S corporations are a popular entity choice and present special considerations for estate planners. There are special planning opportunities and many traps for the unwary. Serious consequences can result in increased taxes and administrative burdens. This presentation is focused on providing a general understanding of S corporations and important information to guide both estate planners and tax preparers.
Principles
- Understand S Corporation Eligibility and Ownership Requirements – Identify the eligibility rules for S corporations and permissible shareholders, including restrictions that may affect estate planning strategies and the transfer of shares.
- Coordinate Estate Planning with S Corporation Tax Requirements – Recognize the tax and administrative consequences of holding S corporation stock in an estate or trust and incorporate those considerations into effective estate planning.
- Select and Structure Appropriate Trusts – Understand the use of Qualified Subchapter S Trusts (QSSTs) and Electing Small Business Trusts (ESBTs), including their respective requirements, benefits, and limitations.
- Make Timely and Appropriate Tax Elections – Identify necessary elections and filing requirements to preserve S corporation status when shares are held by trusts, estates, or other fiduciary entities, including planning considerations for QTIP trusts.
- Address Estate Tax Liquidity and Payment Strategies – Evaluate the application of IRC Section 6166 and the potential to defer estate tax payments when an estate includes interests in a closely held S corporation.
Syllabus
- Eligibility rules for S corporations and shareholders
- Estate planning and fiduciary accounting considerations
- Qualified S Trusts and Electing Small Business Trusts
- Necessary elections
- QTIP trusts holding S corporation shares
- IRC Section 6166 and estate tax payment
