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‘Trust’ Me: Keep Wealth a Secret

SecretThere may be a rare occasion when it might be beneficial for a trust beneficiary to not know the details of a trust or even know that the trust exists. Some states do make that possible. When one employs this type of planning, ‘caveat emptor’ are the words that come to mind.

A major concern for wealthy people is that if their children and grandchildren are aware that they stand to inherit millions, they may be reluctant to establish their own professional lives or even go to school. Instead, the heirs might rely on their inheritances and lack the motivation to earn their own living.  One of the tools that might be employed to solve this ‘affluenza’ is the "silent trust." The terms of these trusts strictly prohibit the trustee from telling the beneficiaries about the trust or the assets in the trust. You should know that these trusts are legally controversial and are not allowed in all states including Virginia.

Silent trusts which do not immediately inform the beneficiaries of their inheritance and don’t immediately begin distributions have an application but are not without a downside.  First, it’s very unlikely that the trust is the secret as you want it to be. Beneficiaries likely know that a large inheritance is eventually coming especially if an older sibling or family member starts receiving their distribution. More importantly, silent trusts place the trustee at an enormous disadvantage since communication with beneficiaries is all but impossible given the secret they are trying to honor. This might generate the very thing the Trustmaker fears the most, which is, a financially unsophisticated beneficiary that lacks the wherewithal to manage large sums of wealth and is cut off from the very person that could serve as their financial mentor. I certainly believe there is a better plan, which includes language in the trust that encourages the development of the talents and traits you want your beneficiaries to acquire.  By tying distributions to the acquisition of a baccalaureate degree; for example, you achieve your goal of an educated beneficiary; by tying additional distributions to other achievements you find desirable, you motivate instead of ‘hiding’ and hoping for the best.  

A recent article by Financial Advisor, "Silent Trusts Can Often Get 'Noisy'," discusses the pros and cons created for beneficiaries who are kept in the dark about their trusts. If you are interested in such a trust, contact an experienced estate planning attorney to explore your options. You can learn more about this topic as well as other strategies on our website under the tab entitled: estate planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning.  However, proper estate planning is not a do-it-yourself project.  Why not call us for a complimentary consultation at 757-259-0707.

Reference: Financial Advisor (January 24, 2014) “Silent Trusts Can Often Get 'Noisy',"

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