QSST - Qualified Subchapter S Trust
One of the qualifying shareholders of an S corporation is a QSST. In order for a trust to be a QSST it must meet the following requirements:
1. There is only one income beneficiary and he or she is a U.S. citizen or resident.
2. All income of the trust is required to be distributed currently to the one income beneficiary.
3. All corpus distributions must go to the one beneficiary.
4. The beneficiary’s income interest must terminate at the earlier of the beneficiary’s death or trust’s termination.
5. An election to be treated as an eligible S corporation shareholder must be made.
If there is a successor beneficiary, the QSST election remains valid unless the new beneficiary affirmatively refuses to consent.
A trust can have two different components and still qualify as a QSST trust. For example, part of the trust consisting of assets other than the S corporation stock can be treated as a simple trust while the QSST portion of the trust will be treated similar to a grantor trust. This type of situation requires a bifurcated type of trust income tax return. The trust return will report the income and deductions for all assets, excluding the S corporation, and will separately report the S corporation income and deductions similar to a grantor trust return.
The income beneficiary of the QSST signs the consent required on Form 2553. In addition, a QSST election is made. This separate election is made by the trust beneficiary within 16 days and two months of the date the stock was transferred to the trust or 16 days and two months from the beginning of the first S corporation year. If it is a newly elected S corporation, the special QSST election can be made as part of the S election on Form 2553. It is important to note that if the QSST election is not made, the S corporation election would be revoked.
- Christopher F. Beaulieu, CPA, MST
Nykiel, Carlin & Co., LTD.
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