#3556 - Secret Trusts - Trusts and Equity

SECRET TRUSTS (ON DEATH DECLARATION OF TRUST)

• A trust of Land (inter vivos) & Testamentary trust (s9 Wills Act 1837) must be

  1. in writing

  2. signed by testator

  3. who’s attested by 2 witnesses

  4. each of whom signs it & acknowledges the signature in his presence

• Definition: a clandestine agreement b/w testator & trustee which operates ‘dehors the will’; i.e. in contravention of provisions of Wills At 1837

• Rationale: to prevent people from claiming they’re entitled to the property in the deceased’s estate. Due to the Act, only those identified in the will are entitled to receive such property (otherwise instestacy rules apply). A secret trust is strictly invalid under the Act but valid in equity, if properly created.

• Equity’s primary concern in developing the doctrine to prevent trustee from committing fraud in attempting to keep the property for himself.

• Bind the conscience of legatee, though in terms of the will the bequest is absolute (McCormick v Grogan)

1. Half Secret Trust - settlor makes a will leaving property to trustee and stipulating he will hold it on trust but fixes the term of trust in private communication w/trustee (thewill discloses existence but not terms of trust)

• The effect of bequest being made in terms of the trust, w/out any statement in the will to show what the trust is, remains to be decided by court b/f and since Wills Act and doesn’t depend on the Act itself (Blackwell v Blackwell – parol (oral) evidence is admitted to prove validity of trust, terms communicated in codicil)

• Requirements (Lord Sumner in Blacwkwell v Blackwell)

1. Intention – testator intends his absolute gift to be employed as he, not donee, desires’

2. Communication – testator tells the proposed donee of this intention;

• Must be b/f or at the time of execution of the will

• Future reservation of power to make unwitnessed dispositions by naming the trustee & leaving the purposes to be supplied afterwards is invalid (b/c trustee must know the terms/be able to disclaim the office of trusteeship/secret trusts is not an instrument to delay the decision of terms) –‘to X on such trusts as I may communicate in the future’ goes too far & will be void. It’s what testator has communicated prior to the will that binds the conscience of trustee.

• Where it occurs after the will, the trust will fail & legatee will hold on RT for residuary estate (Re Keen; Re Bateman’s WT) – distinguish from fully secret trusts where testator doesn’t need to communicate the terms until his time of death)

3. Acquiescence – donee, either by express or tacit promise, encourages him to bequeath the money on the faith that his intention will be carried out.

• Trustee’s acquiescence constitutes the core of his liability in equity to act as trustee

• No need for P to prove actual fraud on the part of secret trustee (Blackwell).

• Applies even if one of beneficiaries has died in the life of the testator – payable to his legal rep (Re Gardner (No2)).

2. Fully Secret Trust - settlor makes a will leaving property to trustee w/outstipulating at all in the will that it’s given on trust but instead settles this & terms by private communication w/trustee (the will omits both existence and terms of trust, suggesting legatee takes as absolute owner)

• Essential Elements (Ottoway v Norman– Ms Hodges bequeathed property to other people, contrary to testator’s wishes):

1. Intention of testator to subject the primary done to an obligation in favour of secondary donee;

• Certainty of intention in express trusts: did testator intend to impose a fiduciary or moral obligation

• If merely moral no sufficient certainty to create secret trust (Re Snowden – elderly woman unsure how to deal w/property left it to elder brother w/words ‘he shall know what to do’; brother died days later, Megarry VC held no secret trust – only moral obligation was intended; McCormick v Grogan)

2. Communication of that intention to primary done;

• Must be done b/fdeath (Re Boyes) BUT could take place after, provided trustee knew in general terms that he was expected to act as trustee in receipt of gift under will.

• Could ordinarily be made orally/by letter from settlor to trustee or by means of sealed envelope containing terms given/made available to trustee b/f testator’s death w/instructions not to open until after death (Re Keen)

• Analogy in Re Keen – trustee was in a situation analogous to sailing ship under sealed orders, captain sets sail but isn’t permitted to know his orders until the time at which he’s allowed to open the envelope– while trustee doesn’t know precise instructions, he’s aware of the means by which he can ascertain the terms of the trust.

• Primary issue: what must be communicated? depends on nature of property/testator’s intention

• Re Boyes – testator informed trustee of his wish to leave property under secret trust & that terms would be communicated b/f his death; they weren’t, 2 unattested docs found after death purporting to direct trustee to hold for mistress & child, Kay J: presentation of these 2 docs insufficient to constitute communication of terms + trustee wasn’t given opportunity to accept/refuse = no secret trust; could also be b/c decided in 1884 - distinguishing factor was that trustee knew nothing of terms of the trust b/f testator’s death whereas in Re Keen it was a half secret trust)

• Where settlor leaves to more than one trustee but only communicates to one (Farewell J in ReStead) – 3 possibilities

  1. As tenants in common (each has separate share in property) – A (to whom communicated) is bound but C isn’t b/c otherwise would be deprived of her rights

  2. As joint tenants + communicated b/f the will – both A & C are bound b/c they’re collectively entitled to the whole – unity of title, interest, time & possession)

  3. As joint tenants + communication after the will – A is bound but not C b/c neither had accepted the obligation b/f will was made

• Alternative: has the gift to C been induced by A’s promise

3. Acceptance of that obligation by primary donee, expressly or by acquiescence

• Why? Equity aims to avoid fraud trustee must have accepted the office first, in order to have that obligation imposed on him; he ought to be given opportunity to turn it down, especially given the sensitive nature of holding property in such circs

• Can be effectuated at any time during life of testator but a sealed envelope to be opened after is sufficient (Re Keen)

• Office can be accepted by express promise or silent acquiescence – the effect is that testator left the property to the trustee upon faith of that promise or understanding (Wallgrave v Tebbs)

• Primary question: whether or not actions of trustee on being asked to act were sufficient to have caused the testator to carry through his intention

• No requirement of real fraud (Ottoway v Norman)

• Standard of Proof: where no question of fraud arises, civil standard required but could vary (Re Snowden)

• Parol Evidence Rule

• Generally, law of evidence doesn’t allow admission of parol evidence to contradict express terms/written evidence in the will, so possible that in some cases courts won’t allow it where directly contradicts terms.

• If secret trust fails, there 2 possibilities:

1. If intent of testator is taken to be intent to benefit the named legatee absolutely beneficially, then he’ll take the gift absolutely (Wallgrave v Tebbs)

2. Otherwise, donee holds on RT...