A Washington Qualified Subchapter-S Trust for the Benefit of a Child with a Crummy Trust Agreement is a specialized type of trust that offers several advantages for families in Washington state. This trust is specifically designed to leverage the tax benefits of a Subchapter-S corporation and provide financial support for a child through a carefully drafted Crummy trust. In Washington, a Qualified Subchapter-S Trust (SST) allows individuals to hold shares of an S corporation as part of a trust structure, while still maintaining the corporation's favored tax status. By using an SST, the trust becomes the shareholder of the S corporation, and the income generated by the corporation passes directly to the trust, bypassing taxation at the corporate level. The SST structure becomes particularly appealing when it is established for the benefit of a child. By implementing a Crummy trust within the SST, parents can contribute assets to the trust for the child's benefit while simultaneously making use of the annual gift tax exclusion. Under the Crummy trust provision, the child beneficiary is granted the right to withdraw the gifted funds for a limited period, typically 30 days, after the contribution is made. This withdrawal right ensures that the gift is considered a present interest and qualifies for the annual gift tax exclusion. By combining the advantages of the Washington SST and the Crummy trust, parents can create a tax-efficient estate planning strategy. This structure allows for income tax deferral, potential estate tax savings, and the ability to gradually transfer wealth to the child beneficiary while minimizing gift taxes. It's important to note that there are no specific subtypes or variations of the Washington Qualified Subchapter-S Trust for the Benefit of a Child with a Crummy Trust Agreement. However, the trust can be tailored to meet the specific needs and goals of each family, taking into consideration factors such as the child's age, the desired timeline for wealth transfer, and the amount of control parents wish to maintain over the trust assets. In conclusion, a Washington Qualified Subchapter-S Trust for the Benefit of a Child with a Crummy Trust Agreement offers an effective and tax-efficient strategy for parents in Washington state seeking to provide financial support for their child while minimizing tax consequences. By leveraging the benefits of an SST and incorporating a Crummy trust, families can create a customized wealth transfer plan to secure their child's future.
Washington Qualified Subchapter-S Trust for Benefit of Child with Crummey Trust Agreement
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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.
Thus, if a grantor wants to leave S corp stock to a trust for her family members after her death without terminating the company's election, the trust must qualify either as an electing small business trust (ESBT) or as a qualified subchapter s trust (QSST).
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.
Net investment income tax of a QSST 1411(a)(2)). The tax also applies to QSSTs to the extent the net investment income is retained in the trust. Although the S corporation income of a QSST is taxed to the individual income beneficiary, capital gain on the sale of the S corporation stock is taxed at the trust level.
The benefit of a QSST from a tax perspective is that the income beneficiary is treated as the deemed owner over the portion of the trust that consists of stock in the S corporation. This means that the trust's allocable portion of the S corporation income is reported directly by the beneficiary.
A QSST is one of several types of trusts that are eligible to hold stock in an S corporation. Its two primary requirements are (1) there can be only one beneficiary of the trust and (2) all income must be distributed at least annually (Sec.
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.
The QSST may be useful for estate planning purposes. It may also be useful for holding S stock for the benefit of a minor or incompetent. Individuals, estates, and certain trusts are subject to a net investment income tax, which is an additional tax of 3.8%.
This trust type is established by your will. It's an eligible S corporation shareholder for up to two years after the transfer and then must either distribute the stock to an eligible shareholder or qualify as a QSST or ESBT.