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Like a taciturn New Englander is wont, quiet (or silent) trusts keep a lot to themselves. Not surprisingly then, the New Hampshire Trust Code is one of a handful of states that allows their use. But what are quiet trusts and what do they do?
The default rule in New Hampshire, as elsewhere, requires a trustee to inform and report to the beneficiaries of a trust. In other words, a trustee is normally required to provide information concerning the existence of a trust, its terms and its financial holdings and activity. In New Hampshire, this basic duty is found at RSA 564-B:8-813.
Where New Hampshire differs from most states, however, is that this duty to inform and report is not mandatory; rather a grantor has the flexibility to override the statutory default through the terms of a trust where the circumstances warrant. Should a grantor choose to do so, the result is a quiet trust and a trustee will have limited to no obligations to inform and report to beneficiaries.
A quiet trust can take different forms. Among other things, it can be used to shield the very existence of trust from a beneficiary, keep just some information restricted, provide certain information to one or more but not all beneficiaries, and/or delay the time that a beneficiary receives trust details (e.g., until a certain age or the occurrence of an event).
The use of quiet trusts, of course, is not without controversy. With limited information comes limited visibility into a trustee’s actions, potentially leaving a beneficiary vulnerable to trustee misconduct. To avoid this pitfall, a grantor can designate an independent trust protector or other fiduciary advisor to receive trust information in the stead of the beneficiary and thereby implement oversight of the trustee.
A quiet trust is the exception rather than the rule and a grantor should not elect a quiet trust without due consideration of all relevant circumstances. As stated above, the default in New Hampshire is to require a trustee to inform and report to a beneficiary. To avoid this requirement necessitates trust language that specifically opts out of it.
Situations in which a quiet trust might be beneficial are those where enhanced privacy will further a grantor’s intent and/or protect the beneficiaries of the trust. For instance, a grantor might wish to keep knowledge of the trust from the beneficiaries until a certain point so as to promote fiscal responsibility and the independent development of a career; i.e., so the knowledge of the trust does not disincentivize the beneficiaries in any way. Another reason to employ a quiet trust is to prevent a beneficiary’s misuse of a trust or inappropriate sharing of information about the trust with those who might seek to exploit a beneficiary’s interest. Limiting information can also help to avoid disputes among beneficiaries or between beneficiaries and a trustee where beneficiaries have different needs and receive unequal amounts from the trust. In these scenarios and others, a quiet trust could prove advantageous.
If you are interested in learning more about quiet trusts, please let us know. We would be happy to discuss the topic in greater detail.
Disclaimer:
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