Winder Ltd. is an S corporation that is wholly owned by Juan Plowright. Because several of Juan’s ancestors have had Alzheimer’s disease, Juan is transferring many of his assets to trusts, and he is funding living wills in anticipation of future medical issues.
Juan wants to transfer his Winder stock to a trust, but he wants to keep control over its operations for as long as possible. Thus, he wants to retain a right to revoke the trust, until such time as the trustee (a Winder executive who is on good terms with Juan) and a medical professional determine that Juan no longer is competent. You have explained to Juan that this entity is a grantor trust and that there are no income-shifting or transfer-tax-saving aspects in using such a trust.
The pertinent tax issues to be addressed are summarized below.
• Does the grantor trust terminate Winder’s status as an S corporation?
• Will Winder’s S election survive Juan’s death? Under the terms of Juan’s will, the S shares will be held by his estate and not be distributed to his niece Beatriz until she reaches age 25.
All parties are residents of New Mexico. Cite and summarize your findings in an outline for a talk that you will deliver next week to your school’s Accounting Club.
Assume that Club members are knowledgeable about the taxation of S corporations and their shareholders (e.g., from Chapter 12).