An S corporation shareholder may utilize a specific type of trust to hold their shares without jeopardizing the corporation’s S status. This structure, designed to comply with Internal Revenue Code regulations, allows for flexibility in estate planning while maintaining the operational integrity of the business. The beneficiary of this specialized trust is taxed on the income generated by the S corporation shares held within it.
Using this type of trust offers several advantages. It facilitates the transfer of ownership to future generations while potentially minimizing estate taxes. Historically, the complexities of S corporation ownership restrictions often presented challenges in estate planning. This mechanism provides a solution by creating a permissible shareholder that complies with the stringent rules governing S corporations. This structure ensures business continuity and efficient wealth transfer.
