "potholes" that are associated with these entities. This article examines the use of grantor trusts in S corporations with a detailed discussion of IDGTs and GRATs. It discusses and demonstrates potential planning opportunities using IDGTs and GRATs. It discusses the use of grantor charitable lead trusts and through a detailed example demonstrates how this strategy may achieve a shareholders philanthropic goals. A discussion of the issues with voting trusts and estates as shareholders. Finally a detailed discussion of QSSTs and ESBTs. The advantages and disadvantages of each. The use of a nongrantor charitable lead trust with an ESBT.
It has been fifty years since the enactment of Subchapter S. Numerous S corporations have been created and to some extent are still the entity of choice to family controlled businesses. Creative planning for the shareholders almost always involves the use of trusts. While we have come a long way in fifty years, we still have many "potholes" to avoid when using trusts in an S corporation.
The consequences of a trust not being an eligible shareholder can be significant. Not only will the trust be ineligible to hold S stock but the corporation's S election will terminate. Therefore, it is important for the tax advisor to turn on his "GPS" and navigate the road map of trusts as part of the planning process.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1271767