Selected Factors in Estate Planning
by ALLEN TOMLINSON Partner, Miami Office
Presented before the Estate Planning Council of Broward County, Florida, and the Sixteenth Annual Tax Clinic of the University of Alabama—October 1962; and before the Saint Louis Estate Planning Council—December 1962
ESTATE PLANNING WHERE THE TESTATOR HOLDS SUBCHAPTER S STOCK
INCREASED USE OF SUBCHAPTER S CORPORATIONS CALLS FOR PROFESSIONAL RESPONSIBILITY IN ESTATE PLANNING
Since 1958 when Congress first amended the Code to permit certain
corporations to escape corporate income tax, there have been more and more individuals who hold stock in these so-called Subchapter
S corporations at a time when estate planning is being considered.
Most professional advisors by now know that the privilege of avoiding corporate tax carries with it a responsibility of awareness of unusual complex rules and that a misunderstanding of these rules may result in most unfortunate tax consequences.
The Subchapter S corporation with its tantalizing advantages of passing through of capital gains and operating losses and income to stockholders has influenced many taxpayers to avail themselves of these aspects sometimes for an indefinite period or for a limited period. The results of an election, continuance of the election, or voidance of the election, may have beneficial or detrimental tax effects on the stockholders concerned. The personal interests of stockholders may be adverse and in many cases unilateral acts purposely or innocently
undertaken may bring tax disaster to fellow stockholders. Professional advisors may become involved in liability suits where Subchapter S status is lost and the client claims that his resulting tax detriment was caused by inefficient or inadequate advice.
If it appears at the time of estate planning that Subchapter S stock will be held by the testator indefinitely and that he might possibly die possessed of this stock, a review of the tax aspects should be undertaken with him and his attorney.