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

Note: CPE credit is not offered on this program

Recording of a 90-minute CLE webinar with Q&A

Conducted on Thursday, August 13, 2020

Recorded event now available

or call 1-800-926-7926
Program Materials

This webinar 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.

Description

Structuring a trust as a BDOT can provide significant income and gift 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 both taxable and trust accounting income while leaving the trust principal inaccessible.

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. However, planning counsel can achieve more significant benefits by limiting the withdrawal power to trust income.

Structured properly, a BDOT can preserve several crucial income tax deductions lost or limited as a result of 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, and 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.

READ MORE

Outline

  1. IRC 678 provisions
  2. Structuring beneficiary power to withdraw income to shift taxation to a beneficiary holder
  3. Differentiating between BDOT income withdrawal and beneficiary deemed inheritance trust
  4. Specific benefits and advantages of BDOTs
  5. Drafting considerations and risks to avoid

Benefits

The panel will discuss 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 that are not present in other trust structures
  • Steps to enhance asset protection within a BDOT structure
  • Using BDOTs in conjunction with other trust vehicles

Faculty

Morrow, Edwin
Edwin P. Morrow, III, J.D., LL.M. (Tax), MBA, CFP, CM&AA
Regional Wealth Strategist
U.S. Bank Private Wealth Management

Mr. Morrow is currently a regional wealth strategist for U.S. Bank Private Wealth Management based in Cincinnati, Ohio...  |  Read More

Access Anytime, Anywhere

Strafford will process CLE credit for one person on each recording. All formats include program handouts.

To find out which recorded format will provide the best CLE option, select your state:

CLE On-Demand Video

Download