New York Estate Planning & Elder Law Blog
Many people want to avoid involving children in conversations about trusts. This article reviews some ideas that are helpful to consider when people decide whether to establish a quiet (or “silent”) trust or a trust that allows keeping the trust’s existence or details about the trust from beneficiaries as well as for the extent of time that the trust will remain quiet.
Research reveals that approximately 70% of wealth transfers do not operate properly by the third generation. Not operating properly in this context involves the receiving generation losing control of assets in the trust. Routinely, this is not due to inadequate wealth planning or unwise investing, but instead to an absence of trust, transparency, and lack of planning. Before considering quiet trusts, it’s a good idea to consider the wider picture of family governance as well as preparing children for the assets that they will one day receive. Instead of considering quiet trusts as an alternative to wills, you should also consider involving your beneficiaries directly in discussions about the trust once they reach the appropriate age. What constitutes an appropriate age is influenced by the structure of a family, but in many cases is earlier than a person thinks.
How Wealth Is Transferred
Wealth transfer is best divided into the groups of modern and traditional planning. Traditional planning involves handling estate planning documents including wills and trusts. Modern planning involves structuring financial behavior for children and considering a teachable moment to help children learn more about making financial choices. This also can include establishing a statement about wealth transfer intent, which addresses the purposes of a person’s estate plan as guidance for loved ones and fiduciaries working with family members.
Financial Awareness
In traditional estate planning, receiving a financial education is connected to the disclosure of assets. Disclosure of this kind is postponed until parents think that children are prepared to know about assets. The risk of traditional estate planning is that the financial awareness of children is left to chance instead of being cautiously structured. In modern planning, financial disclosure is not required from the start, but the financial awareness process helps stop children from learning about the “job” only after receiving assets.
The Involvement of Loved Ones
Family engagement when it comes to traditional planning is often restricted to those loved ones who are selected to take part in a family business or assist in managing assets that have led to a family’s wealth. This is an absorbing effort for some family members, while other loved ones are excluded from the process. Modern planning, however, suggests that parents widen the engagement path by inviting all adult relatives to establish a statement that provides a vision of success. A person need not participate in a family business to take part in the family’s business.
Sharing Details of Estate Plans
Traditional planning can introduce the formal reading of a will, which might be the first time that family members discover how asset disposition happens. Traditional planning often occurs when individuals are proceeding through a difficult time. The result can be less than desired. Modern planning suggests that clients communicate details about their estate plan with relatives while they are still alive. This way, family members understand a client’s objectives and needs before the reading of a will occurs. This also includes offering adult relatives the details that they need to perform their planning. This aspect of modern planning is the opposite of utilizing a quiet trust as a substitute and retaining information from those people who will most benefit from the assets. Succession planning is a corollary. In traditional planning, succession planning routinely occurs when a succession is imminent or following an unexpected succession. In modern planning, a client involves the whole family in estate planning