Silent Trusts - Shhh… It’s a Secret to Everyone

According to a recent study of millionaires in 2013 done by PNC Wealth Management 82% of American millionaires are in agreement with the statement that: ‘each generation should be responsible for creating its own wealth’, up sharply from the 65% reported in a similar study in 2007.

In a similar vein, 84% agree that: ‘raising successful, hard-working children is their most important goal’, up from 75% in 2007. Highlights can be found here. Teaching children to be hard-working and self reliant can be difficult no matter what the family’s wealth level is, and making sure that an inheritance doesn’t detract from their motivation to make their own wealth and way in life can be equally hard.

One way to do so is to create a quiet or silent trust, the knowledge of which is kept from the heir until a period in time that the creator of the trust deems appropriate. That way, the heir won’t be waiting for the assets and may avoid becoming reliant on them. Anyone can stay quiet about parts of their estate and trust planning; the extent to which varies from state to state, and the growing popularity of the strategy has caused an increasing number of states to either explicitly or implicitly allow entirely quiet trusts.

New Jersey has not yet enacted any legislation that addresses the permissibility of the use of quiet trusts, but may be on track to join the states that have.

Still, silence isn’t always the best policy. If the heir is to be kept entirely in the dark, the trustee can’t get the heir’s feedback regarding their investment goals, and might not actually be able to help the child as much as more direct involvement would. Plus, post mortem surprises can turn very ugly, especially when there are multiple beneficiaries.

Aside from keeping it a secret – one could create an irrevocable trust that only provides for certain expenses, thus preventing the child from becoming reliant on it in regard to other parts of their lives – such as a travel trust to facilitate family reunions, or providing for school expenses only.

We would be happy to discuss various solutions to provide an inheritance while encouraging self-sufficiency. Schedule a free consultation here or speak with a trust officer at (732) 255-5000

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