Putting S Corporation Stock Into Your Trust

July 15, 2013 - Posted by: admin - In category:

taxes - No Responses

Can you put S corporation trust stock into your trust?  Very important question.  Read on for the answer.

When establishing a trust, it is always important to consider what assets are being put into said trust.  While most assets can be put into a trust, sometimes it is better not to put certain assets into a trust.  Further, how certain property is put into a trust, and how long it stays there, is also an important consideration in many instances.


What kind of assets fit into this type of discussion?  Great question, glad you asked.  Lets take stock ownership of an “S-Corp.” as an example.  An S corporation has very important pass-through and asset protection features which can be important to the beneficiaries who will receive ownership of the entity.  However, only certain persons and entities can be S corporation shareholders under the applicable tax code provisions and IRS regulations.  A corporation will not qualify as an S corporation, or will lose its S corporation status, if it has an ineligible shareholder.  In order to be eligible, the shareholder of an S corporation must be an individual, a decedent’s estate, the estate of an individual in bankruptcy, a qualifying trust or certain tax-exempt organizations.  A partnership, such as Family Limited Partnership or Family Limited Liability Company (taxed as a partnership) is NOT an ineligible S corporation shareholder.  A single-member LLC that is disregarded for tax income purposes may hold S corporation stock if its member is an eligible shareholder.  Non-resident aliens are not eligible shareholders.

To simply all of that–the typical revocable living trust that our firm puts together for clients is an eligible S corporation shareholder, at least during the life of the grantor and for 2 years following the death of said grantor.  In the event there is a need for the trust to hold the S corporation stock for more than 2 years following the death of the grantor, additional steps may be required, including filing certain forms with the IRS.

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