Don’t Yet Want Your Heirs to Know About Your Assets? Use a Quiet Trust in Your Estate Plan
Trusts are great tools for leaving assets to your heirs while maintaining control over their access to those assets. In many cases, you would tell your beneficiaries that you have made a trust for them. However, this is not always desirable — and this is where a “quiet” trust may be helpful.
A quiet trust is a trust created much like other trusts, but with little to no notice given to its beneficiaries. A person, called a grantor, places assets in a trust managed by someone who is appointed as a trustee.
The trust document may provide that income will only be distributed to a beneficiary once specific conditions are met — for example, when the grantor passes away or the beneficiary reaches a certain age. It may further require that no information regarding the accounting of the trust, what the trust owns, or other details will be provided to a beneficiary until certain conditions or timeframes occur.
Advantages of a Quiet Trust
Many people turn to quiet trusts for their children or grandchildren. They want to avoid their heirs relying on these future resources and becoming complacent instead of developing themselves financially or professionally. The idea is that if the beneficiaries don’t know about the money, they will work harder to create their own wealth and develop good financial habits. Many trust grantors hope that this personal development will make it more likely that once their heirs receive income or assets in a trust, they will be better equipped to manage and preserve these resources.
In other situations, you may wish to keep a trust a secret as a matter of privacy. A quiet trust can control the number of people who know about the trust. This can prevent family disputes if one person will receive more than another. It can also prevent heirs from talking too much about what they may receive, misusing the information, or being taken advantage of. For example, some parents may be concerned about their children’s creditors or anyone trying to get close to them for the wrong reasons.
A quiet trust can shield your loved ones from these problems and help them overcome any disincentive to develop themselves to be the best they can be. In addition, just like an ordinary trust, a quiet trust can be used for estate tax planning and avoiding the lengthy and expensive probate process. Depending on how they are set up, quiet trusts can also delay when the assets are taxed as income.
When a Quiet Trust May Not Make Sense
However, there are situations where a quiet trust may not work for you or your family. For one, you may wish to involve your children in your financial planning or discussions about your assets.
Sometimes keeping information secret can also backfire. Your heirs may not be prepared for suddenly receiving large sums of money or investments if they are unaware of them. For example, if you leave them rental property and they have moved to another state by the time they receive it, they may not be able to manage the property easily.
The lack of disclosure may also create a certain amount of distrust or resentment.
Setting Up A Quiet Trust
How you set up a quiet trust will likely vary based on state law. The basic process involves drafting a trust agreement, transferring assets, and implementing the terms of the trust. You should ensure that the person you choose to manage your trust is someone on whom you can rely. The wrong person could mishandle assets, fail to keep proper accounting, or miss deadlines for filing tax returns.
This process is best overseen by an attorney and other professionals, such as a financial planner and CPA familiar with trusts.
For guidance on quiet trusts, reach out to the MSW team: Amy Stratton or Kristen Prull Moonan.