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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

A live 90-minute CLE/CPE video webinar with interactive Q&A

This program is included with the Strafford CLE Pass. Click for more information.
This program is included with the Strafford CPE+ Pass. Click for more information.
This program is included with the Strafford All-Access Pass. Click for more information.

Tuesday, May 13, 2025

1:00pm-2:30pm EDT, 10:00am-11:30am PDT

Early Registration Discount Deadline, Friday, April 18, 2025

or call 1-800-926-7926
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This course 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 transfer 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 taxable income.

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.

Structured properly, a BDOT can preserve several crucial income tax deductions lost or limited due to 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. 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.

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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 review 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
  • 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
Co-Chair, Estate Planning Group
Kelleher + Holland

Mr. Morrow is currently the Co-Chair of the Estate Planning Group of Kelleher + Holland, LLC, based in North...  |  Read More

Additional faculty
to be announced.
Attend on May 13

Early Discount (through 04/18/25)

See NASBA details.

Cannot Attend May 13?

Early Discount (through 04/18/25)

You may pre-order a recording to listen at your convenience. Recordings are available 48 hours after the webinar. CPE credit is not available on recordings. Strafford will process CLE credit for one person on each recording. All formats include course handouts.

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

CLE On-Demand Video