Edwin P. Morrow has made available for download his article, “IRC Section 678 and the Beneficiary Deemed Owner Trust (BDOT).” The Abstract is as follows:
This article explores Section 678 of the Internal Revenue Code and how and when a beneficiary is deemed to be the owner of a trust for income tax purposes and why and how a trust may be drafted in this manner.
Income tax benefits include simpler tax reporting, lower tax brackets, capital gains tax exclusions for residences, more favorable Section 179 expensing, disregarded transactions, S corporation status, charitable deductions for business income, life insurance and annuity rules, unlocking trapped capital losses, and many more benefits often overlooked.
Asset protection for such trusts, while seemingly substandard, is hardly a disaster. Any ill effects of a withdrawal power can not only be counteracted but even turned into an advantage over other trust designs. A comparison chart at the end summarizes the various state asset protection statutes and law around powers of withdrawal and lapses.
Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.