HCE and/or ownership determination

[pmacduff]

ok - this one is new for me.  31% owner of company, retired in 2017.  After 2017 the ownership is now in the name of a "dynasty trust/owner's name" and that trust has 37.04% ownership in the company.   Owner's daughter (age 54) comes to work for the company in 2023 as CEO.  Is she considered to be highly compensated and/or key due to attribution?   (Her compensation is under the HCE comp limits.)

Thanks in advance for any insights!

 

[Lou S.]

Assuming that owners name is the beneficial owner of dynasty trust/owners name then I believe that owners name is considered to own 37.04% of the company.

For HCE determination, attribution under §318 a child (both minor and adult) are deemed to own the stock of their parent. Thus by attribution the daughter is deemed to also own 37.04%.

The results would be different for §1563 and Controlled Group determinations.

[jsample]

Derrin Watson's e-source book, "Who's the Employer" has a chapter on Attribution from Trusts and Estates.  If you can access that publication.  I apologize to the other authors who may also have something on this topic.  I don't mean to selectively promote, this is what I am familiar with.

[FPGuy]

Names can be deceiving. If this is truly a dynasty trust than it is irrevocable and attribution is according to actuarial value of beneficial interests. In other words, if D is 50% beneficiary she is deemed to own 37.04%*50% of company. If it is a revocable grantor trust that becomes irrevocable on a later date (e.g. grantor's death), grantor (assumed as D's father) is constructive owner and his ownership is attributed to D. If revocable but non-grantor than attribution same as if irrevocable. First level cut. There may be re-attribution among family members depending on other facts.