This is one you might get just playing along. I wouldn't spend too much time getting this, especially if you start using the Path of Nightmares costume later in the game, which causes people to get terrified just from finding bodies or seeing you stealth kill. Remember that if you don't get this in your first playthrough, you still have an entire New Game + mode to try for it.
I found that the easiest way to terrify a guard without getting spotted was the Ravenous Insects. If you see three guards standing anywhere near each other, toss the insects onto the middle one. He screams, the other two look at him and become terrified and start shooting. This nearly always results in one guard's death, and this achievement.
If a guard is terrified and shooting the wrong direction, just jump behind him and run for a couple of steps to draw his attention the proper direction. Make sure you have an escape route planned - he'll turn around shooting.
If you want a step-by-step guide, there's a good spot in Level 6 ("An Ancestral Home"). Minor spoilers, if you're extremely sensitive to that sort of thing: