It is possible to create a trust that leaves beneficiaries uninformed about all the details of the trust and, in some cases, even the existence of the trust itself. That can have its benefits, but there are also potential drawbacks.
One of the most common ways to minimize the estate tax burden is to create an irrevocable trust that delays any distributions to beneficiaries until a later date. One of the big issues people often have with creating that type of trust, is fear of telling their younger relatives they are the beneficiaries of a substantial trust.
It is not always a good idea to tell a teenager or college student, for example, that in the future they can expect to receive large trust distributions.
This might have the unintended consequence of causing them to apply themselves less to their studies.
A potential way to avoid that problem is by using a silent trust, as Financial Advisor explained in “I Have a Trust?”
As the name implies, a silent trust keeps beneficiaries in the dark about the existence of the trust, or some of the details, until a later specified time. This could be upon reaching a certain age or graduating from college.
Beneficiaries cannot be negatively affected by a trust, if they do not know about it.
However, there is a major drawback.
Beneficiaries who do not know about a trust cannot monitor the trustee to make sure the trustee is not disregarding his or her fiduciary duty.
The rules concerning silent trusts vary greatly from state to state, and some states do not allow them.
If it is something that you would consider creating, then it is vital to do so with the expertise of a wills and trusts attorney.
Reference: Financial Advisor (June 22, 2017) “I Have a Trust?”
Suggested Key Words: Estate Planning, Trusts
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