Lecture 12 - Secret Trusts

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LECTURE 12: SECRET TRUSTS

SECRET TRUSTS

 Equity in its purest form

REQUIREMENTS FOR A HALF-SECRET TRUST (HST)


1. Intentions (the same as for a FST) - must be enough to impose a legal
obligation not a moral obligation
2. Communication (this differs from a FST) communication needs to occur before
the will is executed – s9 Wills Act
3. Acceptance – same as FST

REQUIREMENTS FOR A FULLY SECRET TRUST: -


1. Intention to impose a Trust on the
2. Communication of intention of the testator.
3. Acceptance

 Has to be a will for a half secret trust.


 Technically possible to have a fully secret trust without a will.

SECRET TRUSTS TUTORIAL:


LECTURE 12: SECRET TRUSTS

1. Against what mischief is the doctrine aimed (Secret trusts)?


o (See Strickland v Aldridge [1804] ER 32)
 The doctrine of secret trusts is aimed against the mischief of fraud or
dishonesty.
 In the case of Strickland v Aldridge [1804] ER 32, the court dealt with a
situation where a testator had left property to a person on express trusts, but there
was a verbal agreement that the beneficiary would hold the property for the benefit
of another person.
 The court held that secret trusts are enforceable to prevent fraud and
ensure that the testator's intentions are upheld, even if they were not formally
expressed in the will.
 Therefore, the doctrine of secret trusts serves to prevent beneficiaries from
unjustly enriching themselves by disregarding the testator's true intentions.
- Oldest son promised to share with siblings, then after death didn’t
- Court said you cannot use a statute to commit fraud even though in the Wills
Act s9 it says it must be set out in writing

2. When is a secret trust fully constituted?


o (See Re Gardner [No 2] [1923] Ch 233)
 In the case of Re Gardner [No 2] [1923] Ch 233, a secret trust is fully
constituted when the trustee accepts the trust and undertakes to carry it out.
 In other words, for a secret trust to be fully constituted, there must be
acceptance by the trustee of the obligation to hold the property on trust for the
intended beneficiary, even though the trust was not declared in the will or the
formal document.
 This acceptance can be demonstrated through the trustee's words or
conduct indicating their willingness to fulfill the terms of the secret trust
- It is fully constituted when the person dies and the trustee is entitled to the
money

3. Does a secret trust operate “dehors” the will?


o (See Re Young [1951] Ch 344 and Re Gardner)
 Yes, a secret trust operates "dehors" the will, meaning it operates outside
or beyond the provisions of the will itself. In other words, the terms and existence
of a secret trust are not explicitly stated within the will document. Instead, they rely
on an oral communication or agreement between the testator and the trustee, or
sometimes implied from the circumstances surrounding the creation of the trust.
 In the cases of Re Young [1951] Ch 344 and Re Gardner [No 2] [1923] Ch
233, it was established that secret trusts operate independently of the will. They are
based on the trustee's obligation to carry out the terms of the trust, which may not
be evident from the face of the will but are binding nonetheless. The trust is
enforced to prevent fraud and ensure that the testator's true intentions are
honored, even if they were not formally expressed in the will
- Outside the Wills Act because it is not subject to the same formalities
- Normal trust rules apply
- 'future monies' - can't do that as doesn’t satisfy subject matter
- Argue against this as the courts do enforce them despite going against Will Act
usually so why not go against this as well

4. Is a secret trust to be classified as express, implied or constructive?


LECTURE 12: SECRET TRUSTS

o (See Ottaway v Norman [1972] Ch 698)

 In the case of Ottaway v Norman [1972] Ch 698, a secret trust is to be


classified as an express trust.
 Express trusts are those where the terms and conditions are expressly
stated, either orally or in writing.
 In the context of a secret trust, although the terms of the trust are not
explicitly stated in the will, there is still a clear expression of intention by the
testator communicated to the trustee, whether verbally or through other means.
This intention, although not evident from the will itself, forms the basis of the trust,
and thus it falls under the category of an express trust.
- Can be all 3
- In half secret say it is a trust so is an express trust – more certain.
- In full secret you say they are a trustee so is an express trust
- If the trustee kept the money, they would be acting unconscionably and so
would be a constructive
- Important if s53 must be in writing -
o S53(2) - rule of writing doesn’t apply to constructive trusts
o Argument against – we can ignore Wills Act so why cant we ignore this
too

