Beneficiary Defective Inheritor’s Trust As An Efficient Planning Tool

Wealth Strategies Journal discusses planning options to most efficiently grow an estate of $20 million with the return of the estate tax in the declining economy. Generally, estates should reduce expenses and bring in enough income to break even without liquidating significant assets until the next economic growth cycle arrives. Then, inflation will lead to the growth of many assets within the estate.

One newer option to protect current value of assets is a Beneficiary Defective Inheritor’s Trust (BDIT). BDITs are created when a third party sets up an inheritor’s trust, naming the client as the beneficiary. The income of these trusts is taxed to the grantor of the trust, which reduces the size of the estate that will need to be transferred and then the transfer taxes that would apply as well. The main advantage of this option is that it looks to maximize assets that the client will inherit in the future.

BDITs are also a good planning tool for moderate estates. They allow a client to move assets into a trust, still have power over the assets as a trustee while receiving income from the assets as a beneficiary, all without being viewed as the grantor. Compared to other asset protection techniques available, BDITs often offer the same benefits and more.

See Robert L. Moshman, Resurrecting the $20-Million Estate: Don’t Forget About the BDIT!, Wealth Strategies Journal, Nov. 26, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.