If you live in Texas and want to transfer your wealth to your loved ones while keeping some control and getting tax benefits, you might want to consider a Beneficiary Defective Inheritor’s Trust (BDIT). Attorney Stuart Green, a Katy, TX high net worth estate planning lawyer, helps clients across the state understand and set up this type of trust. Let’s break down what a BDIT is, its key features, and the benefits it can offer.
What Is A BDIT?
A Beneficiary Defective Inheritor’s Trust (BDIT) is a special type of trust created by someone (the grantor) for the benefit of others, often family members. What makes a BDIT unique is that it designates one of the beneficiaries as an “inheritor,” which brings specific tax advantages and control options.
Main Features Of A BDIT
1. Defective Grantor Trust: A BDIT is designed to be a defective grantor trust for income tax purposes. This means the trust’s income and deductions are reported on the grantor’s tax return. This can shift the tax burden from the trust to the grantor, potentially lowering overall taxes.
2. Inheritor Control: The beneficiary who is named the inheritor has significant control over the trust assets. They can change trustees, alter who benefits from the trust, and make distributions. This allows the inheritor to manage the assets in a way that suits their needs.
3. Asset Protection: Assets in a BDIT are protected from creditors’ claims against both the grantor and the beneficiary. This can help keep family wealth safe from lawsuits, business issues, or other financial problems.
4. Estate Tax Savings: Properly structured BDITs can help reduce estate taxes when the grantor passes away. By removing assets that are likely to grow in value from the grantor’s estate, future gains and income can avoid estate taxes.
Benefits Of A BDIT For Texans
• Tax Efficiency: Shifting the income tax burden to the grantor, who might be in a lower tax bracket, can save a lot in taxes over time.
• Flexibility And Control: Grantors keep some control over the trust assets, making it easier to adapt to changing family needs or situations.
• Protection From Creditors: BDITs offer strong protection for trust assets, ensuring they remain available for the intended beneficiaries.
• Effective Estate Planning: By removing growing assets from the grantor’s estate, BDITs can minimize estate taxes and make transferring wealth to future generations smoother.
Estate Tax Consideration
In 2024, the federal estate tax exemption is $13.61 million per individual. However, this exemption is set to decrease in 2026 unless Congress extends it. This means planning now is crucial to take full advantage of the current higher exemption.
Setting Up A BDIT In Texas
Setting up a BDIT involves careful planning and understanding of both legal and financial aspects. Working with an experienced estate planning attorney like Stuart Green in Houston is essential. Stuart Green serves clients throughout Texas, helping them navigate the complexities of trust law and tax regulations. Regular reviews and updates of the trust may be needed to ensure it meets the grantor’s goals and stays compliant with current laws.
In summary, a Beneficiary Defective Inheritor’s Trust (BDIT) is a powerful estate planning tool for Texans looking to protect and grow their wealth for future generations. With benefits like tax efficiency, asset protection, and estate tax savings, a BDIT can be an excellent choice. To make the most of this trust, seek advice from Stuart Green Law, PLLC.