People who have accumulated a substantial amount of wealth during their lifetime are often reluctant to disclose the full extent of their wealth to their children. Although there may be several good reasons for high-net-worth individuals to create a trust with their children as beneficiaries, the phrase “trust fund baby” immediately brings to mind images of apathetic adults living lavish, substance-abusing lifestyles with no need or desire to work and no purpose or direction in life. Creating a silent trust may be the solution to such nightmarish beneficiary-gone-wrong scenarios.
What Is a Silent Trust?
After a trust has been created, the trustee has specific legal duties to the beneficiaries. Although a trustee’s duties vary by state, in most states, a trustee must disclose the trust’s existence, identify themselves as the trustee, and send the beneficiaries yearly accounting statements on request with information about the trust’s assets (accounts and property), taxes, distributions, and performance.
A silent trust eliminates the legal requirement that the trustee tells the beneficiaries about the trust’s existence or terms for a period of time. Typically, a silent trust’s terms will provide a triggering event, such as the beneficiary reaching a certain age or achieving a particular milestone or the trustmaker’s death or incapacity. The trustee’s obligations to inform the beneficiary begin only upon the occurrence of the triggering event.
Benefits of a Silent Trust
A silent trust that does not require the disclosure of information to beneficiaries has numerous benefits:
● Keeps the trustmaker’s financial affairs and estate plans confidential.
● Reduces the risk that beneficiaries will engage in financially irresponsible behavior because they expect to receive trust money.
● Reduces the risk that beneficiaries will become the targets of fraud, scams, theft, or frivolous lawsuits.
● Avoids beneficiary scrutiny of trust asset management, mainly when the management of a family business is included.
Downsides of a Silent Trust
A silent trust also has downsides. Reduced trustee supervision is one of the most obvious drawbacks. If a beneficiary has no knowledge of or information about a trust, they cannot supervise the trustee and ensure that the trustee is acting in their best interests. A trustee’s breach of fiduciary duty may not be discovered until years later after a significant amount of damage has already been done. However, this downside may not be much of a concern in states that require the selection of a beneficiary surrogate or designated representative who receives the required information and notices on the beneficiary’s behalf.
Another downside is that a silent trust may not effectively discourage a beneficiary’s financially irresponsible behavior. Although children may not know the full extent of their parent’s wealth, they know that the wealth exists, and they probably expect to receive a share of it in some form, even if they do not know of the trust’s actual existence. Choosing to keep children in the dark about the family’s wealth can result in missed opportunities to involve them and educate them about how wealth can be acquired, managed, beneficially used, and preserved.
Should I Consider a Silent Trust?
High-net-worth individuals who expect to have a taxable estate may want to consider creating a trust that will transfer their assets during their lifetime to avoid including the assets in their estate at death. Currently, an estate larger than $12.06 million is subject to estate tax, although, in 2025, that amount will drop to $5 million (adjusted for inflation). Parents who want to create trusts to transfer wealth but worry about the effect such large wealth transfers may have on their beneficiaries may want to consider including silent trust provisions.
Silent trusts are permitted in only a handful of states: Alaska, Delaware, New Hampshire, South Dakota, Nevada, Tennessee, and Wyoming. If you live in a state with a silent trust statute, you can include silent trust provisions when you create a trust. If you do not live in a state that allows silent trusts, you can create the trust in a state that does. You will, however, have to use a trustee (such as a trust company) located in that state.
If you worry about your beneficiaries becoming trust fund babies, or if you prefer to keep your financial and estate plan as private as possible, we are happy to meet with you to discuss various estate planning strategies that can help you meet your unique goals and wishes.
At Cheever Law, APC, we don’t just draft documents; we ensure you make informed and empowered decisions about life and death for yourself and the people you love, which starts at a valuable and educational Family Wealth Planning Session. The Life & Legacy Planning Session will allow you to get more financially organized than you’ve ever been before and make all the best choices for the people you love. If you have already completed your estate plan, we will review that plan at your Life & Legacy Planning Session (aka Family Wealth Planning Session) to ensure that it will work the way you intend and address any holes or gaps that may be present if circumstances have changed since you executed your plan.
To learn more about our one-of-a-kind systems and services, contact us or schedule a 15-minute introductory call today.