5. What difficulties arise in connection with joint trustees?


o (See Re Stead [1900] 1 Ch 237)
 Concerning: communication of a secret trust to some but not all intended
trustees
Facts:
- The facts of the case do not aid an understanding of the legal principles
- Legal principle:
- Where communication is one of two joint tenants and this takes place before
the will, then all joint tenants are bound
- Where communication is to one of two joint tenants after the will, then only the
one to whom the trust is communicated is bound
- Where communication is to one of two tenants in common, then only the one to
whom the trust is communicated is bound

Tenants in common:
- Need to communicate before death (Fully secret)
- If only communicated with one then only they have to hold on trust
Joint tenants:
- Be careful (Fully Secret)
- Only communicate to one person before the will is signed – all are responsible
- Only communicate to one person after the will is signed – only one person
bound by the trust

6. Do secret trusts have a future?

- While secret trusts have been recognized in many common law jurisdictions for
centuries, there has been some debate and scrutiny surrounding their legitimacy
and practicality. Some argue that secret trusts may be susceptible to abuse or
LECTURE 12: SECRET TRUSTS

manipulation, particularly if there is insufficient evidence of the testator's


intentions or if the trust arrangements are not adequately documented.
 On the other hand, secret trusts can serve legitimate purposes, such as
maintaining privacy, protecting beneficiaries from unwanted scrutiny or influence,
and ensuring that the testator's true intentions are honored. They may also be used
to safeguard sensitive family matters or to provide for individuals who may not be
recognized as beneficiaries under the formal terms of a will.
 In recent years, there has been a trend towards greater transparency and
scrutiny in estate planning and probate proceedings, which could potentially affect
the use and acceptance of secret trusts. Courts may impose stricter requirements
for proving the existence and terms of secret trusts, and beneficiaries may be more
inclined to challenge such arrangements if they believe they are unfair or contrary to
the testator's true intentions.
 Overall, while secret trusts may continue to have a place in estate planning,
their future may be influenced by evolving legal standards, changing societal norms,
and developments in technology and communication that impact how individuals
express and document their testamentary wishes. As with any aspect of estate
planning, individuals considering the use of secret trusts should seek professional
legal advice to understand the potential risks and benefits in their specific
circumstances.
 Social security – to prevent family disputes and upsets
 Tax benefits
 Hide wealth – divorce cases
 Creating a will when you are unsure how you want everything to be
distributed
 Still a demand for secret trusts (2003) - outdated?

a. Critically discuss the “secret trust” and the disputed legal basis that underpins its
existence.
 Legal basis
 'dehors' & fraud – theories – what do you prefer

 Not transparent or ethical necessarily


 Need positive and negative for secret trusts then a conclusion

Fully secret
o No mention of trust in the will
 "I'm giving you 10 million pounds"
o Requirements
 Intention
 To impose the trust on the secret trustee
 To create the trust – 3 certainties
 Communication
 Communication to the trustee
 Before the testator dies
LECTURE 12: SECRET TRUSTS

 Need to communicate the obligations/ terms of the trust


 Acceptance
 Can accept by silence, writing or orally in equity
 If they do not want to accept they must say they don’t want to be a
trustee

Half secret
o Says give money on trust but doesn’t say who it is going to or any terms
o Requirements
 Intention
 Must show intention to create a trust
 Must meet requirements of 3 certainties but is easier to satisfy than
fully secret
 Communication
 Must take place on or before the will being signed
 Acceptance
 Can accept by silence, orally or written in equity

Wills Act 1837 s9 causes a problem for these trusts


o Says that you have to write any dispositions after death following the formalities (in
writing)
o Secret trusts do not do this

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