Trusts Holding S Corporation and Partnership Interests: Legal and Tax Considerations

Using trusts to hold interests in partnerships and S corporations provides significant tax advantages under current tax law. However, structuring these trusts involves a high level of complexity requiring an in-depth knowledge of applicable federal and state rules that must be considered.

Succession, shareholder agreements, valuation, post-mortem planning, and basis considerations are some of the challenges of developing an estate plan for owners of S corporations and partnerships. Holding S corporations and partnerships in a trust can provide significant tax and estate planning benefits, but structuring them incorrectly may disrupt cash flow and result in unforeseen tax consequences.

For estate planning purposes, trusts and estates counsel must recognize the impact of eligibility rules for S corps and partnerships, key tax provisions, and reporting and administrative challenges to implement methods to minimize tax liability and achieve the goals of an estate plan.

Listen as Mark A. Kassens, CPA, Shareholder at Brady Ware, provides techniques for drafting the various types of trusts, including grantor, testamentary, QSSTs, and ESBTs, as well as offers methods to overcome common tax and estate planning challenges involving trusts holding S corp and partnership interests.

1. Advantages and disadvantages of trusts holding S corp and partnership interests
2. Qualified shareholders and eligibility rules for S corps
3. Challenges of S corp ownership interests in estate planning
4. Evaluating current trust structures to see if they still achieve optimal tax benefits
5. Application of Section 199A and the 20 percent deduction on qualified pass-through business income
6. Transfers of S corp and partnership interests
7. Navigating reporting and administrative issues

The panelist will review these and other key issues:

• Critical guidance on qualified shareholders of S corporations for trusts and estates counsel
• Principal challenges of S corp and partnership interests in estate planning and methods to overcome them
• Identifying issues in current trust structures and making modifications for optimal tax benefits
• The application of the 20 percent deduction on qualified pass-through business income
• Differences in tax treatment between an ESBT and a QSST holding S corporation stock
• Essential considerations for transfers of S corporation and partnership interests

Learning Objectives

After completing this course, you will be able to:

• Recognize key tax and estate planning issues stemming from trusts holding partnership interests
• Identify requirements for trusts to hold S corporation stock
• Determine how the pass-through income deduction applies to trusts holding S corporation ownership interests
• Recognize other tax provisions that create opportunities and challenges for estate planners structuring S corporation trusts
• Discern critical drafting components for trusts holding S corporation stock

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and sole proprietorships, qualified business income, net operating losses and loss limitations; familiarity with net operating loss carry-backs, carry-forwards and carried interests.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.