Electing Small-business Trusts An Effective Way to Plan for Succession in a Closely Held Business
March 14, 2011
Julie R. Lackner, Esq.
Planning for an estate that includes an interest in a closely-held business always requires special attention. Not only will the business likely be the culmination of a lifetime of work, it is usually a large part of the owner’s estate. If the business interest is in the form of S corporation stock, even greater care must be taken to ensure that the benefits of S corporation treatment are not lost.
An S corporation enjoys substantial income tax benefits because its shareholders are only subject to one layer of taxation, instead of the two layers imposed upon a C corporation. In order for a corporation to qualify for S treatment, a number of requirements must be met as follows:
- The corporation can have no more than 100 shareholders
- No shareholder can be a non-resident alien individual
- The corporation can have only one class of stock; and
- No shareholder can be an entity other than estates, certain charities and certain types of trusts.
The primary operating document in an estate plan is often a revocable trust, so care must be taken to ensure that the trust complies with the S corporation rules and that the beneficiaries of the trust are qualified shareholders. If either of these conditions is not met, ...
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by: Julie R. Lackner
BusinessWest
March 14, 2011
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