Using Quiet Trusts to Accomplish Wealth Transfer Goals

While a trustee generally has a duty to keep beneficiaries informed about a trust and its administration, New Hampshire allows a settlor to modify or waive the trustee’s duty to inform. Using a New Hampshire trust, a settlor can eliminate a trustee’s reporting and disclosure requirements if he or she wishes to withhold knowledge of the trust’s existence, its terms, or the details of its holdings. This can prove especially beneficial for families who are concerned that knowledge of significant wealth may undermine productivity, create a sense of entitlement, or otherwise harm a beneficiary.

HOW QUIET TRUSTS HELP ACHIEVE PLANNING GOALS

Many settlors are turning to New Hampshire to create “quiet” or “silent” trusts under which the trustee does not have any duty to inform beneficiaries about the existence or administration of the trust. The reason? Often, quiet trusts arise out of a level of concern regarding whether making large gifts to children and grandchildren – either in trust or outright – will negatively influence the behavior of the recipient. A common belief is that even knowledge of the existence of wealth will serve as a disincentive to the beneficiaries and will keep them from reaching their potential. A quiet trust may provide an avenue for families to make gifts to their children in a tax-efficient manner during their lifetime without concern that the trust assets will be detrimental to their children’s desire to succeed on their own merit. The structure allows the child to proceed in life without knowledge of the safety net of the trust. And it may also allow the creators of wealth (parents or grandparents) to maintain a certain level privacy surrounding the family’s wealth, so that they may more easily instill in their children the values they believe to be important.

POTENTIAL CONCERNS REGARDING QUIET TRUSTS

A quiet trust is a departure from the longstanding principles governing the relationship between the trustee and the beneficiary. Traditionally, duty to inform requirements were imposed on trustees so that beneficiaries have the opportunity to monitor the trustees’ actions. In a quiet trust the beneficiaries cannot fulfill that monitoring roles, so it may be necessary to designate other parties to oversee the trustee’s performance, such as a trust protector with the ability to remove and replace underperforming trustees.

Additionally, secrecy between a trustee and beneficiary may not lend itself to a sense of trust and openness in what can be a very long-term relationship. If the beneficiary is made aware of the trust only after a quiet period, the beneficiary may look at the trustee with an overly cautious eye as they interact going forward.

THE IMPORTANCE OF SELECTING NEW HAMPSHIRE

Whether or not quiet trusts are allowed depends entirely on which state’s laws apply to the trust. State law regarding the tolerance of quiet trusts varies greatly. A few states expressly disallow silent trusts, while other states expressly allow their use. Several states that allow silent trusts, however, force the settlor to place limits on the duration of the quiet period. Some require disclosure after a certain period of time or when the beneficiary reaches a certain age.

New Hampshire does not have any such restrictions on the use of silent trusts and allows a settlor to craft a trust with notice requirements that are customized to the settlor’s intentions. There are no mandatory limits on the duration of the quiet period, and, in fact, a New Hampshire trust can remain quiet in perpetuity.

HOW PERSPECTA CAN HELP

Perspecta can help explain the advantages and disadvantages of quiet trusts and explore whether they make sense in your particular family situation. As a New Hampshire-based trust company, Perspecta can also serve as a fiduciary for these trusts and we are well-familiar with the myriad of options available to grantor’s seeking to maintain privacy regarding their wealth transfers. Finally, we can explore alternatives to quiet trusts that may also satisfy limited reporting appetites. Please give us a call to find out more.

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