Selling S Corporation Stock to a Trust

Christopher J. C. Jones (attorney, Charlotte, NC) and Justin S. Steinschriber (attorney, Charlotte, NC) recently published their article entitled Income Tax Considerations in Structuring the Sale of S Corporation Stock to a Trust, Prob. & Prop., July-August 2010, at 55.

An excerpt from the introduction is below:

For owners of closely held businesses, such as S corporations, the sale to an intentionally defective grantor trust (IDGT) has developed into one of the most effective techniques to freeze the value of the owner’s estate and transfer any future appreciation in the S corporation to future generations. In the midst of an extended recession that has seen asset values fall sharply across all asset classes, including closely held S corporations, and with interest rates near historic lows, many estate planning attorneys have advised clients that, notwithstanding the current uncertainty regarding the estate, gift, and generation-skipping transfer taxes in 2010, now is the time to take advantage of this tremendous wealth transfer opportunity because most agree that estate and generation-skipping transfer taxes will return in some form in either 2010 or 2011. This article will briefly outline the basic structure of a sale of S corporation stock to an IDGT transaction, but the article’s main focus will be on the often overlooked income tax consequences of selecting among the various types of trusts that can own S corporation stock.