[WSBAPT] S-Corp Stock in Trust - QSST form?

Wed Aug 23 08:57:19 PDT 2023

Jane,

An irrevocable trust can still be a grantor trust.  There are certain powers, which, if held by the grantor, make the trust a grantor trust.   The most popular one in our office seems to be being able to substitute assets of equal value (double check that wording), another involves the right to change beneficiaries but with medicaid planning I wouldn't use this one, another involves ability to purchase life insurance on grantor (if memory serves me correctly).  I'm attaching an article you may find helpful along with a goggle blurb.  Let me know if you want to visit on this outside of the string.

The power of substitution is a feature of grantor trusts that allows the settlor to remove an asset or assets from the trust in exchange for an asset or assets of equivalent value<https://www.bing.com/ck/a?!&&p=334060e293ab5913JmltdHM9MTY5Mjc0ODgwMCZpZ3VpZD0yNmRiZWU1NC1jMWZjLTZjNTQtMWY5OC1mZDQ3YzA2MDZkNTQmaW5zaWQ9NTczOA&ptn=3&hsh=3&fclid=26dbee54-c1fc-6c54-1f98-fd47c0606d54&psq=power+to+substitue+assets+grantor+trust&u=a1aHR0cDovL3F1aWNrcmVhZGJ1enouY29tLzIwMTgvMDUvMzAvdGhlLXBlcmlscy1vZi10aGUtcG93ZXItb2Ytc3Vic3RpdHV0aW9uLw&ntb=1>1<https://www.bing.com/ck/a?!&&p=bdd5e6c95c7c0995JmltdHM9MTY5Mjc0ODgwMCZpZ3VpZD0yNmRiZWU1NC1jMWZjLTZjNTQtMWY5OC1mZDQ3YzA2MDZkNTQmaW5zaWQ9NTczOQ&ptn=3&hsh=3&fclid=26dbee54-c1fc-6c54-1f98-fd47c0606d54&psq=power+to+substitue+assets+grantor+trust&u=a1aHR0cDovL3F1aWNrcmVhZGJ1enouY29tLzIwMTgvMDUvMzAvdGhlLXBlcmlscy1vZi10aGUtcG93ZXItb2Ytc3Vic3RpdHV0aW9uLw&ntb=1>2<https://www.bing.com/ck/a?!&&p=8fba15dda21bb2acJmltdHM9MTY5Mjc0ODgwMCZpZ3VpZD0yNmRiZWU1NC1jMWZjLTZjNTQtMWY5OC1mZDQ3YzA2MDZkNTQmaW5zaWQ9NTc0MA&ptn=3&hsh=3&fclid=26dbee54-c1fc-6c54-1f98-fd47c0606d54&psq=power+to+substitue+assets+grantor+trust&u=a1aHR0cHM6Ly93d3cudGhldGF4YWR2aXNlci5jb20vaXNzdWVzLzIwMTkvc2VwL3RydXN0LXBsYW5uaW5nLXN3YXAtcG93ZXJzLmh0bWw&ntb=1>3<https://www.bing.com/ck/a?!&&p=965a59d094b4abecJmltdHM9MTY5Mjc0ODgwMCZpZ3VpZD0yNmRiZWU1NC1jMWZjLTZjNTQtMWY5OC1mZDQ3YzA2MDZkNTQmaW5zaWQ9NTc0MQ&ptn=3&hsh=3&fclid=26dbee54-c1fc-6c54-1f98-fd47c0606d54&psq=power+to+substitue+assets+grantor+trust&u=a1aHR0cHM6Ly9xdWlja3JlYWRidXp6LmNvbS8yMDE4LzA1LzMwL3RoZS1wZXJpbHMtb2YtdGhlLXBvd2VyLW9mLXN1YnN0aXR1dGlvbi8&ntb=1>4<https://www.bing.com/ck/a?!&&p=f988e9123f7e96f4JmltdHM9MTY5Mjc0ODgwMCZpZ3VpZD0yNmRiZWU1NC1jMWZjLTZjNTQtMWY5OC1mZDQ3YzA2MDZkNTQmaW5zaWQ9NTc0Mg&ptn=3&hsh=3&fclid=26dbee54-c1fc-6c54-1f98-fd47c0606d54&psq=power+to+substitue+assets+grantor+trust&u=a1aHR0cDovL3J1Ymlub250YXguZmxvcmlkYXRheC5jb20vMjAxMS8xMi9ncmFudG9ycy1hYmlsaXR5LXRvLXN1YnN0aXR1dGUtYXNzZXRzLmh0bWw&ntb=1>5<https://www.bing.com/ck/a?!&&p=287b960fd7d5fc15JmltdHM9MTY5Mjc0ODgwMCZpZ3VpZD0yNmRiZWU1NC1jMWZjLTZjNTQtMWY5OC1mZDQ3YzA2MDZkNTQmaW5zaWQ9NTc0Mw&ptn=3&hsh=3&fclid=26dbee54-c1fc-6c54-1f98-fd47c0606d54&psq=power+to+substitue+assets+grantor+trust&u=a1aHR0cHM6Ly9ra3djLmNvbS93cC1jb250ZW50L3VwbG9hZHMvMjAxNi8wMi9LS1dDLTMwMjU1NC12MS1Td2FwX3Bvd2Vyc18tX0RlY19fMjAxNV9UcnVzdHNfX0VzdGF0ZXMucGRm&ntb=1>. This power is held by the settlor if it is provided by the trust instrument<https://www.bing.com/ck/a?!