The Benefits of a Trust in General
One of the more appealing aspects of trusts, in general, is their privacy. Unlike other estate documents, trusts do not have to be filed with the local court. Someone cannot look up the details of a trust online or in court documents. There are many reasons that someone might want to keep the details of their estate private. Maybe they’re just a private person. Perhaps they do not want their wealth to influence the behavior of future generations, or they do not want their family members to weigh in on financial decisions.
For those seeking more privacy or confidentiality in their estate planning, you may consider creating a silent trust.
What is a Silent Trust?
With a silent trust, the trustee does not have a legal obligation to let beneficiaries know about the terms of the trust, or even about the existence of the trust. Silent trusts limit the amount of information shared to beneficiaries. Typically, beneficiaries will learn about the trust’s details after a designated “triggering event,” such as the death of a parent, reaching a certain age, or completing their education.
Silent Trusts and State Laws
The duties of a trustee are governed by state law; these laws vary from state to state. Many states require trustees to keep adult beneficiaries “reasonably informed” about the existence and terms of a trust. This can include a copy of the trust agreement and an annual financial report. States can also impose limits on the information that trustees can provide to beneficiaries. For example, some states allow the settlor (the person creating the trust) to waive the trustee’s duty to communicate with the beneficiaries. Under Georgia law, the terms of the trust can override the trustee’s duty to inform and report to the beneficiaries. In other words, although Georgia does have some laws in place about communication between trustees and beneficiaries, it is lawful for someone to create a silent trust and keep the terms of that trust confidential.
Benefits of a Silent Trust
The ability to keep the existence or terms of a trust silent does offer several benefits. Silent trusts allow you to:
- Keep your financial affairs confidential
- Keep your estate plans confidential
- Protect heirs and beneficiaries from becoming targets of fraud, theft, or other financial schemes
- Prevent beneficiaries from behaving in a financially irresponsible manner because of their reliance on or expectations of trust funds
- Avoid any disclosures about the trustee and how they are managing any assets
- Avoid scrutiny or judgment of how the trustee is managing trust assets and investments
Potential Limitations of a Silent Trust
While silent trusts do offer a number of benefits, there can also be limitations or potential challenges. The first is the supervision of the trustee. With a silent trust, beneficiaries cannot always observe the trustee and make sure that they are acting in the best interest of the trust. This lack of oversight can lead to problems later on, if the beneficiaries discover that the trustee breached their fiduciary duty.
Another drawback is the trust’s effectiveness in deterring financially irresponsible behavior. If a child or an heir already knows about a parent or family member’s wealth, they may expect that they’ll inherit a large sum of money one day. Yes, a silent trust could keep the actual terms confidential, but the expectation is already there.
Have Additional Questions? Contact Brian M. Douglas & Associates
If you prefer to keep your financial decisions private, or if you don’t want to disclose your estate plans – a silent trust could be a beneficial option for you. Of course, everyone’s family situation and goals are unique, so it’s a good idea to reach out to an experienced estate planning team for help. If you have questions about silent trusts, or if you would like to schedule an estate planning consultation, please contact us at (770) 933-9009 or via our website.