Many families are concerned about transferring wealth to their children because they feel the children are unprepared to manage their inheritance. In fact, just one-third of affluent parents have revealed their wealth to their heirs. Notwithstanding, several families have opted to set up trusts to maintain some level of privacy and preserve wealth.
Traditionally, trustees have informed trust beneficiaries about trust assets, performance, distribution and taxes. Additionally, the majority of states mandate that a trustee offer information about a trust to beneficiaries. However, in many states, there has recently been a tendency to legislate beneficiary quiet trust statutes.
Such statutes usually allow the testator to withhold information about trust assets from the beneficiary. A testator who would like to keep trust information silent should incorporate certain statutory language in the trust instrument. The wording should indicate the testator’s intent to keep information from the beneficiary, thereby safeguarding the trustee from the perception of disloyalty or bad faith. There are several cases in which the testator will clarify in a letter of wishes the reason as to why it is in the best interests of the beneficiaries to maintain a quiet trust.
Usually, if the trust is kept quiet as to just one beneficiary, there are several ways to arrange with other beneficiaries not to reveal trust information to the quiet beneficiary. Also, it is imperative to note that a waiver by the testator of the trustee’s duty to ensure that the beneficiaries remain informed about the existence of the trust and its administration does not generally impact the trustee’s other duties. A trust protector will frequently manage the quiet, or silent, beneficiary’s interest.
It is recommended that a quiet beneficiary trust document include a provision that states that the trustee does not have to give notice to certain beneficiaries. The majority of long-term trusts are created to increase the asset protection for the testator and the beneficiaries. When a quiet trust is combined with a discretionary trust, a testator and/or trust protector can choose which beneficiary will be the recipient of trust information, and the time at which they will receive such information.
Reasons to keep a quiet trust
There are several reasons why a parent or grandparent might wish to keep trust information quiet from the children and grandchildren. There are some testators who are concerned about encouraging their heirs to be financially and socially responsible. However, their objective may be thwarted if a beneficiary obtains knowledge of a substantial trust. On the other hand, other testators are worried that financial secrets can cause a beneficiary to feel guilty, angry or ashamed. As a result, these parents reveal the contents of the trust along with certain incentive provisions connected with any distribution from the trust. One such provision is the capacity to live within your means.
Another important reason for establishing a beneficiary trust is to preserve wealth and safeguard assets. There are some testators who think that the less knowledge a beneficiary has regarding a trust or inheritance, the less potential there is for trivial lawsuits against a child, unsavory friends, identity theft or kidnapping.
Furthermore, a quiet trust can be effective when non-voting family business interests are assigned to a trust for reasons concerning estate planning, and the testator prefers not to talk about the functioning of the business with younger beneficiaries who are members of the family.
If you are thinking of establishing a quiet trust, call the estate planning attorneys at Wade Law Offices.