An Introduction to Delaware Quiet Trusts

Given the current state of our environment, many estate plans have been accelerated, which could include creating and transferring assets into an irrevocable trust to benefit family members. For several reasons, grantors may worry about beneficiaries becoming aware of a trust. Delaware may be a venue to alleviate grantors’ fears.

Traditionally, when someone is interested in putting assets aside for his or her family’s benefit, there are discussions about how to structure the gift. If the person decides to create an irrevocable trust, there are several additional questions about the terms, beneficiaries, etc., of the trust. One concern a grantor may have is the loss of control. In particular, he or she may experience apprehension about how certain information relating to the trust will be disseminated to family members, and this anxiety could be due to the beneficiaries’ maturity or for other reasons. Also, the grantor may not want beneficiaries to be aware of the trust so that the beneficiaries can reach their full potential by not relying on funds in trust the grantor has worked so hard throughout his or her lifetime to earn.

Delaware allows quiet trusts, also known as silent trusts, which may alleviate most of the grantor’s concerns mentioned in the above paragraph. A quiet or silent trust functions the same way a standard irrevocable trust does. The only difference is that the language in the document specifically limits or restricts notification to the beneficiaries regarding the trust.

Delaware, like Michigan, has default disclosure rules for trustees. Delaware’s rules are established by McNeil v. McNeil, 798 A.2d 503 (Del. 2002). It states, “A trustee has a duty to furnish information to a beneficiary upon reasonable request. Furthermore, even in the absence of a request for information, a trustee must communicate essential facts, such as the existence of the basic terms of the trust. That a person is a current beneficiary of a trust is indeed an essential fact.”

Delaware enacted a statute which allows trust instruments to limit a beneficiary’s right to information relating to the trust or it’s existence for a period of time, which could be related to the age of a beneficiary, the lifetime of the grantor and/or the grantor’s spouse, to a term of years or specific date or to a specific event certain to occur. The regulation of details is for a defined period that is certain to happen; it is not forever.

The time-period when the disclosure of information is either limited or restricted is commonly referred to as the “silent period”. During the silent period, a “designated representative” may be appointed if expressly provided in the terms of the governing instrument or by reference to the applicable section of the Delaware Code. The “designated representative” is authorized or may be directed under the terms of the governing instrument to represent or bind beneficiaries in connection with a judicial proceeding or nonjudicial matter, and this typically includes receipt of statements for the trust.

Once the “silent period” ends, the trustee will contact the beneficiaries to inform them of the trust and its existence. Since the grantor has been instrumental in determining the silent period, one would presume, the beneficiaries are well prepared when contacted by the trustee regarding the trust.

If your estate plan includes creation of an irrevocable trust, but you would prefer information is restricted to beneficiaries, a quiet or silent trust may be for you. It allows you to put money aside, thereby removing it from your estate for estate tax purposes. In addition, the property is protected and will benefit those named in the document drafted pursuant to your specifications, which could include limiting the disclosure of the trust’s existence to the beneficiaries for a specified time. You may appoint someone as the designated representative during the “silent period” to act on behalf of the beneficiaries, which, as stated previously, would include receiving statements from the trustee.

While Michigan does not currently allow this option, a quiet or silent trust is available in Delaware through Greenleaf Trust’s sister organization, Greenleaf Trust Delaware. If you are interested in learning more about quiet/silent trusts, please contact a member of your client centric team.