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.
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