&&p=edb5ec95c06403afJmltdHM9MTY5Mjc0ODgwMCZpZ3VpZD0yNmRiZWU1NC1jMWZjLTZjNTQtMWY5OC1mZDQ3YzA2MDZkNTQmaW5zaWQ9NTc0NA&ptn=3&hsh=3&fclid=26dbee54-c1fc-6c54-1f98-fd47c0606d54&psq=power+to+substitue+assets+grantor+trust&u=a1aHR0cDovL3F1aWNrcmVhZGJ1enouY29tLzIwMTgvMDUvMzAvdGhlLXBlcmlscy1vZi10aGUtcG93ZXItb2Ytc3Vic3RpdHV0aW9uLw&ntb=1>1<https://www.bing.com/ck/a?!&&p=e36372cb5d8bbd4eJmltdHM9MTY5Mjc0ODgwMCZpZ3VpZD0yNmRiZWU1NC1jMWZjLTZjNTQtMWY5OC1mZDQ3YzA2MDZkNTQmaW5zaWQ9NTc0NQ&ptn=3&hsh=3&fclid=26dbee54-c1fc-6c54-1f98-fd47c0606d54&psq=power+to+substitue+assets+grantor+trust&u=a1aHR0cDovL3F1aWNrcmVhZGJ1enouY29tLzIwMTgvMDUvMzAvdGhlLXBlcmlscy1vZi10aGUtcG93ZXItb2Ytc3Vic3RpdHV0aW9uLw&ntb=1>. The grantor has no power to revoke, alter, amend, or terminate the trust<https://www.bing.com/ck/a?!&&p=7d524258bf03a49aJmltdHM9MTY5Mjc0ODgwMCZpZ3VpZD0yNmRiZWU1NC1jMWZjLTZjNTQtMWY5OC1mZDQ3YzA2MDZkNTQmaW5zaWQ9NTc0Ng&ptn=3&hsh=3&fclid=26dbee54-c1fc-6c54-1f98-fd47c0606d54&psq=power+to+substitue+assets+grantor+trust&u=a1aHR0cDovL3J1Ymlub250YXguZmxvcmlkYXRheC5jb20vMjAxMS8xMi9ncmFudG9ycy1hYmlsaXR5LXRvLXN1YnN0aXR1dGUtYXNzZXRzLmh0bWw&ntb=1>4<https://www.bing.com/ck/a?!&&p=ab3e499d9bdf22b7JmltdHM9MTY5Mjc0ODgwMCZpZ3VpZD0yNmRiZWU1NC1jMWZjLTZjNTQtMWY5OC1mZDQ3YzA2MDZkNTQmaW5zaWQ9NTc0Nw&ptn=3&hsh=3&fclid=26dbee54-c1fc-6c54-1f98-fd47c0606d54&psq=power+to+substitue+assets+grantor+trust&u=a1aHR0cDovL3J1Ymlub250YXguZmxvcmlkYXRheC5jb20vMjAxMS8xMi9ncmFudG9ycy1hYmlsaXR5LXRvLXN1YnN0aXR1dGUtYXNzZXRzLmh0bWw&ntb=1>. The substitution power is exercisable in a nonfiduciary capacity, without the approval or consent of any person acting in a fiduciary capacity<https://www.bing.com/ck/a?!&&p=7da20a21f73e91a0JmltdHM9MTY5Mjc0ODgwMCZpZ3VpZD0yNmRiZWU1NC1jMWZjLTZjNTQtMWY5OC1mZDQ3YzA2MDZkNTQmaW5zaWQ9NTc0OA&ptn=3&hsh=3&fclid=26dbee54-c1fc-6c54-1f98-fd47c0606d54&psq=power+to+substitue+assets+grantor+trust&u=a1aHR0cDovL3J1Ymlub250YXguZmxvcmlkYXRheC5jb20vMjAxMS8xMi9ncmFudG9ycy1hYmlsaXR5LXRvLXN1YnN0aXR1dGUtYXNzZXRzLmh0bWw&ntb=1>4<https://www.bing.com/ck/a?!&&p=ca6c5596da863734JmltdHM9MTY5Mjc0ODgwMCZpZ3VpZD0yNmRiZWU1NC1jMWZjLTZjNTQtMWY5OC1mZDQ3YzA2MDZkNTQmaW5zaWQ9NTc0OQ&ptn=3&hsh=3&fclid=26dbee54-c1fc-6c54-1f98-fd47c0606d54&psq=power+to+substitue+assets+grantor+trust&u=a1aHR0cDovL3J1Ymlub250YXguZmxvcmlkYXRheC5jb20vMjAxMS8xMi9ncmFudG9ycy1hYmlsaXR5LXRvLXN1YnN0aXR1dGUtYXNzZXRzLmh0bWw&ntb=1>. The grantor must certify equivalent values when exercising the substitution power<https://www.bing.com/ck/a?!&&p=0c5de7b4f9dbe7e2JmltdHM9MTY5Mjc0ODgwMCZpZ3VpZD0yNmRiZWU1NC1jMWZjLTZjNTQtMWY5OC1mZDQ3YzA2MDZkNTQmaW5zaWQ9NTc1MA&ptn=3&hsh=3&fclid=26dbee54-c1fc-6c54-1f98-fd47c0606d54&psq=power+to+substitue+assets+grantor+trust&u=a1aHR0cDovL3J1Ymlub250YXguZmxvcmlkYXRheC5jb20vMjAxMS8xMi9ncmFudG9ycy1hYmlsaXR5LXRvLXN1YnN0aXR1dGUtYXNzZXRzLmh0bWw&ntb=1>4<https://www.bing.com/ck/a?!&&p=61166f454728a5e5JmltdHM9MTY5Mjc0ODgwMCZpZ3VpZD0yNmRiZWU1NC1jMWZjLTZjNTQtMWY5OC1mZDQ3YzA2MDZkNTQmaW5zaWQ9NTc1MQ&ptn=3&hsh=3&fclid=26dbee54-c1fc-6c54-1f98-fd47c0606d54&psq=power+to+substitue+assets+grantor+trust&u=a1aHR0cDovL3J1Ymlub250YXguZmxvcmlkYXRheC5jb20vMjAxMS8xMi9ncmFudG9ycy1hYmlsaXR5LXRvLXN1YnN0aXR1dGUtYXNzZXRzLmh0bWw&ntb=1>.

