Can You Keep A Secret? First State Can.

One of the biggest concerns of wealthy families is when and how to tell beneficiaries – typically children – about the wealth and what it represents. Many families feel that children or even younger generations are not ready to comprehend or handle the money they will one day receive. Exacerbating the problem is that with a higher and increasing federal gift and transfer tax exemption, there are larger trusts out there. Thus, many wealthy families choose to keep the family wealth a secret. Additional reasons for keeping wealth quiet is privacy and safety. If others find out about a beneficiary of a large trust, that beneficiary could be a target for financial exploitation, fraud, identity theft or worse.

But we all know the challenges that come with keeping a secret. Same in the trust world. “Things” get out there. Most times, a corporate trustee has to provide a regular statement to the current beneficiary and maybe even to a contingent beneficiary. They have to do this either because their regulator requires this disclosure or state law requires it. Are there any solutions? Possibly. Let’s look at where we are with the trust document:

New Trusts

• If a client is creating a new irrevocable trust, intends to fund it with significant assets and wants to keep the trust a secret from the beneficiaries (children), he/she should consider establishing a silent trust. Also known as a quiet trust, a silent trust allows a grantor to include provisions instructing the trustee to keep information about the trust private from the beneficiaries by not providing notice and other information about the trust for a period of time specified in the trust. This type of trust may be used by a parent, grandparent or other grantor that wants to keep the trust secret or hidden from the child for a certain amount of time or until a particular event occurs.
• Currently, this type of trust is only permitted in certain states. Many states provide trust beneficiaries with the right to receive notice and certain information about a trust.
• Delaware to the rescue! This is one of the states where a trust can be kept silent.
• Delaware Statutes in generally allow a grantor to do the following:
  • Incorporate language in the trust document that waives the trustee’s duty to inform in the trust document, and/or
  • Name a Trust Advisor or Trust Protector to expand or modify the rights of beneficiaries to information relating to the trust.
• Obviously, there is a good deal of flexibility in crafting brand new silent trusts and keeping their asset holdings quiet from beneficiaries.

Existing Trusts

• Most of the trusts we handle are existing trusts custodied at a competing bank or trust company.
• Occasionally, at the request of the grantor, the current corporate trustee has agreed not to send statements to beneficiaries.  This is a business decision that the corporate trustee will have to answer for if ever questioned.
• But this is changing, especially with increasing pressure from the corporate trustee’s regulator.
• Thus, the grantor seeks a new corporate trustee.
•  However, using a different corporate trustee for an existing trust – even one located in Delaware – might not do the trick because the existing irrevocable trust is governed by the state written into the document.
• A possible solution, however, is decanting the existing trust. Yes, this involves attorneys and possibly court. But depending on how important this is to the grantor/client, it may be a solution.

For more information, please contact:
Jacqueline Jenkins, CTFA
Chief Fiduciary Officer / Managing Director
Phone: 561-515-6156 / Email: jjenkins@fs-trust.com

 The posts expressed are views of FSTC and are not intended as advice or recommendations. For informational purposes only.