Many high-net-worth individuals express concerns about notifying their children of a Trust they are a beneficiary of as their children may be young adults who typically do not have the ability, knowledge, or maturity to handle their family’s wealth appropriately. They may also have concerns that family members will disrupt their own plans and desires, choosing instead to rely upon trust funds rather than their own abilities to lead meaningful and productive lives.
These high-net worth individuals often do not want their children to be notified of Trusts they are beneficiaries of until a specified time and do this by restricting notification to their children using a Silent Trust.
What is a Silent Trust? Most states in the US require that beneficiaries receive notification of a Trust they are a beneficiary of when they attain the age of 18. Under the Delaware Trust Act of 2015, Delaware permits a grantor to eliminate or restrict telling a beneficiary about his or her interest in a Trust “for a reasonable period of time.”
This period of time can be related to;
- The beneficiary’s attainment of a stated age;
- The provisions of a Trust agreement can withhold notification of a Trust for a beneficiary until they reach a certain age, such as when the beneficiary attains the age of 40.
- A specified term of years or specific date;
- The provisions of a Trust agreement can withhold notification of a Trust for a beneficiary to a time period restriction which could be a certain number of years or a date specified in the agreement before the beneficiary is to be notified.
- A specific event;
- The provisions of a Trust agreement can withhold notification of a Trust for a beneficiary based on specific event that is to occur, such as the beneficiary is not receive notice of the Trust until they have graduated college.
- And finally, Trust notification can be restricted until the grantor’s incapacity or death.
- In this scenario the beneficiary of the Trust would not receive notification of the Trust until the Grantor’s death or incapacity.
A potential downside of a Silent Trust is that as a beneficiary is not to be notified of their interest in the Trust during the Silent Trust period, the beneficiary has no recourse if the Trust is mismanaged during this time. Most Trustees of Silent Trusts prefer to have someone in place that oversees the beneficiary’s interest in the Trust while they are not to be notified.
Delaware law allows for the appointment of a Designated Representative for the time the beneficiary is not to be notified of the Trust. By appointing this individual, it allows the grantor to send information about the trust to a designated representative until the silent period ends. The designated representative is deemed to act in a fiduciary capacity and represents a beneficiary in all matters related to the Trust, which includes administrative and investment matters.
If a Designated Representative is appointed to represent the beneficiary’s interest in the Trust it is important to discuss with your counsel the person who will be in this role to ensure there are no conflicts of interest, state income tax issues, or other issues. There are no limitations to who can be the Designated Representative, and frequently the grantor of the Trust chooses to be in this role.
As a Delaware Trustee, First State Trust can work with you in your planning needs. If you should have any questions or want to discuss this further, please do not hesitate to reach out to me. If you are considering creating a Delaware Trust with Silent Trust provisions you should discuss the options available with your counsel.
Keith Al-Chokhachy, CFP®, CTFA
Vice President / New Business Development Officer
Phone: (302) 510-6027 / Email: firstname.lastname@example.org
*The posts expressed are views of FSTC and are not intended as advice or recommendations. For informational purposes only. FSTC does not offer tax, legal, or investment advice, professional counsel should be sought for tax or legal advice.