Do Your Children Need To Know They Have A Trust?
By: Bob Carlson
Elder Law Associates Newsletter dated March 22, 2019
You’ve generously provided for your children and maybe your grandchildren by placing some wealth in a trust for their benefit. They aren’t going to receive distributions from the trust for years. But when will your children learn about the trust you set up and how much wealth it holds?
Estate planning rarely focuses on this issue.
It’s common for trust beneficiaries not to receive distributions right away, and there are a number of reasons to delay distributions. A lot of time is spent deciding on the best time for distributions from the trust to begin and what the amount of the distributions should be. But that’s different from deciding when beneficiaries should know about a trust and its details.
Many people prefer the beneficiaries not know about a trust for a while. They don’t want the children growing up knowing that they are trust fund babies. They’re afraid knowing about the wealth will spoil the children and lead them to lives of wasted time, substance abuse, and the like. Some simply don't want their children to know how well off the family is.
Yet, the choice might not be yours.
State law governs trusts and the duties of trustees. Some version of the Uniform Trust Code (UTC) has been adopted in 31 states. The UTC and the common law in most states require a trustee to keep beneficiaries reasonably informed about the trust. Beneficiaries need to know enough to protect their interests. At a minimum, most states require beneficiaries to receive an annual accounting statement and, if requested, a copy of the trust agreement. Information to a beneficiary can be restricted to some extent but generally no later than age 25.
The good news is most states allow information to beneficiaries to be restricted at some level. In some states the trust agreement can waive the trustee’s duty to keep the beneficiary informed. In other states a separate waiver from the trust settlor to the trustee is acceptable. Other states allow the trust settlor to name a third party surrogate to receive the required information instead of the beneficiary. The settlor can name the third party. Some states allow the settlor to name a trust protector who can designate who is to receive the information. Some states have a time limit for the disclosure limitations to the beneficiary while others allow the settlor or protector to decide when the beneficiary receives information about the trust.
The specific disclosure requirements vary from state to state. A few states, such as Delaware and South Dakota, are more friendly than others to trust settlors who value some level of confidentiality.
Keep in mind that there are good reasons the basic law requires beneficiaries to be informed. Someone should monitor the trustee’s actions and be sure the trust is managed in the beneficiary’s best interests. If the trustee has some discretion over the distributions, it is best that the trustee and beneficiary communicate about the beneficiary’s needs, goals, and circumstances. This might be difficult if the beneficiary is to be kept uninformed about the trust.
Many trust settlors believe they can decide when beneficiaries learn about a trust’s existence and its details. Don’t take that for granted. Let your estate planner know early in the process if you prefer a “silent trust.” Then, the planner can draft the trust accordingly and might recommend that the trust be located in a state that is more favorably toward silent trusts.
Article Source: Forbes.com
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