#17289 - Secret Trusts - GDL Equity and Trusts

A secret trust is a trust where all or some of the terms of the trust are not apparent on the face of the will.

• Meager: secret trusts are still commonly used today.

Two types:

• Fully Secret Trusts (‘FSTs’) – a trust which appears on the face of the will as an outright gift.

  • Can arise in will or on intestacy (Re Gardner (No.2) [1923] – where the owner of property refrains from making a will and so allows the property to pass to the donee as on an intestacy)

• Half Secret Trusts (‘HSTs’) – a trust which appears on the will as a trust but with beneficiaries unnamed.

  • Can only arise in the will.

A valid will must comply with s.9 of the Wills Act 1837 (as amended)

• i.e. it must be in writing, signed by testator and attested by two independent witnesses.

• Secret trusts violate this as not all in writing, signed and attested.

The onus is on the person claiming that a trust exists. The standard of proof for establishing the trust is the normal civil standard, namely proof on a balance of probabilities (Re Snowden [1979]).

Requirements of secret trusts:

• These conditions will not be satisfied in the will itself but in the circumstances surrounding the will.

• Peter Gibson LJ in Kasperbauer v Griffith [2000]:

  • 1) There must be a valid intention to create a trust (as well as other of the three certainties)

  • 2) The settlor must communicate the intention to create a trust to the trustee

  • 3) The trustee must accept the trust;

  • The testator then relies on that acceptance by making a will, leaving a will unrevoked or not making a will at all.

• If a trust is lacking these:

  • FST:

    • If no intention/communication, then the ‘trustee’ takes it as an absolute gift

    • If partial communication/no acceptance then this creates a resulting trust for the estate/residuary beneficiary.

  • HST:

    • Intention should be clear on face of the will (if not then gift)

    • If not validly communicated/accepted then resulting trust.

1) Valid Intention:

• Examples:

  • Kasperbauer – wife ‘knows what to do’ was insufficient for intention.

  • McCormick v Grogan (1869) – property left to legatee on conditions of a letter. Letter said that the legatee was not to be fully bound therefore no certainty of intention.

  • Re Snowden [1979] - Testator wasn’t sure how to divide property. Left property to brother for him to make the decision as to who the property should go to. This was held to lack a certainty of intention.

• Other certainties must comply with standard tests.

2a) Valid Communication of FST

• Method

  • Express communication is preferred. May be oral or in writing.

  • Can be constructive communication:

    • Re Keen [1937] – terms of trust contained in a sealed envelope opened after death. Trustee must know the envelope contains these instructions. Envelope must be given to trustee (cannot be found among possessions)

      • Lord Wright: a ship sails under sealed orders.

      • Need for ‘double’ acceptance: The trustee must accept that they will become trustees and accept that they will find out who the beneficiaries are after the testators death.

• Timings

  • At any time before the death of the testator.

  • This is regardless of when the will has actually has been created: Wallgrave v Tebbs (1855)

2b) Valid Communication of HST

• Method

  • Express communication is preferred. May be oral or in writing.

  • Can be constructive communication:

    • Re Keen [1937] – need for double acceptance.

  • Cannot contradict the terms of the will:

    • If the communication only took place to one of the trustees but will says all have been communicated to then will fail

    • If the will says ‘I will communicate to the trustees’ but the trustees were told days before then the contradiction of tenses is sufficient to make the will fail.

    • Re Spence [1949]

• Timings

  • Must be before or at the same time as the will is made (i.e. cannot be after): Blackwell v Blackwell [1929]

2c) Valid Communication (features common to both FST & HST)

• All terms must be communicated – how the property is to be distributed and who the beneficiaries are: Re Boyes (1884)

• Including any additions to the trust:

  • Re Colin Cooper [1939] – testator communicated that 5k be left on FST. Increased this sum without telling trustees.

    • In FST the excess is an absolute gift.

    • In HST the excess goes back on resulting trust.

• If there are more than one trustee, communication should be to all of them

  • If communication takes place to one of them, the rules in Re Stead [1900]

    • Tenancy in Common (i.e. distinct shares in trust property) then only those who accept are bound as only their conscience is affected.

    • Joint Tenancy (i.e. all trustees are one owner):

      • If communicated before the will was made then all trustees are bound.

      • If communicated after the will was made (only FST) then only the accepting trustee is bound.

• NB Ireland and other jurisdictions where the rules for communication have been standardised.

  • Now the communication of either sort of trust can take place at any point up to the death of the testator (Re Browne [1944])

3) Acceptance

• Acceptance should normally be express but it is permissible for acceptance to be implied from silence

  • Moss v Cooper (1861) per Wood V-C: ‘Acquiescence either by words of consent or by silence’.

  • Affirmed in Ottaway v Norman [1972] Ch 698 - express acquiescence

• Timing:

  • FST: before death

  • HST: before or at time of creation of will.

• Acceptance can be revoked provided

  • It is revoked before the death of the testator and revocation is communicated to the testator before his death.

  • Potential unconscionability wrt death bed revocation?

Can secret trustee also be a beneficiary under a secret trust

• FST: Yes, Irvine v Sullivan (1869)

• HST: No, Re Rees’ Will Trusts [1950] – Solicitor drafted the will and also a half-secret trustee and a beneficiary. This was contrary to public policy.

  • As far as everyone is concerned looking at the will the property is being given to the trustee for the benefit of somebody else. Therefore unreasonable if they are also holding it for themselves.

  • This rule is criticised in Re Tyler [1967], and in Ireland there is no distinction.

Can a trustee/beneficiary also witnesses the will?

• General rule is that s.15 of the Wills Act 1837 applies: a witness to a will or his / her spouse cannot benefit from the legacy.

• If a trustee attests the will:

  • FST: gift will lapse under s.15

  • HST: trust is on the face of the will so no lapse.

• If beneficiary attests the will:

  • Generally argued that the trust is ‘dehors’ the will therefore s.15 does nto apply.

  • Re Young [1951] – No violation of s. 15 as they are benefits arising from a trust separate to the will. (FST case but ought to apply to HST too).

Trustee predeceasing testator:

• S.25 of the Wills Act requires the beneficiary under the will to survive the testator for the gift to be effective

• FST: If the trustee dies before the testator then the trust has no trustee to bite on, so gift lapses. Re Maddock [1902]

• HST: We know of existence of trust so equity steps in to replace trustee if necessary Mallott v Wilson [1903]

Beneficiary predeceasing testator:

• Current law is that interest arises in favour of beneficiary when the secret trust is communicated as the trust is dehors the will

  • Re Gardner (No 2) [1923]: Romer J, property went to beneficiary’s estate.

    • Beneficiary of secret trust pre-deceased testator. This gift would normally fail (s.25 WA 1837) and resulted to testators estate, but Romer J held that the property went to the beneficiary’s estate.

• This has been heavily criticised:

  • Implies will cannot be altered once made (contradicting testamentary freedom).

  • Ignores the fact that the trust is not constituted until after death.

Trustee disclaiming the legacy:

• FST: current law under Re Maddock [1902] is that the trust will fail.

• HST: will not defeat it as ‘equity will not allow a trust to fail for want of a trustee’ (Blackwell v Blackwell)

Secret trusts of land:

• A trust of land needs to comply with s.53(1)(b) LPA 1925 (signed and in writing) – Re Ballie HST of land not enforceable without writing (note that this was decided before validity of HSTs was affirmed...