When do you give your children an inheritance? What does telling them that they will receive an inheritance do? Is there an optimal time to do so? A new estate tax rule has opened up new questions for parents planning on bequeathing millions to their heirs. And although we may not be facing that dilemma ourselves, the questions about secrets, family dynamics, and motivation in general are interesting to ponder. One option being explored is called a “quiet trust:”
“With a traditional trust, the trustee generally reports directly to beneficiaries, or their parents if the beneficiaries are children. With quiet trusts, the donor specifies who the trustee reports to and when.
That means someone who manages a quiet trust can’t get the heirs’ feedback about investment goals. And heirs might end up with mixed feelings after learning they went for years without knowing they someday would inherit a tidy sum.
“If I were going to set up a trust for my kids, I would tell them about it and why I don’t want them to rely on it,” Ms. Harrington says. “If I don’t feel comfortable doing that, then I should just keep my money.”
Alan Moore, a financial adviser in Milwaukee, says he generally recommends against parents and children keeping such secrets, and always asks why a client wants to hide inheritance plans. “This tells me there is something more going on psychologically that we need to address,” he says, such as anger or a need for control.
Mr. Moore recalls working with one set of siblings who didn’t learn until their 50s that their parents had left them millions—and, rather than being delighted, were disturbed their mom and dad had kept the secret from them.
Mr. Puzo, who says he has set up increasing numbers of quiet trusts in the past two years, notes that it is important not to leave heirs in the dark too long: The beneficiary needs to know his financial situation, and the family needs to make sure someone is keeping tabs on the trustee, he says.” Read more…