A secret trust is kept hidden from everyone, even in a will. A semi-secret trust reveals the existence of the trust, but the beneficiaries are kept secret from everyone.  

Trusts are essential components of contemporary planning for the management and distribution of assets through generations. Secret and semi-secret Trusts are two trust types that differ from the rest. In fact, it might be so far removed from a normal trust that it’s not for you. 

But that’s what we’ll figure out in this article. We will look at the definitions of the semi-secret trust, the secret trust, and their characteristics. We’ll also look at the tax consequences of these trusts. And in the end, we’ll even give you a handy comparison between the two to help you make up your mind.

A Basic Guide To Trusts

But first, what’s a trust? And is a trust, let alone a secret or semi-secret trust even meet the goals you have for your estate? Let’s cover the terms before. 

What is a Trust?

Trust is nothing but a fiduciary agreement which allows a third party (a trustee) to handle assets on behalf of one or more beneficiaries. The trustor (the settlor or grantor) essentially gifts their assets to the trust and those assets are administered in accordance with a trust agreement.

Trusts may be used to protect assets, limit tax, and provide for minor children or dependents. Trusts help ensure the grantor's wishes are carried out after they die, bringing peace of mind to both the trustmaker and their beneficiaries. 

Furthermore, the exact types of trusts, like revocable and irrevocable trusts, each have their own pros and cons. They can be either revocable—meaning that the grantor retains control over the assets during his or her lifetime. Or they can be irrevocable, in which the assets are considered no longer part of the grantor’s estate. 

The Role of Trusts in Estate Planning

Trusts are essential for estate planning. They can help to prevent the costly and time-consuming probate process. Ever been through probate? It’s a long, drawn-out experience which delays the distribution of assets to beneficiaries. 

In a typical will, everything is openly available to the public. But in a trust, all your assets are kept secret, away from prying eyes. 

Additionally, trusts can be crafted to do things like taking care of beneficiaries who are disabled without making them ineligible for government benefits. Or you can create specific clauses or schedules for when your beneficiaries receive their payouts. 

You might also have a spendthrift trust, which is one that can protect beneficiaries from themselves by denying them any access to the assets within that trust until set conditions have been met. 

You can also create charitable trusts for the benefit of your favorite cause. This can create lasting legacies that ensure your family wealth continues to do good things long after you’re gone. 

Diving into Secret Trusts

Now that we’ve explored the general term, let’s look at the specific secret trust. What does it do? How does it work? And why would you want a secret trust in the first place? 

Defining Secret Trusts

A secret trust is a type of trust where you might give an asset to another person in your will, but that gift is actually intended for another beneficiary. This is a secret agreement that the person named in the will isn’t the actual recipient. They’re simply holding it for someone else.

A secret trust is like a promise to pass along the asset without anybody knowing the actual beneficiary. The secret beneficiaries of such a trust are usually identified to the trustee only.

This structure has a greater privacy layer thus keep all trust information confidential. Nonetheless, this also naturally brings up some very important concerns. How can a secret informal promise be enforced? And what are the actual intentions of the grantor? This lack of transparency could create disputes if beneficiaries feel cheated out of what was owed to them. As you can see, a secret trust can be a tricky trust to create and manage. 

Key Features of Secret Trusts

So, if it’s such a tricky trust, why would you choose a secret trust over a semi-secret trust? 

Confidentiality:
The trust is not detailed in the will, to afford more discretion. Wills can be made public in probate court, so a secret trust keeps unwanted attention away. 

Flexibility:
If the beneficiaries of a secret trust agree, they can be amended informally. It’s like a living trust, where amendments can be easily made as circumstances change. 

Trustee Discretion:
The trustee has broad discretion in how to administer the trust and accomplish the grantor's goals. It’s a little more flexibility than a typical trust might afford. 

Legal Concerns About a Secret Trust

While secret trusts have their benefits, they are also full of potential legal land mines. You just have to wonder whether your intentions will be respected in the absence of formal documentation. These trusts can be difficult for courts to enforce, and the beneficiaries could end up in a dispute.

Moreover, secret trusts are not as stringent as other trust structures and might be set aside for being informal. As such, it is advisable for anyone contemplating a trust of this nature to seek the counsel of an attorney who can help manage these complexities. 

The testator must also be explicit in their communication to the trustee to ensure there is little chance of things not being interpreted the way they wanted. This is why it’s so important to choose the right trustee. This person should ideally be someone with integrity, knowledge about your wishes, and someone who can manage your assets responsibly.

In reality, secret trusts go beyond their straightforward legal consequences. It can affect family relationships too, especially if the existence of the trust is only made public after your death. Your wishes might come to pass, but at what cost? Your family unity? Your loved ones’ relationships?  

Unfortunately, a secret trust might actually break the trust between your family members and loved ones. You should consider the emotional factor of your estate plan because even in a perfect scenario, there could still be hurt feelings and disappointment. 

Exploring Semi-Secret Trusts

With all that secrecy, you still have the option to maintain some privacy with a semi-secret trust. Here are the main differences and the key points you should know about this trust type. 

Semi-Secret Trusts Explained

The semi-secret trust acknowledges the existence of the trust but hides the details about who will be a beneficiary. The testator can note in the will that you have established a trust but you don’t have to spell it out for anyone what’s included in that trust.

It sacrifices a little in terms of privacy, but the semi-secret trust still lets you create a trust while being intentionally secretive about your beneficiaries. This can be especially advantageous as it allows you to keep the affairs of his or her beneficiaries private,  especially if your beneficiaries are minors. 

Specific Features of Semi-secret Trusts

Here’s why people choose to create a semi-secret trust over a secret trust.  

