Estate PlanninG

What Is a Silent Trust?

What comes to mind when you hear “trust fund baby”?

You might picture a spoiled, unmotivated adult living lavishly and spending money on extravagant purchases.

This is a real fear that people who have accumulated a substantial amount of wealth during their lifetimes have. That’s why many of them are hesitant to disclose the full extent of their wealth to their children. For these people, creating a silent trust may be the solution to such a nightmarish scenario.

What Is a Silent Trust?

A trustee has certain legal duties to the beneficiaries after a trust has been created. In most states, a trustee must disclose the trust’s existence, identify themselves as the trustee, and send the beneficiaries yearly accounting statements on request with information about the trust’s assets (accounts and property), taxes, distributions, and performance.

A silent trust doesn’t have such rules. It eliminates the requirement that the trustee tell the beneficiaries about the trust’s existence or terms for a period of time. Typically, the silent trust will hinge on a triggering event, such as the beneficiary turning a certain age or achieving a certain milestone, or upon the trustmaker's death. Then the trustee’s obligations to keep the beneficiary informed can begin.

What are the benefits of a silent trust?

Some of a silent trust’s benefits include:

  • Keeps the trustmaker’s financial affairs and estate plans confidential
  • Reduces the risk that beneficiaries will engage in financially irresponsible behavior because of their expectation of receiving trust money
  • Reduces the risk that beneficiaries will become the targets of fraud, scams, theft, or frivolous lawsuits
  • Avoids beneficiary scrutiny of trust asset management, particularly when the management of a family business is included

Are there downsides to a silent trust?

A silent trust isn’t without its cons. Reduced trustee supervision is one of the most obvious ones. If a beneficiary has no knowledge of or information about a trust, they can’t supervise the trustee and make sure they’re acting in their best interests. A trustee’s breach of fiduciary duty may not be discovered until years later after a great amount of damage has already been done. This downside may not be much of a concern, however, in states that require the selection of a beneficiary surrogate or designated representative who receives the required information and notices on the beneficiary’s behalf.

Another downside is that a silent trust may not actually be very effective at discouraging a beneficiary’s financially irresponsible behavior. Although children may not know the full extent of their parents’ wealth, they probably know the wealth exists, and might expect to receive a share of it in some form. Choosing to keep children in the dark about the family’s wealth can result in missed opportunities to involve them and educate them about how wealth can be acquired, managed, and preserved.

Should I Consider a Silent Trust?

If you’re a high-net-worth individual who expects to have a taxable estate, you may want to consider creating a trust that will transfer your assets during your lifetime to avoid including the assets in your estate at death. Currently, an estate larger than $12.06 million is subject to estate tax, although in 2025 that amount will drop to $5 million (adjusted for inflation). Parents who want to create trusts to transfer wealth, but who worry about the effect such large wealth transfers may have on their beneficiaries, may want to consider including silent trust provisions.

Silent trusts are only permitted in Alaska, Delaware, New Hampshire, South Dakota, Nevada, Tennessee, and Wyoming. If you live in a state with a silent trust statute, you can include silent trust provisions when you create a trust. If you do not live in a state that allows silent trusts, you can create the trust in a state that does. You will, however, have to use a trustee (such as a trust company) located in that state.

If you worry about your beneficiaries becoming financially irresponsible “trust fund babies”, or if you just prefer to keep your financial and estate plan as private as possible, we are happy to meet with you to discuss various estate planning strategies that can help you meet your unique goals and wishes. Call Santaella Legal Group, serving San Ramon, Danville, Dublin, Pleasanton & the Tri-Valley area, at (925) 831-4840 to set up a consultation.

Read more about trusts:

You Can Parent Beyond the Grave: Common Trusts and How to Use Them

Motivate Your Heirs With an Incentive Trust

10 Types of Trusts: A Quick Look

Who Should I Choose As My Trustee?

What Is HEMS and Why Is It Included in So Many Trusts?