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Charleston Estate Planning & Asset Protection Blog

Wednesday, June 13, 2018

What is a Beneficiary Defective Inheritor's Trust?

One of the purposes of estate planning and retirement planning is asset protection. Regardless of what you intend to do with your assets after your death, you want to protect those assets that you have worked very hard to accumulate. Our South Carolina asset protection lawyers have extensive experience assisting clients in developing a plan that accomplishes their goals for retirement, inheritance, or incompetency while providing the best protection of assets possible under the law.

One of the tools we can use to protect assets is a trust agreement. Some trust agreements are preferable because they offer a greater level of asset protection. Depending on your situation, our South Carolina asset protection lawyers may recommend that you consider a Beneficiary Defective Inheritor’s Trust.

What is a Beneficiary Defective Inheritor’s Trust?

Many estate planning professionals advise clients to use irrevocable trusts to protect assets, avoid probate, and eliminate estate and gift taxes. However, irrevocable trusts have one distinct disadvantage that many people find too harsh — the loss of control over assets within the trust. Therefore, some people choose a revocable trust, which allows them the right to control the assets and remove the assets from the trust, but does not provide the level of asset protection that an irrevocable trust offers.

With an irrevocable trust, you must transfer the assets to the trust. The trust becomes the owner of the assets and you no longer have any control over the assets. The terms of the trust control the management of the assets until they are distributed to beneficiaries. Therefore, our South Carolina asset protection lawyers recommend a Beneficiary Defective Inheritor’s Trust (BDIT) in some situations instead of an irrevocable trust when a person is concerned about losing control of his or her assets.

A BDIT can provide the asset protection you desire and many other benefits while allowing you to retain control of the property within the trust. However, structuring and setting up a BDIT when you want to transfer assets that you own to the trust can be a bit complex. A third party must create the trust, initially fund the trust, and name you as the primary trustee and beneficiary for you to receive all the benefits of a BDIT. You must then sell your assets to the trust for fair market value in exchange for a promissory note at market interest.

When properly created and structured, a Beneficiary Defective Inheritor’s Trust can provide benefits for you and your heirs including:

  • Creditor protection

  • Transfer-tax savings

  • Control and use of assets

  • Share assets with heirs on a tax-advantaged basis

  • Ability to make decisions about tax and insurance matters in addition to discretionary distributions

  • Ability to withdraw funds from the trust principal for certain reasons

For many people, the ability to control and manage assets is one of the deciding factors between an irrevocable trust and a BDIT.

Call Our South Carolina Asset Protection Lawyers for More Information

To discuss whether a beneficiary-controlled trust such as a Beneficiary Defective Inheritor’s Trust is the best way for you to accomplish your estate planning and retirement planning goals, you can schedule an appointment with one of our attorneys. We can discuss in more detail the pros and cons of each estate planning tool to help you determine which option is best for you.

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Wiles Law Firm, LLC helps clients with their estate planning needs in Charleston, South Carolina and the surrounding areas such as West Ashley, Summerville, North Charleston, Mount Pleasant, and John's Island.

Information on this website is not legal advice. Further, viewing of the enclosed information does not create an attorney-client relationship with Wiles Law Firm, LLC. Matters will be handled by attorneys who primarily practice out of our office in Charleston County located at 852 Lowcountry Blvd., Ste. 101, Mt. Pleasant, SC 29464. M. Emerson Wiles, III is the attorney responsible for this advertisement.

Any result Wiles Law Firm, LLC may achieve on behalf of one client in one particular matter does not necessarily indicate similar results can be obtained for other clients. Please contact a South Carolina estate planning attorney or one of our attorneys with Wiles Law Firm, LLC for a consultation regarding your unique estate plan.

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