Can a Trust Own an LLC S-Corp?
While a trust may own an LLC, only certain trusts may own an S-corp business, regardless of whether it’s an LLC or a corporation. Here’s what to know:
What is an S-corp?
“S-corp” is a tax status issued by the IRS to qualifying business entities. In order to qualify for S-corp status, a business entity can be a corporation or an LLC, but must meet basic criteria:
- Be a domestic corporation or LLC
- Have no more than 100 shareholders
- Be owned by only individuals, estates, exempt organizations, or certain trusts
- Contain no nonresident alien shareholders
- Have only one class of stock
Corporations or LLCs that wish to apply for S-corp status can do so by filing Form 2553 with the IRS.
For more information about S-corps, check out Northwest’s page: What is an S-Corp?
Who can own an LLC S-corp?
There are very few restrictions when it comes to who can own an LLC. An LLC may be owned by an individuals, a corporation, a foreign entity, another LLC, or even a trust. But while a trust may own an LLC, and an LLC may elect S-corp status, not all types of trusts may own an S-corp… make sense? Yeah, it’s confusing.
To put it simply: not all trust-owned LLCs can get S-corp status.
What types of trusts can get S-corp status?
The IRS has strict guidelines for the types of trusts that may hold ownership in business entities with S-corp status (described in detail here: U.S. Code § 1361 (c)(2)(A)). In essence, four types of trusts may be qualified to own S-corp businesses:
- Grantor trusts
- Testamentary trusts
- Qualified Subchapter S Trusts (QSSTs)
- Electing Small Business Trusts (ESBTs)
However, it’s important to note that while each of these types of trusts MAY be qualified to own an S-corp business, that doesn’t guarantee that they can. Trusts can be very nuanced, and the IRS can be very strict. Before you head into a trust-owned LLC S-corp, it’s a good idea to speak with a business attorney or tax adviser to make sure your business structure is sound.
