Secret Trusts

Question 1

What is a secret trust?

Answer 1

A trust that remains secret. A trust that is created by a will (testamentary) must comply with the requirements of the Wills Act 1837, s9. A trust is public, therefore, a testator may want certain details not to be made public,

Question 2

What is the main purpose of a secret trust?

Answer 2

A secret trust is used to avoid public knowledge of a trust arising on the death of the testator. The trustee appears to be the beneficiary when in fact they are secretly holding the money for the actual beneficiary

Question 3

What is a fully secret trust?

Answer 3

The legatee appears on the face of the will to take beneficially. Displayed as the beneficiary.

Question 4

What is a half secret trust?

Answer 4

This is where the will states the trustee, but does not specify the details of the trust e.g who the beneficiaries are.

Question 5

What are the two reasons as to why the courts uphold secret trusts?

Answer 5

1. To prevent fraud

2. Secret trusts operate outside (dehors) of the will

Question 6

What is the equitable maxium that the courts will use to allow secret trusts?

Answer 6

Equity will not permit a statute to be used as an instrument of fraud

Question 7

What was held in McCormick v Grogan (1869)

Answer 7

The jurisdiction which is founded altogether on personal fraud. Specifically s9. of the Wills Act

Question 8

What about half-secret trusts?

Answer 8

Lord Buckmaster accepted the McCormick arguement in Blackwell v Blackwell [1929].

Question 9

What also happened in Blackwell v Blackwell [1929]?

Answer 9

An alternative rationale for secret trusts was also suggested by Viscount Sumner. The trust itself does not have to comply with the Wills Act due to (dehors) operating outside of the will. The will is used merely as a means of transferring the property to the intended trustee. The will however, should still comply with the Wills Act 1837.

Half and fully secret trusts are enforceable because there is valid inter vivos (lifetime) communication to and acceptance by the trustee followed by constitution of the trust on the testators death.

Question 10

What must exist in order for a secret trust to be valild?

Answer 10

1. Intention
2. Communication
3. Acceptance

Question 11

How is intention proved?

Answer 11

With a fully secret trust it must be shown that the testator intended to create a trust in favour of the secret beneficiary i.e. did not use precatory words which would be binding in conscience only.

In half secret trusts, the wording of the will indicates that there is a trust.

Question 12

What happened in Re Swoden [1979]?

Answer 12

He will know what to do was deemed as a precatory word.

Question 13

What happens if there is no intention?

Answer 13

If there is no intention, the ‘would be’ secret trustee takes beneficially for himself.

Question 14

What happened in Kasperbauer v Griffith [2000]?

Answer 14

n/a

Question 15

What is the rule for communication with fully secret trusts?

Answer 15

Communication must be made any time before the testators death. After the death is too late. This meaning communication can be made before or at the time the will is made.

Question 16

What was held in Moss v Cooper (1861)?

Answer 16

The communication was made after the will was made but before the testators death, the trust was valid.

Question 17

What happens if the testator dies before telling the trustee anything about the trust?

Answer 17

It would not be sufficient if details concerning a secret trust are only unveiled after the testators death

Question 18

What was held in Wallgrave v Tebbs (1855)?

Answer 18

The testator left money to two close friends wihtout telling them during his lifetime that he wanted them to hold the property on charitable trusts. This was discovered later on it a found letter after he had died. The communication was insufficient and the two friends could take the money if they wished.

Question 19

What was held in Re Boyes (1884)?

Answer 19

If the intended legatee is told in time tht she is to be a secret trustee and accepts this, then the testator dies without telling her information of the beneficiaries, then on the testators death, the legatee will hold the property on a resulting trust for the testators estate

Question 20

What are the 3 principles derived from Re Boyes 1884?

Answer 20

There are three outcomes regarding fully secret trusts: 1. Valid trust

2. The would be trustee takes beneficially i.e. for himself
3. Resulting trust to the testators estate

Question 21

What are the two rules relating to communication with half secret trusts?

Answer 21

1. No evidence can be put forward to contradict the terms of the will
2. No evidence can, as a matter of law, be accepted of communication after the will is made (Johnson v Ball 1851) & Blackwell v Blackwell 1929

Question 22

What was held in Re Keen [1937]?

Answer 22

The testator left £10,000 in his will to his trustees to hold for such persons as may be notified to the testators trustees during his lifetime. This was in August 1932. In March 1932, he had given one of his trustees a sealed envelope which contained the name of the beneficiary which was not opened until after the testators death. The sealed envelope was accepted as communication even if instructions are present to open the letter after the testators death.
The trust failed - the communication was made prior to the will it was inconsistent with the express provision of the will which provided for a future communication by the testator during his lifetime.

