SHHHHH. Can we talk privately? It’s about the kids.
I know you have some assets that you want to set aside for them, but…….. you’ve been worried. You don’t want the kids to become trust fund babies. If they get even a hint about how much wealth they will have when you die – well, let’s just say they won’t have much incentive to pursue an education or trade.
I have a possible answer. Have you ever considered a “Silent” Trust?
It is a kind of irrevocable trust, just like the ones you have been thinking about to address your privacy and asset protection concerns for the kids. Let’s face it, not many kids are mature enough at 18 or 21 or even at 25 to make good investment decisions or to protect themselves from financial predators like your ex-spouse.
I didn’t say that out loud, did I? Sorry.
The difference between a run-of-the mill irrevocable trust and a Silent Trust is that with a Silent Trust you can add provisions requiring the trustee to keep even the existence of the trust a secret, for as long as you direct.
Interested? Let me tell you a bit more about it.
In a Silent Trust, the trustee still manages the assets and has fiduciary duties toward the beneficiaries. Many of the terms that are customary in an irrevocable trust are still used in a Silent Trust.
A Silent Trust could be immensely helpful to protect a beneficiary who, say, has a substance abuse problem, a motivation problem, a creditor problem, or is just plain immature.
Yet there is a balancing act for a Silent Trust. Usually a trustee has a duty to keep beneficiaries reasonably informed about the administration of a trust. This comes from the common law and from a type of model law called the Uniform Trust Code. That discussion leads us down a different path.
Trusts are interesting hybrids. The US Supreme Court has told us, in so many words, that a trust is just an instruction letter to a trustee about how certain assets are to be invested and distributed. So a trust is not really a legal entity. Yet the IRS considers an irrevocable trust to be a taxable in its own right. So it is an entity, sort of.
To make it a bit more confusing, almost every state has enacted version of the Uniform Trust code that contains permissible do’s and don’ts about a trust set up under its laws. What is ok in Nevada may not be ok in Texas.
Some states look more favorably on a Silent Trust than others. Texas, for example, has a law that says any beneficiary who is least 25 years old and has a current right to receive a distribution, or who would receive a distribution if the trust was terminated, has a right to be kept informed about the trust. That, of course, would mean the existence of the trust could not be kept secret.
Several other states are much more liberal about silencing the trustee of a Silent Trust.
So write down your concerns, think about your goals, and then go see your Estate Planner. It’s our little secret.
Virginia Hammerle is a Texas attorney whose practice includes estate planning, guardianship and probate. Sign up for her newsletter at email@example.com. Contact Hammerle Finley Law Firm to schedule a consultation at hammerle.com.
This column does not constitute legal advice.