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Intro to Quiet Trusts

| Dec 22, 2018 | Estate Administration, Estate Planning |

A quiet trust, also sometimes known as a silent trust, is a type of trust in which the beneficiaries are unaware of its existence.

In the past, a trustee has been required under the Maryland Trust Act to provide notice of the trust’s existence to beneficiaries if those beneficiaries are over the age of 25. However, a trend has emerged in just the past few years, that of the quiet trust, and a law which took effect in October 2017 allows for a trustee to skirt this requirement. Instead of notifying the beneficiaries of the trust, a grantor is now able to name one or more persons as a representative of the beneficiary, and that representative is the one who is notified of the trust and other specific information, as legally required. The representative is not required to inform the beneficiary of anything while the grantor is still living, or until the terms of the trust have been met to pass along to the beneficiary, and the trustee is prohibited from informing the beneficiary as well.

This situation creates some unusual and interesting possibilities. It means that even adult beneficiaries would not legally be required to be notified. Let’s look at some reasons why a quiet trust might be used.

Age of the Beneficiary

The age of the beneficiary is the top reason that springs to mind to keep a trust silent. The beneficiary may simply be too young to appreciate the amount of money they stand to inherit, and the grantor has judged it to be in the best interests of the beneficiary to not divulge that information too soon. If the beneficiary is a child, this makes sense. If the beneficiary is an adult, then perhaps the grantors are waiting for the child to be finished with college or to reach a level of maturity at which they feel it would be more appropriate to handle a large sum. This is similar to putting age restrictions in place for beneficiaries to inherit.

Spending Habits

The spending habits of the beneficiary may also be a concern. A grantor could be concerned that their heir will spend the inheritance away, or land themselves in debt, by gaining access too soon. Or the grantor may have established the trust before they’ve finalized other arrangements to account for poor spending habits and money management, and so required that the trust remain silent for a time.

Prevent Lawsuits and Scams

If a grantor is about to settle a very large sum of money to a beneficiary – say, in the tens or hundreds of millions – then a quiet trust might be used in an effort to protect the beneficiary from becoming a target. If the beneficiary is unaware of just how much money they are receiving, then there’s no way for them to accidentally reveal that information to people who may attempt to bring a frivolous lawsuit against them due to the inheritance, or attempt to scam or harm them to extort money.

Whatever the reason, a silent trust is not necessarily a good tool for long-term trust arrangements. It’s very difficult for a trustee to manage a trust for a long period of time under such conditions, as they will likely have to limit their interaction with the beneficiary in order to maintain the terms of secrecy, and this becomes more difficult as time passes. A quiet trust is a better tool for short-term needs.