Is a quiet (silent) trust illusory?

Charles E. Rounds, Jr.

Is a quiet or silent trust illusory? The question is intentionally ambiguous. Is the question whether the trust itself is illusory, or just its quietness? A quiet or silent trust has been defined as “an irrevocable trust that, by its terms, directs the trustee not to inform the beneficiaries of the existence of the trust, it terms and the details of the administration of the trust.” See Joyce Crivellari, Trust & Estate Insights, May 2013 [A UBS Private Wealth Management Newsletter]. South Dakota, for example, would seem to authorize such trusts by statute. See S.D. Codified Laws §55-2-13, which provides that “[t]he settlor, trust advisor, or trust protector, may, by the terms of the governing instrument, or in writing delivered to the trustee, expand, restrict, eliminate, or otherwise modify the rights of beneficiaries to information relating to the trust.” It seems there are two possibilities.

The first is that §55-2-13 means what it says, in which case a quiet or silent trust is something other than the legal/equitable relationship that is the subject of Loring and Rounds: A Trustee’s Handbook. Perhaps it is just a constructive principal/agency relationship, the “settlor” being the principal and the “trustee” being the agent. Or perhaps it is just a fancy completed common law gift to the “trustee.”

The second is that a quiet or silent trust is a true trust. If that is the case, then how, as a practical matter, is the trustee to hide the existence of the trust from the beneficiary and comply with applicable tax laws? See generally Alan Newman, The Intention of the Settlor Under the Uniform Trust Code: Whose Property Is It, Anyway?, 38 Akron L. Rev. 659, 679 (taxation and the quiet/silent trust). Assuming that that is possible, then how is the trustee to handle a request for information from the curious beneficiary about the terms of the trust should the beneficiary somehow otherwise get wind of its existence? If the trustee lies to the beneficiary, or intentionally obfuscates, is he not committing an act of actual or constructive fraud against the beneficiary, such that any applicable statute of ultimate repose is tolled? See generally § 1005(c) of the Uniform Trust Code. Finally, the trustee’s duty to account is a two-edged sword. Yes, it is burdensome for the trustee. But rendering accounts to the beneficiary also is the tried- and-true vehicle for limiting the trustee’s liability. What follows is an edited transcription of § of Rounds & Rounds, Loring and Rounds: A Trustee’s Handbook (2014). The section covers the trustee’s affirmative general duty to furnish the beneficiary with critical information pertaining to the trust.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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Charles E. Rounds, Jr.

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