Beneficiary Deemed Owner Trusts Under IRC 678(a)(1): Using BDOTs for Income Tax Savings and Simplification
Shifting Income Tax To Beneficiaries and Away From Fiduciaries, Preserving Deductions, and Choosing Estate Inclusion
Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
Intermediate
- work Practice Area
Estate Planning
- event Date
Tuesday, May 13, 2025
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
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This 90-minute webinar is eligible in most states for 1.5 CLE credits.
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This course will provide a comprehensive and practical guide to structuring a beneficiary deemed owner trust (BDOT). The panel will discuss the provisions of Section 678 in depth, detail the income tax benefits of granting beneficiaries' withdrawal rights over trust income but not principal, and distinguish BDOTs from beneficiary defective inheritor's trusts and other similar structures.
Mr. Morrow is currently the Co-Chair of the Estate Planning Group of Kelleher + Holland, LLC, based in North Barrington, Illinois, concentrating on tax, asset protection, business succession and estate planning. Previously, he was a Wealth Strategist for Huntington and US Bank’s private banking advisory groups. Other experience includes research and writing of legal memoranda for the U.S. District Court of Portland, Oregon as a law clerk. He has a Master’s Degree in Tax Law (LL.M.) and Business Administration (MBA) and is a co-author of the Tools and Techniques of Estate Planning, a 1000 page resource guide on technical estate planning topics.
Structuring a trust as a BDOT can provide significant income and transfer tax savings by taking assets out of the fiduciary tax regime while allowing beneficiaries a degree of control and access over trust income. The BDOT is a trust that grants beneficiaries the power to withdraw taxable income.
Section 678 generally provides that a trust beneficiary shall be treated as the trust owner if the beneficiary has the power to withdraw either corpus or income. Vehicles such as beneficiary deemed inherited trusts are built on the combination of a beneficiary's right to withdrawal and a limiting Crummey lapse.
Structured properly, a BDOT can preserve several crucial income tax deductions lost or limited due to the 2017 tax reform law. Also, counsel can ensure enhanced asset protection when drafting a BDOT. As with every wealth transfer mechanism, a BDOT carries some risks, particularly around the definition of trust income subject to withdrawal power. Estate planners must understand the potential risks in utilizing a trust under IRC 678.
Listen as our panel provides a practical guide to achieving income tax savings and beneficiary control over trust assets through a BDOT.
- IRC 678 provisions
- Structuring beneficiary power to withdraw income to shift taxation to a beneficiary holder
- Differentiating between BDOT income withdrawal and beneficiary deemed inheritance trust
- Specific benefits and advantages of BDOTs
- Drafting considerations and risks to avoid
The panel will review these and other relevant topics:
- How to accurately define "income" for Section 678 purposes to ensure that a beneficiary's power to withdraw income only without invading principal effectively shifts taxation from the trust to the holder of the power
- Specific tax advantages found in well-structured BDOTs
- Steps to enhance asset protection within a BDOT structure
- Using BDOTs in conjunction with other trust vehicles
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