The odds are good that you will decide to incorporate at least one trust into your estate plan given how popular trusts are. If you do include a trust, you may decide to make your trust a secret or semi-secret trust. A Fargo trust attorney at German Law explains what a secret trust is and why you might want one.
Understanding Your Last Will and Testament
Most people are familiar with the concept of a Will. At its most basic, a Will is a legal document that allows the Testator (person executing the Will) to make gifts of assets owned by the Testator at the time of his/her death. Because a Will must be submitted to the court for probate, the terms of a Will become available to the public. Therefore, gifts made in a Will cannot be concealed or kept secret.
Understanding a Trust Agreement
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor (also referred to as a Maker or Grantor), who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. All trusts are first divided into one of two categories – testamentary or inter vivos – the latter of which is more commonly referred to as a living trust. A testamentary trust is a trust that arises upon the death of the Settlor and which is typically activated by a provision in the Settlor’s Will. A living trust is a trust that takes effect as soon as all the legalities of creation are in place. Assets gifted in a trust are distributed according to the terms of the trust agreement. Although a trust agreement does not typically need to be submitted to a court, the existence of a testamentary trust itself as well as the identity of the beneficiaries of the trust, are usually included in a decedent’s Will.
What Is a Secret or Semi-Secret Trust?
A secret trust is one in which a Testator appears to leave assets outright to someone in a Will; however, that beneficiary is really a Trustee for another beneficiary. For example, you might leave $100,000 in your Will to John Smith absolutely when, in fact, you have made it clear to John Smith that the $100,000 is intended to be used for the benefit of a third party.
A semi-secret trust is one that is mentioned in a Testator’s Will; however, the names of the trust beneficiaries and/or other terms of the trust are not mentioned in the Will. By way of illustration, imagine that you gifted that same $100,000 to a trust in your Will and simply stated that the funds are “to be used according to my wishes.” In that case, the existence of the trust is made public in your Will; however, the beneficiaries and terms of the trust are not made public.
The creation of a secret or semi-secret trust requires an arrangement between the Testator and the Trustee of the trust. That arrangement should, ideally, be set out in a separate document. Some people do make oral agreements; however, doing so is risky because upholding an oral agreement is always more difficult than upholding one in writing.
Do I Need a Secret Trust?
Keeping a trust secret is usually done for one of two reasons. Either a Testator wants to keep the terms of his/her estate plan out of the public eye altogether or wants to keep beneficiaries/heirs from knowing the terms of that plan. Public figures, celebrities, and individuals with considerable wealth may simply want to avoid public scrutiny. You do not need to fall into one of those categories, however, to benefit from a secret or semi-secret trust. Maybe you simply do not want all your heirs to know how you distributed your assets. Using a secret or semi-secret trust allows you to keep those details private.
Contact our Trust Attorney
Please join us for an upcoming FREE seminar. If you have additional questions or concerns about creating a secret trust, contact our trust attorney at German Law by calling (701) 738-0060 to schedule an appointment.
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