¶ 2501
Overview
Scope of the chapter. A trust separates the management of property from its enjoyment. The beneficiary owns the equitable interest, and the trustee holds title and makes the decisions. The law has long treated the beneficiary's knowledge of the trust as the means by which that separation is policed: a beneficiary who does not know that a trust exists cannot ask for an accounting, object to a sale or sue for a breach. This chapter examines how far a settlor may withhold that knowledge. It covers the traditional duty to inform and its basis in the Restatements, the Uniform Trust Code's notice and reporting rules and the settlor's limited power to waive them, the statutes in Delaware, South Dakota, Nevada, Alaska, Wyoming and other states that permit a "silent" or "quiet" trust, the cases, the effect of silence on limitation periods, the circumstances in which a silent trustee must speak anyway, the approach of the international trust jurisdictions, and the drafting of a silent-trust provision.
Terminology. A silent trust is one whose terms relieve the trustee, for some or all of its duration, of the duty to tell some or all of the beneficiaries that the trust exists or what it holds. The Delaware statute speaks of restricting "the right of a beneficiary to be informed of the beneficiary's interest in a trust for a period of time," and practitioners in that state often call the result a quiet trust. Del. Code Ann. tit. 12, § 3303(c). The two terms describe the same device. A silent trust is different from a trust in which a beneficiary has waived reports, because the waiver comes from the beneficiary and may be withdrawn. Unif. Trust Code § 813(d). It is also different from a revocable trust during the settlor's life, in which the trustee's duties run to the settlor alone (see infra ¶ 2520.06).
Why settlors ask for silence. The reasons are familiar to every planner who has drafted a large trust for young beneficiaries. A settlor may fear that a child who learns at eighteen of a fortune held in trust will lose the incentive to study and work. A settlor may want to keep the size of the estate from a child's spouse, from a family business's employees or from the press. A settlor who has treated children unequally may want to postpone the family argument until after the settlor's death. Some settlors want privacy for its own sake. These reasons are lawful, and the statutes considered in this chapter accept them. The question is how much of the beneficiary's protection the law will give up to serve them.
The tension. The duty to inform exists to make the other duties enforceable. A trustee who never reports is a trustee whose mistakes and misconduct may never come to light, and a beneficiary who learns of a breach decades after it occurred may find the evidence gone and the trustee dead or insolvent. The Uniform Trust Code's drafters described the problem as one of "competing policy considerations" on which the states would not agree. Unif. Trust Code § 105 cmt. (2004 amendment). The states that permit silent trusts have generally answered it with a substitute: a designated representative or beneficiary surrogate who receives the information the beneficiary would have received and can act on the beneficiary's behalf (see infra ¶¶ 2540.03, 2540.07; ch. 26).
Relation to other chapters. Chapter 5 treats the duty to inform as part of the mandatory core of trusteeship and explains the Uniform Trust Code's list of non-waivable rules (see supra ch. 5). Chapter 4 describes Delaware's statutory framework and the McNeil litigation (see supra ch. 4). Chapter 6 covers the information duties that run between trustees and trust directors under the Uniform Directed Trust Act (see supra ch. 6). Chapter 26 covers designated representatives and virtual representation in detail (see infra ch. 26). This chapter focuses on the beneficiary's right to know, the settlor's power to restrict it, and the consequences of doing so.