Transparency:
Because your loved ones know of the existence of a trust, they may be less likely to dispute that it is a valid trust.

Beneficiary Rights:
Your beneficiaries will have a more robust legal footing to enforce their rights compared to any rights that won’t have under a secret trust.

Legal Structure:
Semi-secret trusts are more easily enforced by the court as they’re recognized as a valid trust formation. 

Legal Concerns of Semi-Secret Trusts 

Semi-secret trusts tend to have a firmer legal footing than secret trusts, as they appear more open. Courts will generally uphold these trusts, so long as the will reflects that intent correctly.

A trust like this can help prevent future disputes (even if the terms aren't disclosed upfront) simply by spelling it out that a trust exists in the first place. 

However, even with these rules,  beneficiaries can get frustrated with the privacy of this trust. This uncertainty can cause some beneficiaries to question their rights to your assets. Moreover, if the beneficiaries are unclear, this could render the trust harder to administer, with trustees having to deal with ambiguity and multiple interests.

Again, you have to consider the emotional toll of this ambiguity. It can easily breed family conflicts, especially where rivalries or grievances already exist between heirs. Semi-secret trusts, walk a fine line of privacy and transparency.

Analysis of Secret vs Semi-Secret Trusts

Secret and semi-secret trusts are known as constructive or inferred trusts. But let’s take a moment to put them side by side, a comparison to see if they will meet your goals and future plans.  

Key Similarities of Secret and Semi-Secret Trusts

Both secret and semi-secret trusts are ultimately a method for distributing assets outside of the probate process. In either case, they are intended to keep the administration of the grantor's estate quiet.

Moreover, they may also be used to make your wishes known for each individual named in your will and trust. This flexibility is most beneficial to those with more complicated family dynamics or who want to leave money in a trust for unusual beneficiaries, such as friends, charities or even bequests for pets. 

Furthermore, both types of trusts can be customized with certain provisions that the beneficiaries must meet before they receive their payout. This is so that your assets don’t fall into the wrong hands. And it ensures that your beneficiaries are in a good position to receive a large payout when they’re ready for it.

Differences between Secret and Semi-Secret Trusts

But as we look at the secret and semi-secret trusts, we can spot the differences quite easily. The key difference is how much they reveal. With secret trusts, the trust is hidden from public view. 

In contrast, when a semi-secret trust is formed, it can be important to know that the trust exists but not give away any information about who it benefits. It gives the illusion of transparency without giving too much away. 

This distinction can have substantial implications in the area of estate planning, as the decision to make the trust revocable or irrevocable might reflect a preference for privacy (as opposed to transparency) over controlling the administration of the trust.

Moreover, in the eyes of a court of law semi-secret trusts are more likely to be legally enforceable than fully secret trusts.  It’s all too common that a secret trust can be thought to be fraudulent or ambiguous. Courts tend to shy away from ruling in favour of informal agreements or “handshake contracts”. 

Most likely, a court will intervene in that case, reverting to a will that clearly spells out your intentions. In some jurisdictions, this might then result in challenges from resentful heirs or claims against the state. This is why it’s always best to work with a professional estate planner to design your trusts and legacy plans.

What Is the Trust for Me?

Still not sure which trust works for you? It’s best to start by thinking about your goals. What do you want your estate to achieve? What do you want to be remembered for? Who do you want to take care of? Who matters most to you? These kinds of questions help guide you to pick the right kind of trust for you.  

What to Think About When Deciding on a Trust

Most grantors don’t understand the requirements for secret trusts, while semi-secret trusts are often a far better option. When it comes to deciding between secret or semi-secret trusts in your will, you have a few variables. 

Privacy Needs:
Determine your preference for confidentiality regarding the distribution of your estate. And not just privacy from outsiders. Think about privacy within your own family.  

Legal Implications:
These are some potential legal challenges depending on the type of trust you choose. Remember that semi-secret trusts are more favorably viewed in courts. 

Beneficiary Circumstances:
Assess the needs and expectations of your beneficiaries. Will they get what they want? What do they deserve? 

How Trust Selection Affects Beneficiaries

The choice of trust type can change fortunes for beneficiaries. This will serve as a strong indicator of what their expectations and emotions relative to their inheritance should be or even if the trust should exist in the first place.

Secret trusts, on the one hand, are exactly what they say they are – secret. No one knows about it until after the testator dies. And at this point, no one can argue with you about your wishes. 

But on the other hand, semi-secret trusts keep everyone guessing about who’s named in the trust, and what they’ll receive when you pass away. Is it better to have your beneficiaries not know the gift is coming? Or to suspect it’s coming but not be sure. That’s a question for you to answer. 

Remember that this will have a lasting emotional impact as well. It’s best to work with an experienced attorney who can give you more tailored advice about how to proceed with your secret or semi-secret trust. 

Secret vs Semi-Secret Trust: Your Best Decision 

In the end, this is your decision. It’s your estate. It’s your legacy. And it’s your right to decide how your assets will be distributed after you’re gone. Even if you feel like the secret trust or semi-secret trust is your best bet, it’s always wise to consult with an experienced professional about your trust plans. 

Sometimes, it’s best to get the options laid out before you, at least so you can know which choice doesn’t work for you. And which trust does. Above all, make sure that you keep your beneficiaries at the top of your mind. 

After all, no matter which trust you choose, the secret or semi-secret, they will be the ultimate recipient of your wishes.  

And if you’d like some help, our team is here for you. Start today by filling in this form below, and we can reach out and create a trust that helps you reach your goals. It’s as easy as that. We’re waiting for you right now.

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