On February 4, 2014

A silent trust may be an option that some Colorado residents are considering as part of their overall estate planning strategy. Most trusts are open knowledge to all parties involved, but a silent trust is one in which the existence of the trust is kept secret from the beneficiary. The settlor of a trust may decide to not divulge a future inheritance to heirs and require the trustee to keep it secret.

There are many reasons why a settlor might want to keep the knowledge of a trust from its ultimate beneficiaries. There may be concern that the beneficiary would not continue school or work if he or she knew significant wealth would someday be theirs. Heirs might tend to accumulate debt, counting on inheriting trust money to pay it off. The settlor may want the beneficiary to mature, thinking the wealth would be more responsibly handled at a later date.

Many trustees don’t like managing secret trusts for long periods of time. The required secrecy limits contact and communication with the beneficiary, making it difficult for the trustee to evaluate the beneficiary’s maturity or real financial need for a possible early distribution. If there is more than one beneficiary, the existence of the trust may become known anyway, as one child will likely gain access to the trust before others, which could create discord within the family.

Estate planning may involve many different types of assets, and often need to take into account tax and inheritance laws that may vary state to state. Attention to detail and experience in these areas and the options available for wealth transfer to heirs may make the difference between a moderate inheritance and a large one. Gifts, wills and trusts can all be strategic tools in wealth preservation and protection.

Source: Financial Advisor, “Silent Trusts Can Often Get ‘Noisy’“, Karen Demasters, January 24, 2014

Categories: Trust Administration

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