Beneficiary Defective Inheritor’s Trust (BDIT)

“A Beneficiary Defective Inheritor’s Trust (BDIT) is a third-party trust designed to provide a client with control and beneficial enjoyment of trust assets without compromising the trust’s transfer tax benefits and creditor protection. In a classic BDIT scenario, the client’s parent sets up a fully discretionary dynasty trust with the client as a trustee and primary beneficiary. The client/beneficiary makes all nontax-sensitive decisions (such as investment and managerial decisions), while an independent trustee makes all tax-sensitive decisions as well as decisions regarding discretionary distributions. The client/beneficiary has the right to remove and replace the independent trustee and is given a special or limited power of appointment over trust assets. Typically, a BDIT is funded with up to $5,000 in seed money, after which the client/beneficiary may sell his or her own assets to the trust, much like an intentionally defective grantor trust (IDGT).” 23 No. 2 Ohio Prob. L.J. NL 8.

“The Beneficiary Defective Inheritor’s Trust (“BDIT”) is especially thrilling to attorneys because it essentially creates a spendthrift trust that is funded by the beneficiary yet shielded from the beneficiary’s creditors.” Katarinna McBride, B-Dit, B-Dit: Tax Planning More Thrilling Than Michael Jackson Here’s A New Asset-Protection Strategy So Cool You Can Dance to It. Well, Almost, 99 Ill. B.J. 262 (2011)