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Articles : The Beneficiary’s Defective Inheritor’s Trust: Is It Really Defective?

The Beneficiary’s Defective Inheritor’s Trust: Is It Really Defective?

By: Avi Z. Kestenbaum and Jeffrey A. Galant

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Over the last few years, there have been several articles written, as well as the issuance of Private Letter Rulings, regarding the potential benefits and tax consequences of the Beneficiary Defective Inheritor’s TrustTM.  Briefly, the BDIT is an irrevocable trust, which is structured to be a “grantor trust” with respect to the beneficiary and not the grantor, yet allows the trust assets to be accessible to the beneficiary in this “best of both worlds” planning approach.

While Private Letter Rulings 200949012 and 201029010 clearly gives credibility to the possibility of creating this trust for income tax purposes, it is the authors’ contention that for practical purposes it would be difficult, if not impossible, to create a comprehensive estate plan utilizing a BDIT in most circumstances.

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