The Holy Grail: Beneficiary Defective Inheritor’s Trust (BDIT)
The Holy Grail: Beneficiary Defective Inheritor’s Trust (BDIT)
The ultimate paradox: How to sell your assets to a trust you control, enjoy the income, yet legally “own nothing” in the eyes of the IRS and creditors.
Executive Summary
- The Dilemma: Normally, if you transfer assets to a trust and retain control (Trustee) or access (Beneficiary), the IRS puts those assets back into your taxable estate. You usually have to choose: Control or Protection?
- The BDIT Solution: The BDIT allows you to have BOTH.
1. Setup: A third party (e.g., Parent) sets up the trust with a nominal gift ($5,000). They are the Grantor, not you.
2. Sale: You “Sell” your business/assets to the trust. Since you sold them (didn’t gift them), you retain no “retained interest.”
3. Role: You can serve as the Investment Trustee and the Primary Beneficiary. - The Result: The assets grow outside your estate (Estate Freeze), are protected from lawsuits (Asset Protection), yet you can manage the investments and spend the trust distributions.
The “Crummey” Switch
Technical Magic: The trust grants you a generic power to withdraw the initial $5,000 (Crummey Power). This lapses after 30 days. This technicality makes YOU the owner for Income Tax purposes (you pay the tax, letting the trust grow tax-free), but NOT the owner for Estate Tax purposes. This is the “Defective” part.
Mechanic: The “Have Cake & Eat It” Loop
Control
Investment Trustee
Access
Beneficiary
Protection
Asset Isolation
Freeze
Future Growth
Simulation: Entrepreneur with Pre-IPO Stock ($10M Valuation)
Wealth Outcome after IPO (10x Growth)
| Feature | IDGT (Standard) | BDIT (Advanced) |
|---|---|---|
| Creator (Grantor) | You (The Parent) | Third Party (e.g., Parent/Friend) |
| Beneficiary | Your Children | YOU (The Client) |
| Key Advantage | Passing wealth down | Protecting wealth for YOU |
“The BDIT solves the rich person’s biggest dilemma: ‘I want to protect my assets, but I’m not ready to give them away yet.’ With a BDIT, you give away the ownership title, but you keep the remote control.”
Essential Resources
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