Chapter 29 - § 29.5 • BENEFICIARY CONTROLLED TRUSTS (BCTS)

• Jurisdiction: Colorado

§ 29.5 • BENEFICIARY CONTROLLED TRUSTS (BCTs)²

§ 29.5.1—Overview

If possible, most property owners would want the ability to place their property into a structure whereby they could manage and control it; use the property and income for whatever purpose they desire; have the ability to give the property to whomever they want; and protect the property against lawsuits and taxes.

Many property owners would like to pass their wealth to their children and more remote descendants at such time that they perceive that the donees have attained a sufficient level of fiscal responsibility. In addition to shifting control at a sufficient level of responsibility, there generally is the desire to pass the wealth so that the donees can also obtain the beneficial enjoyment virtually equivalent to outright ownership over the property without the exposure to potential creditors. The desire is to avoid the exposures of outright ownership while also avoiding the restrictions and controls inherent in the traditional trust arrangement. This allows the beneficiary to possess full enjoyment without exposure.

The beneficiary controlled trust (BCT) accomplishes these objectives. A BCT can be designed to give a beneficiary control that is essentially equivalent to outright ownership in addition to the insulation of the assets from taxes and creditors, as long as the trust is properly settled and funded by an individual other than the beneficiary.

A BCT can give the beneficiary all of the benefits for life of a gift or inheritance "in trust." Also, the beneficiary can be in almost full control of the trust (including control over the trust's assets and operations approaching outright ownership). A typical BCT continues this structure in perpetuity, giving the control to the senior generation on a per-stirpetal basis. This is subject to change by the use of a special power of appointment.

All this said, it does not suggest that a BCT's beneficiary will always be protected from creditors being able to access the trust assets. For example, if the beneficiary has too much control over the trust, a creditor could use that control as well, in having assets directed by a court to be paid to the creditor. If the beneficiary has a general power to withdraw assets from the trust at any time, the creditor could possibly also benefit from such power by asking a court to order the beneficiary to make such a withdrawal for the creditor's benefit.

§ 29.5.2—Characteristics of a Typical BCT

A BCT...