Beneficiary Defective Irrevocable Trusts: Structuring BDIT, Minimizing Tax, Control Over Assets, Pitfalls to Avoid

A BDIT can provide significant estate and tax planning opportunities for clients under the right circumstances. BDITs allow a beneficiary to form assets while also maintaining control and protecting assets from estate taxes, creditors, and other claims. Trusts and estates counsel must understand the circumstances where BDITs will provide the best benefits to clients, key drafting considerations, and related tax implications.

BDITs are irrevocable trusts used to move appreciating assets outside of a client's estate to protect against creditors and provide potential tax savings. Provisions are included when structuring a BDIT to ensure that the trust qualifies as a grantor trust with the beneficiary being the owner of the trust assets for income tax purposes. In addition, certain transactions with BDITs can be utilized to minimize income taxes, transfer appreciating assets, and reduce estate and transfer taxes for beneficiaries.

Trusts and estates counsel must recognize key issues and pitfalls to avoid regarding (1) securing the shifting of appreciation and income tax burn, (2) structuring the sale of assets to BDITs, (3) creditor protection, and (4) administrative requirements when structuring and utilizing BDITs.

Listen as our panel discusses circumstances in which BDITs are an optimal strategy, properly drafting the BDIT to avoid adverse tax consequences, structuring sales/loans to BDITs, incorporating Crummey powers into the instrument, and other key considerations when structuring a BDIT.

1. Mechanics of BDITs; benefits and risks
2. Structuring BDITs; key provisions
3. Income tax considerations
4. Sales and loans to BDITs
5. Common challenges and mechanisms to avoid them

The panel will discuss these and other key issues:

• What items must be considered when utilizing a BDIT?
• What are the key provisions when drafting BDITs?
• How can BDITs minimize adverse tax consequences?
• How to shift appreciation and income tax burn
• What are the key considerations when structuring a sale or loan to a BDIT?
• Best practices for trusts and estates counsel

Learning Objectives

After completing this course, you will be able to:

• Recognize the tax implications and key provisions when utilizing BDITs
• Identify key tax provisions of BDITs and their impact on estate and tax planning
• Ascertain key tax risks and planning methods for sales or loans to BDITs
• Understand when a loss of a stepped-up basis for income taxes can occur upon death

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of estate, gift and trust taxation including various trusts types, the unified credit, and portability.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.