Take-Away: If a settlor wishes to establish a silent trust it would be best to establish that trust in, and subject it to, the laws of Delaware.

Background: While Michigan is currently taking a second look at the legal authorization to create a silent trust, which is inconsistent with the common law duty of a fiduciary to disclose the trust and to respond to requests for information from a trust beneficiary, Delaware has a long history of recognizing silent trusts along with a judiciary that is far more familiar with the role and responsibilities of a trustee that administers a silent or blind trust. Accordingly, if a settlor wishes to establish a silent or blind trust, strong consideration should be given to placing the situs of that trust in Delaware.

Delaware Silent Trusts: Section 3303(a)(1) of the Delaware Code provides that the terms of a trust may expand, restrict, eliminate, or otherwise vary the rights and interests of trust beneficiaries, including but not limited to the right of the trust beneficiary to be informed of the beneficiary’s interest in the trust for a period of time.

  • Permissible Period of Time: The Delaware statute provides a nonexclusive list of certain circumstances that constitute a permissible period of time during which the beneficiary may not be informed with regard to the trust, including a period of time that is (i) related to the age of the trust beneficiary; (ii) the lifetime of the settlor; (iii) the lifetime of the settlor’s spouse; (iv) a term of years; (v) or a specific date or a specific event that is certain to occur.[Section 3303(c).]
  • Designated Representative: If a trust restricts or eliminate the right of a trust beneficiary to be informed of his or her interest in a trust and a designated representative is serving under the trust instrument, the designated representative may represent the beneficiary for purposes of any judicial proceeding or any nonjudicial matter. [Section 3303(d).]
  • Acceptance: A designated representative is defined at Section 3339 of the Delaware Code  to mean a person who is authorized to act in a manner under Section 3303 and who delivers written acceptance of the office of designated representative to the trustee.
  • Who May Serve: This statutory definition includes: (i) a person who is expressly appointed under the terms of the trust as a designated representative; (ii) a person who is authorized or directed under the terms of the trust to represent or bind one or more beneficiaries in connection with a judicial proceeding or nonjudicial matter; (iii) a person who is appointed by one or more persons who are expressly authorized under the trust instrument to appoint such a person; (iv) a person who is appointed by a beneficiary to act as a designated representative of one or more beneficiaries; or (v) a person who is appointed by the settlor to act as designated representative for one or more trust beneficiaries.
  • Presumed to Be Fiduciary: A designated representative is presumed to be a fiduciary.
  • Judicial Proceeding: With regard to the authority of a designated representative, a judicial proceeding is expansively defined under the Delaware statute. It also defines a judicial matter to include the granting of a consent, release, and ratification, or receiving a report for purposes of measuring the applicable statute of limitations. [Section 3303(e).]

Accordingly, a designated representative is expressly authorized under Delaware’s statutes to sign, consent, release, and execute indemnification agreements that will be binding  on the represented trust beneficiaries and also to receive account statements on the represented beneficiary’s behalf. The designated representative also possesses the authority and legal standing to initiate legal proceedings before a Delaware court or an administrative tribunal on behalf of the represented trust beneficiaries.

Conclusion: Delaware’s long history of being a trust-friendly jurisdiction may explain why it permits silent trusts. Politicians who must remain ignorant of their personal investments before taking public office often use Delaware as the place to establish their blind trust to hold those investments. If an individual is serious about establishing a silent trust to induce the trust beneficiaries to become self-reliant and not become dependent upon the trust and distributions from it, first thought should be given to locating the trust in Delaware. It remains to be seen if Michigan even adopts legislation that relieves a trustee of its duty to disclose the trust, or to respond to a beneficiary’s inquiries with regard to the trust and it’s administration.