Pub. 2 2012-2013 Issue 1

12 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S REACHYOUR TARGET AUDIENCE AFFORDABLY Find out how targeted advertising can produce real, measurable results for your organization. Dani Gorden, Advertising Sales 801.746.4003 | dani@thenewslinkgroup.com ADVERTISE AND GET RESULTS one shareholder when structured correctly and an election is made. However, qualified S corporation shareholders cannot be nonresident aliens, foreign trusts or entities like LLCs or partnerships. Charitable organizations can qualify as S corpo- ration shareholders, but not some charitable trusts. A deceased shareholder’s estate or revocable trust is a qualified shareholder only for two years following the shareholder’s death. At the end of those two years, the estatemust distribute S corporation stock and the recipient person or trust must be a qualified shareholder. Therefore, estate planning for S corporation shareholders should also consider the requirements of the bank’s holding company tax status in the estate administration. Only two kinds of trusts can be qualified S shareholders. This can be tricky when trusts are desired recipients of the bank stock. Each trust must qualify as either an electing small busi- ness trust (ESBT) or a qualified Subchapter S Trust (QSST). The requirements of each type of trust are different and encompass both the trust provisions (which are typically irrevocable after a shareholder’s death) and an election that must be made by the trustee or all trust beneficiaries after the shareholder’s death. The income tax ramifications of income and other distributions from the bank holding company are also different. Which type of trust will work for any shareholder and his/her family should be determined by a tax and estate planning attorney in conjunc- tion with the corporate requirements, the shareholder’s desires and family dynamics. Trusts are desired beneficiaries of estates in most cases be- cause they can protect young beneficiaries from early distribu- tions of assets, protect the assets from creditors and divorcing spouses, lock in disposition after a surviving spouse’s death and can have transfer tax protections for the beneficiaries and their children. However, incorporating the S corporation shareholder requirements into a trust that also accomplishes other planning intentions requires a document designed and drafted specifically to integrate such legal, tax and family requirements. Don’t try this at home! Regardless of the corporate tax status of your bank hold- ing company, state law, corporate bylaws and shareholder agreements can further restrict the transfer of stock to new owners. Therefore, a review of the applicable restrictions is advised before preparing your will or trust agreement be- queathing your bank stock to any individual or trust. Leaving your bank ownership to your spouse, when the spouse is not a permitted or approved shareholder, can potentially void the transfer, terminate an S election, trigger a buyout provision or leave your spouse as an “assignee” with only economic benefits and no rights to access to corporate records, attend shareholder meetings or vote. Creating a succession plan that will work for your family and the bank will be unique for each bank holding company and each owner. This is not a DIY project!  For further assistance, contact Constance D. Smith at Fairfield and Woods, P.C. csmith@fwlaw.com or (303)894-4474  ESTATE PLANNING – continued Creating a succession plan that will work for your family and the bank will be unique for each bank holding company and each owner. This is not a DIY project!