Families 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. Many express concerns about whether the younger generations are ready for the wealth they may receive and the impact the newly transferred wealth may have on them. Trusts are excellent tools used for the transfer of wealth, protection of assets, and tax planning. But there are times that the trustmakers may wish to keep details of the trust, or the very existence of the trust, a secret from the beneficiary. A “silent trust” may be a solution.
What Is a Silent Trust?
After a trust has been created, the trustee owes certain legal duties to the beneficiaries. The duties of a trustee vary state by state, but in most, a trustee must disclose the trust’s existence, identify themselves as the trustee, and provide the beneficiaries yearly accountings showing the trust’s assets, taxes, distributions, and performance.
A silent trust eliminates the legal requirement that the trustee tell the beneficiaries about the trust’s existence or terms for a period of time. Typically, a silent trust’s terms will provide for a triggering event, such as the beneficiary reaching a certain age or achieving a certain 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 of their expectation of receiving 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, particularly when the management of a family business is included.
Drawbacks to a Silent Trust
A silent trust also has its drawbacks:
- Trustee mismanagement may not be discovered in a timely manner (this concern may be avoided where a beneficiary surrogate or designated representative is required to receive trust information);
- Damage caused by trustee mismanagement may be greater because of the length of time before it was discovered;
- A beneficiary may still engage in financially irresponsible behavior, knowing that the family has some amount of wealth even if they do not know the full extent of the wealth;
- The older generation may lose opportunity to educate and train the younger generation about how to acquire, manage, and preserve wealth;
- Possibility of litigation may be increased as a result of a disgruntled heir or late-discovered trustee mismanagement.
Should I Consider a Silent Trust?
High-net-worth individuals who expect to have a taxable estate may want to consider creating a trust and transferring assets to that trust in a way that reduces their gross estate and overall estate tax exposure. This year, an estate larger than $12.06 million is subject to estate tax. In 2026, estates over $5 million (adjusted for inflation) will be subject to estate tax. Parents who want to create trusts to transfer wealth but who worry about the effect such large wealth transfers may have on their beneficiaries may want to consider including silent trust provisions.
Only a few states have statutes permitting silent trusts —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 referencing those statutes 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 must, however, use a trustee (such as a trust company) located in that state.
If you worry about the impact the transfer of wealth to your beneficiaries may have, or if you just prefer to keep your financial and estate plan as private as possible, please schedule time to meet with us. We can explore various estate planning strategies that can help you meet your unique goals and wishes.