Trust Disclosure Requirements and Quiet Trusts
The Uniform Trust Code and the Restatement (Third) of Trusts both follow the presumption that trust beneficiaries should be generally kept aware of the existence of the trust, their status as beneficiaries, and their right to ask for (and receive) further information about the trust and their rights as beneficiaries of the trust. Both also require accountings, at least upon request.
More than two-thirds (2/3) of states in the United States have adopted some form of the Uniform Trust Code as of this writing, but many states have not adopted the disclosure provisions from the Uniform Act. This reflects the feeling voiced by many trust creators that letting a beneficiary be aware of the wealth in a trust set up for the beneficiary’s benefit can be a disincentive for a beneficiary to make their own way in life. This is especially a concern if the beneficiaries are young, or even older beneficiaries that have proclivities towards spending. Many trust creators are also concerned because the sub-trusts they set up for their children don’t have identical provisions, therefore they don’t want their children to know about the provisions in their siblings’ sub-trusts.
Many states that have not adopted the disclosure provisions from the Uniform Trust Code allow what are known as “quiet” or “silent” trusts. These trusts essentially enable the trust creator, through the terms of the trust, to waive any duty on the part of the trustee to inform the beneficiaries about the trust, to provide an accounting to the beneficiaries, or to provide a copy of the trust to the beneficiaries. Some states provide another option to allow the trust creator to designate a surrogate who will receive the information on behalf of the beneficiary. This is done so that someone will be apprised of the actions of the trustee in hopes of preventing trustee mismanagement or theft.
Of the states that I work in, Wyoming and Utah allow silent trusts while Colorado does not. In fact, Colorado imposes broad disclosure duties upon trustees, which often come as a surprise to the trustee taking over a trust that has just become irrevocable due to the death of the trust creator. Colorado law requires notification to the qualified beneficiaries within sixty (60) days of a trustee accepting the trusteeship of a trust, which often seems to catch individual or other non-professional trustees by surprise.
Trustees have the responsibility, once taking over a trust, to immediately review the trust document and determine what, if any, disclosure requirements are contained in the trust document, and to proceed according to the trust creator’s wishes and state law. That is equally important for a quiet or silent trust, in order to assure that the trustee does not make an inadvertent disclosure to a beneficiary in contravention to the terms of the trust document. Understanding the disclosure requirements of the trust document and state law is critical for a trustee to properly administer a trust in the manner the trust creator anticipated when setting up the trust.