How Could the New Illinois Trust Code Affect a "Silent Trust"?

 Posted on August 12,2024 in Estate Planning

On January 1, 2020, a new Illinois Trust Code replaced the then-existing Illinois Trusts and Trustees Act. The new Code introduced various changes which affected beneficiaries’ rights, trust preparation and administration, and the obligations of trust fiduciaries. With certain limited exceptions, the new Illinois Trust Code applies to all trusts created before, on or after the effective date.

These changes meant that all Illinois trust documents currently in place should be reviewed to make sure that they are in compliance with the new Code provisions, while all new Illinois trusts must be drafted to comply with the Code. If you have a "silent trust" in place at the present time, or are considering having one prepared, it is important that you speak to the knowledgeable Hillside, IL trust attorney from Law Office of Vincent C. Machroli, P.C..

What is a "Silent Trust"?

A "typical" trust involves disclosing information to beneficiaries, and actively communicating with all those who will be affected by the trust in any way. In contrast, a "silent trust" purposely keeps beneficiaries from knowing of its existence, including its terms and assets. "Silent trusts" are drafted for a variety of reasons, including:

• Shielding young children from the potentially adverse consequences of inherited wealth;

• Protecting beneficiaries who struggle with addiction by preventing them from having direct access to funds;

• Limiting access to confidential financial information; and

• Preventing "trust fund babies" from squandering their inheritance, & thus losing the motivation to work for what they need or want.

A "silent trust", used in combination with a "directed trust", allows the grantor to maintain control and discretion over the trust provisions, while at the same time keeping beneficiaries unaware of the existence of the trust until specific conditions have been met. Since a trust beneficiary will not be told that the trust exists, the grantor must name a representative to ensure that the beneficiary's interests are protected.

If there are multiple beneficiaries – as there often are – this needs to be considered when preparing a "silent trust". For example, it can be difficult for three children to know about the trust, but yet refrain from telling the fourth child about it. The representative must be a person the grantor trusts to ensure that a beneficiary's interests are protected, and that the trust terms are upheld.

Time-based conditions are sometimes put in "silent trusts". This means that only when the beneficiary reaches a stated age can they  receive details regarding the trust. Time-based means that event-related conditions like "upon marriage" cannot be used in a "silent trust".

How Does the Illinois Trust Code Change How "Silent Trusts" Work?

The Illinois Trust Code allows grantors to create a "silent trust", thereby waiving the trustee’s obligation to provide information or accountings to beneficiaries under the age of 30. The grantor can designate a representative to receive this information on behalf of the beneficiary during the silent period. Previously, trustees were required to provide accounting and oher information directly to all beneficiaries, even in the event a "silent trust" was in place.

The grantor can now include a provision in the trust document waiving the trustee’s duty to provide accounting and other information regarding the trust to beneficiaries under the age of 30. However, the grantor must authorize a representative, and the trustee will provide this information to the representative on behalf of the beneficiary until the beneficiary turns 30.

Once the beneficiary turns 30, they must be notified by the trustee regarding the existence of the trust. Knowing that the "silent trust" exists is not the same as gaining total access to the assets. It means only that the beneficiary is allowed to see the contents of the trust and receive regular accountings from the trustee. "Silent trusts" can be useful tools during asset planning, but they require a highly-skilled estate planning attorney to guide the process.

Contact an Oak Park, IL Trust Attorney

Since a trust is a more complex financial instrument, which can be used for multiple, specific purposes, it is very beneficial to have a knowledgeable Hillside, IL estate planning attorney from Law Office of Vincent C. Machroli, P.C. assist you as you create yours. Our experienced attorney works closely with our clients to create the right tools to protect and preserve their estates. For help with trusts, or any other estate planning matter, contact the Law Office of Vincent C. Machroli, P.C. at 708-449-7404 to schedule your free consultation.