Magwitch, a now-prosperous ex-convict, asks you to create a trust for the education of a young orphan, Pip. He insists that Pip not be informed about the source of the funds. What is your advice?
The trustee of a trust is accountable to its beneficiaries, who are the ones with standing to assert a claim for breach of trust or demand that the trustee file ajudicial accounting proceeding. For the trust to be enforceable as a practical matter, the beneficiaries should be informed of their interest in the trust. Nevertheless, over the past decade more than 30 jurisdictions have enacted legislation—primarily driven by controversial provisions included in the 2000 Uniform Trust Code (UTC)—permitting some form of a "quiet"1 or "silent" trust in which the settlor abrogates or severely limits a trustee's duty to inform beneficiaries of the existence of an irrevocable trust or to notify beneficiaries of certain other trust information.2 Michigan and Washington have enacted legislation expressly prohibiting the formation of a quiet trust.3
There is no law directly on point in New York dealing with this issue, although analogous cases suggest that a quiet trust would not be permissible. In considering the adoption of the UTC here, divergent views as to how to codify the duty to inform have been proposed. The current proposal, as submitted to the legislature, tracks the controversial UTC provisions that some other states have rejected or modified. If New York enacts these proposals, quiet trusts would not be permitted except for remote contingent beneficiaries and beneficiaries under age 25.
This article will examine some of the policy concerns regarding quiet trusts, the common law principles governing them, New York's current lack of statutory guidance on the issue and legislative responses to quiet trusts in other states.
What Is a Quiet Trust?
A quiet trust is used when the settlor wants to keep the existence and terms of the trust from the beneficiaries, for at least some period of time. This desire may arise for a variety of reasons (privacy, or avoiding spoiling or disincentivizing children, for example). Beneficiaries are still identified in the trust instrument by name or class description, but some or all of them will not be notified of certain information relating to the trust (including the trust's existence). Just how much or how little information must be provided to the beneficiaries of a quiet trust will depend on the terms of the trust instrument as well as the law in the jurisdiction in which the trust is created. For example, the trustee may be required to:
• notify current beneficiaries but not contingent beneficiaries;
• provide information (including the terms of the trust agreement) to beneficiaries upon their request but not to volunteer it;
• be prohibited from providing information to the beneficiaries even upon request;
• provide information to only certain beneficiaries; or
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