Beneficiary Defective Inheritor’s Trusts

A Beneficiary Defective Inheritor’s Trust, or B-DIT, allows a beneficiary to fund his or her own spendthrift trust, while shielding the trust assets from creditors at the same time. Typically, a parent or grandparent of the primary beneficiary will provide the initial funding for the trust. When the third party settles the trust, the trust is then shielded from the beneficiary’s creditors.

The beneficiary can act as trustee, though it is recommended that more than one trustee be named. The beneficiary can then participate in the trust’s transactions, and his or her participation will be invisible for income tax purposes. At the beneficiary’s death, the remainder will pass to multiple generations, possibly with no estate or generation skipping tax.

For more information on B-DITs, see Katarinna McBride, B-DIT, B-DIT: Tax Planning More Thrilling than Michael Jackson, 99 Illinois Bar Journal 233 (May 2011).