Diane J. Kiepe
Douglas Eden, P.S.
717 W. Sprague Ave., Suite 1500
Spokane, WA  99201
djkiepe at depdslaw.com<mailto:djkiepe at depdslaw.com>
509-455-5300

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From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of Jane Bitz
Sent: Monday, August 21, 2023 2:31 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: [WSBAPT] S-Corp Stock in Trust - QSST form?

Hi All:

I have a client that owns shares in a private bank that was established by a distant relative, over 150 years ago. The shares are all owned by relatives of the original founder of the bank. Before the client's father died, the Bank converted from a C-Corp and is now an S-Corp, subject to the ownership limitations of that form of ownership. We would need to seek permission from the bank before transferring the shares to the Trust.

Client also owns a family cabin. He wants to place the cabin property and the S-Corp shares in an irrevocable trust for the benefit of his children & grandchildren. My research shows that a "grantor" trust can be the owner of S-Corp shares, but I am unsure if an irrevocable trust would be considered a grantor trust by the IRS. The reason for the irrevocable trust is that he would like to start the 5 year look back on gifts for Medicaid qualifying in case he or his wife require long term care as they age.

Does anyone have expertise in this area that would be willing to share a form for a Qualified Subchapter S Trust language?

Thanks,
Jane.

Jane G. Bitz
Of Counsel
Wolff, Hislop & Crockett, PLLC
12209 E. Mission Ave, Suite 5
Spokane Valley, WA 99206-4824
(509) 927-9700 x126
FAX: (509) 777-1800

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