Question 23

What happened in Re Bateman [1970]?

Answer 23

The testator directed the trustees in his will to set aside £24,000 ‘to pay the income to such persons as shall be stated by me in a sealed letter’. The trust was invalid because it referred to a future communication

Question 24

What form can communication take place in?

Answer 24

Written and oral

Question 25

How is acceptance demonstrated?

Answer 25

The intended trustee must agree to carry out the trust, but does not actually have to accept, just not refuse.

Question 26

What was held in Moss v Cooper (1861)?

Answer 26

Silence implies consent. If the testator communicates his instructions to the legatee and the legatee does not respond then his silence amounts to consent

Question 27

What must happen if the testator wishes to increase the legacy?

Answer 27

When increasing the legacy, the testator legatee must be informed of any subsequent increase in the legacy.

Question 28

What was held in Re Colin Cooper [1939]?

Answer 28

The testator bequeathed £5,000 to trustees who agreed to act as such. Later, the testator executed a codicil to the will increasing the legacy to £10,000 but never told the trustees. It was held the trust was effective as to the first £5,000 only.

Question 29

What is a codicil?

Answer 29

A codicil is an amendment to a will. Codicils can add, change or subtract from the provisions of a will.

Question 30

What is the rules of witnesses to a will?

Answer 30

A witness to a will cannot take a legacy in the will (beneficiary’s cannot witness a will) s.15 Wills Act 1837

Question 31

What was held in Re Young [1951]?

Answer 31

A beneficiary witnessed a will under a half-secret trust. Through s.15, his signature was valid but he would have to forfeit the gift because the witness to a will cannot be a legacy. Held: s.15 not applicable as the beneficiary did not take the gift under the will because a half secret trusts operates outside of a will. The beneficiary got to keep the legacy.

Question 32

What happens if the secret trustee predeceases the testator?

Answer 32

s.25 Wills Act - a gift in a will lapses if the beneficiary dies before the testator - rules differentiate dependent on full secret or half secret trust.

Question 33

What was held in Re Maddock [1902]?

Answer 33

Obiter -if a fully secret trustee dies before the testator, then a fully secret trust fails because she is the beneficiary on the face of the will, and she has, therefore, predeceased the testator.

If it is a half secret trustee who dies before the testator then the gift will not lapse because it is only the trustee who has died and there is an equitable maxim which states that a trust will not fail for want of a trustee.

Question 34

What happens if the secret beneficiary predeceases the testator?

Answer 34

If the intended secret beneficiary dies before the testator, then the trust does not fail and the trustee simply holds the property for the deceased beneficiary’s estate. As soon as the secret trustee has accepted the trusteeship, the secret beneficiary acquires an interest in the property and so if the beneficiary dies, the property just passes to his estate

Question 35

Can a secret trustee take some benefit under the will? Re Rees [1949]?

Answer 35

CA said no in the case of a half secret trust due to being contrary the express provision in the will that he takes the property as a trustee. Held: it would be contrary to public policy to allow a solicitor who had drafted the will to benefit in this way

Question 36

What happens if there is two or more trustees? Re Stead [1900]

Answer 36

Rules are laid down in Re Stead where there are two testators but one of the testators is unaware they are a secret trustee until after the testators death:

• If the gift is to the secret trustees as joint tenants
• If the communication to, and acceptance by one secret trustee, is made before or at the time the will is made, both will be bound
• In any other case, only the one who promises is bound

Question 37

What was argued in the case of Perrins (88 LQR 225)?

Answer 37

The rules from Re Stead might be of evidential value, the cases preceding Re Stead indicate that the only question is the underlying principle of inducement - if Alice refused to act as a trustee when asked, would the testator still have made a gift to Fred?

Question 38

What type of trusts are fully secret trusts?

Answer 38

Express due to depending on express intention of the testator and must be accepted by the legatee. If, however, they are express trusts then a fully secret trust of land would need to comply with s53(1)(b).

Question 39

What happened in Ottoway v Norman [1972]?

Answer 39

The courts upheld a fully secret trust even in the absence of any written evidence. The judge may have been treating the fully secret trust as a constructive trust and therefore exempt from the formalities of s53(1) by virtue of s53(2)

Question 40

What type of trust is a half secret trust? Re Baillie (1886)

Answer 40

This was an attempted half secret trust of land, and it was held to fail because of the absence of writing, as required by the statutory predecessor of s53(1)(b) - half secret trusts are suggested to be express trusts.