Silent Trusts: Perhaps you have a trust fund afterall?! By Austin Estate Planning Attorney Zachary D Kamykowski

Silent Trusts: Could I Be the Beneficiary of a Trust and Not Know It?

People who have accumulated a substantial amount of wealth are often reluctant to disclose the full extent of their wealth. They may hesitate to disclose their exact wealth even to their children. There may be several good reasons for individuals to create a trust with their children as beneficiaries. But, the phrase “trust fund baby” immediately brings images of apathetic adults living lavish, substance-abusing lifestyles. The trust may inculcate the beneficiaries with no need or desire to work and no purpose or direction in life. Creating a silent trust may be the solution to such nightmarish beneficiary-gone-wrong scenarios.

What is a silent trust?

After a trustmaker has created a trust, the trustee has specific legal duties to the beneficiaries. A trustee’s duties vary by state. In most states, a trustee must disclose the trust’s existence. They must identify themselves as the trustee, and send the beneficiaries yearly accounting statements on request. The annual accounting contains information about the trust’s assets (accounts and property), taxes, distributions, and performance.^[1]

A silent trust eliminates the legal requirement that the trustee immediately tells the beneficiaries about the trust’s existence or terms. Typically, a silent trust’s terms will provide a triggering event for beneficiary notice. Examples include the beneficiary reaching a certain age or achieving a particular milestone or the trustmaker’s death or incapacity. The trustee’s obligations to inform the beneficiary begin only upon the occurrence of the triggering event.

what are the benefits?

A silent trust that does not require the disclosure of information to beneficiaries has numerous benefits:

• Keeps the trustmaker’s financial affairs and estate plans confidential
• Reduces the risk that beneficiaries will engage in financially irresponsible behavior because of their expectation of receiving trust money
• Reduces the risk that beneficiaries will become the targets of fraud, scams, theft, or frivolous lawsuits
• Avoids beneficiary scrutiny of trust asset management, particularly when that management includes a family business

what are the downsides?

But, a silent trust also has downsides. Reduced trustee supervision is one of the most obvious drawbacks. If a beneficiary has no knowledge of or information about a trust, they cannot supervise the trustee. They would normally do so to ensure that the trustee is acting in their best interests. A trustee’s potential breach of fiduciary duty may not be discovered until years later. After which time, the malfeasant trustee may have caused a significant amount of damage. However, this downside may not be much of a concern in some states. This is because they require the selection of a beneficiary surrogate or designated representative. This person receives the required information and notices on the beneficiary’s behalf. They could therefore identify and report a trustee's potential breach of their fiduciary duty.

In addition, a silent trust may not effectively discourage a beneficiary’s financially irresponsible behavior. Although children may not know the full extent of their parents’ wealth, they likely know that the wealth exists. And, they probably expect to receive a share of it in some form. This could be the case even if they do not know of the trust’s actual existence. Choosing to keep children in the dark about the family’s wealth can result in missed opportunities. For instance, parents could involve them and educate them about how families acquire, manage, beneficially use, and preserve wealth.

should i consider a silent trust?

Currently, an estate larger than $12.06 million is subject to estate tax. Although, in 2025, that amount will drop to $5 million (adjusted for inflation). High-net-worth individuals who expect to have a taxable estate may want to consider creating a trust. Specifically, they would use the trust to transfer their assets during their lifetime. This would avoid including the assets in their estate at death. Parents may wish to share wealth but worry about the effect such large wealth transfers may have on their trust beneficiaries. In this event, the parents may want to consider including silent trust provisions.

Only a handful of states permit silent trusts: Alaska, Delaware, New Hampshire, South Dakota, Nevada, Tennessee, and Wyoming.^[2] If you live in a state with a silent trust statute, you can include silent trust provisions when you create a trust. If you do not live in a state that allows silent trusts, you can create the trust in a state that does. You will, however, have to use a trustee (such as a trust company) located in that state.

contact us to discuss your specific situation

In Texas, "The terms of a trust may not limit any common-law duty to keep a beneficiary of an irrevocable trust who is 25 years of age or older informed at any time during which the beneficiary:

(1) is entitled or permitted to receive distributes from the trust; or

(2) would receive a distribution from the trust if the trust were terminated." Texas Property Code §111.0035(c)

Therefore under Texas law, a trustmaker could not use a silent trust for an irrevocable trust.

Perhaps you worry about your beneficiaries becoming trust fund babies. Or you may just prefer to keep your financial and estate plan as private as possible. Regardless, we are happy to discuss various estate planning strategies that can help you meet your unique goals and wishes.

^[1] Confidential Trusts, Wealth Management at Northern Trust (Jan. 2017), https://www.northerntrust.com/documents/white-papers/wealth-management/insights-on-confidential-trust.pdf.

^[2] Al W. King III, Should You Keep a Trust Quiet (Silent) from Beneficiaries?, WealthManagement.com (Mar. 25, 2015), https://www.wealthmanagement.com/estate-planning/should-you-keep-trust-quiet-silent-beneficiaries.