Qualified Subchapter S Trust (QSST)

Qualified subchapter S trusts (QSST) are frequently used as an estate planning tool. These trusts allow holders of subchapter S stock to transfer ownership to a single beneficiary. This is in contrast with an electing small business trust (ESBT), which allows for multiple beneficiaries. Both QSST and ESBT can help maintain the integrity of a subchapter S corporation when a shareholder passes away and the shares are transferred to an ineligible trust.

In order for a trust to be a QSST, it must meet the following conditions:

• The trust must have only one income beneficiary.

• One hundred percent of the subchapter S income must be distributed to the income beneficiary at least annually.

• Corpus distribution (distribution of assets in the trust) can only be made to the income beneficiary as long as they are alive.

• Income will be paid to the income beneficiary until the earlier of their death or termination of the trust.

• If the trust terminates, and the income beneficiary is still alive, all of the trust's assets must be distributed to the income beneficiary.

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