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Secret Trusts

Malcolm and Winifred had a child, Carol, who was brought up by foster parents. Having kept Carol's existence a secret, Malcolm and Winifred agreed that they would both make wills leaving their respective estates to each other for life with remainder to Frank. Before the wills were made Frank promised both Malcolm and Winifred that he would hold their property for Carol's benefit.

Malcolm died in 1999. In the Summer of 2000 Carol annoyed Winifred, who then went and told Frank that both estates were to be held for her niece, Nancy.

Winifred has now died. Advise Carol.

Here Malcolm and Winfred have agreed in their wills, that they will leave their respective estates to each other upon death. The exact effect of this agreement must be scrutinised under the doctrines of mutual wills and half secret trusts. Lord Camden in Dufour v Preiera (1769) summed up the doctrine of mutual wills as "… he, that dies first, does by his death carry the agreement on his part into execution. If the other then refuses, he is guilty of a fraud, can never unbind himself, and becomes a trustee of course." Thus, should a mutual will held to be in existence here, then there is the possibility that Winfred has attempted to committed a fraud by stipulating that the property should no longer go to Carol, as originally agreed, but to Nancy instead.

There may also be half secret trust here. This exists where there is a legacy on trusts on the face of a will, but the existence of the trust and the identity of the beneficiary are not present, but communicated to the secret trustee who accepts the obligation before or at the time the will is executed. In the case of Blackwell v Blackwell [1929] Lord Sumner said about half secret trusts that the "necessary elements … are intention, communication and acquiescence" between the settler and the trustee.

There may have been a half secret trust here as the communication must take place before the will is made as per Re Keen, and, as stipulated in the case of Blackwell v Blackwell, the testator expects his wishes to be carried out, in essence that they will acquiesce in the terms of the trust. If not, then the trustee will be in breach of the trust, as would be the case here if Frank gave the property to Nancy.

Ordinarily of course, there could be a change of the trust terms by Winfred, if she was the sole testator, but this is nor the case where mutual wills between two parties are made. Was there then, a mutual will? As per the case of Re Oldham, the courts will not infer that there were mutual wills simply because they are made in identical terms. There must be some evidence that suggests that the wills were intended to be irrevocable after the death of the first person to pass away, if there is not, then the survivor, in this case Winfred, can take an absolute interest in the property and do with it as she pleases. Thus, if there is no agreement not to revoke the wills, either within them or through conversations that can be proved, the agreement will fail. In addition, as per the case of Re Goodchild (1996), there must also be evidence that the parties had considered that the wills would be biding on one another after death.

The best way to view a mutual will is as a contract made in consideration for the mutual promises of the parties and for the benefit of an identifiable party, who need not supply any consideration for the promise at all ( see Dufour v Pereira), thereby imposing an equitable duty on the parties that make the will. The contact will then of course be specifically enforceable should it be breached.

The case of Sekhon v Alissa (1989) demonstrates the general principle that the law does not readily accept that the parties intended to distinguish between legal and moral obligations. However, in addition, as per the case of Gray v Perpetual Trustee, the courts do not readily infer mutual wills where there is the relationship of husband and wife. This is because there is a distinction drawn between the intention to create a legally binding agreement, and the placing of trust tin the spouse that they will do what is right, in essence a moral obligation. This is of course a far greater likelihood, in a relationship between husband and wife, that there will be inferences that can be drawn to point towards the possibility of trust, then there would be for example even in a relationship between close friends. If it is held that the agreement was in intended to be a moral obligation on the other party then there will be no mutual will, and the surviving party will take the property absolutely.

Therefore, as is not unusual within the doctrine, there will be significant reliance placed on the evidence before the court of the intention of the parties. In the case of Re Cleaver, Nourse J said "I would emphasise that the agreement or understanding must be such as to impose on the done a legally binding obligation to deal with the property in the particular way … As in this case the principle difficulty is always whether there was a legally binding obligation or merely what Lord Loughborough LC in Lord Walpole v Lord Orford (1797) described as an honourable obligation." In addtion it was further held that the two other certainties under the rules in Knight v Knight, (subject matter of the trust and the objects of the trust), are as essential. There would seem no doubt that the wills were sufficiently certain as to the object that been Carol, and in addition, the term "their estates" could not be more certain in that which it applies to.

If the case of Re Cleaver is again drawn upon, it can be seen that the trust property under a mutual will is subject to what has been termed a floating trust. This is suspended during the lifetime of the survivor, and then crystallises into a fully working trust upon their death. As per the case, the survivor, here Winifred, is burdened with a fiduciary duty in the words of Dixon J in Birmingham v Renfrew, not to 'defeat the intention' of the contract by making inter vivos gifts that deliberately aim to defeat the contract under the will. This is of course not to say that Winifred couldn't have used the property and use it for her enjoyment of her own benefit, or covert it in and also spend the proceeds, as long as the previous proviso is adhered to. As per the case of Birmingham v Renfrew, there can be no objection to small gifts of value.

Therefore, should it be held that the property in the will had been disposed of to defeat the intentions of the contract then Carol will have an actionable claim to the money. In this case, it seems that there is very cogent evidence that the only reason that Winifred told Fred not to give the money to Carol is because Carol was annoyed by her. In essence then, prima facie, Winifred has carried out a breach of the agreement, and her fiduciary duty. However, (although arguably this may change due to the Contract (Rights of Third Parties) Act 1999) it is not the contract that is enforced by Carol. But rather the constructive trust that arises. As per the case of Ottaway v Norman (1972) a court of equity will not allow a person to whom property has been bequeathed, on an agreement or understanding that it is to be dealt with in particular way for a third party, to deal with that property in derogation from the agreement. As per the case of Re Pearson Fund Trusts, equity will quickly come to the rescue and will impose a constructive trust over the property. (Despite it been future property constructive trusts unlike express trusts can attach to future property)

Therefore, if there is judged to have been a mutual will and it is judged that the trust property under it has been dealt with in breach of the agreement, the property will be held on a constructive trust for Carol by Fred and she will be entitled to it as the sole beneficiary of the trust property. Should Fred deal with the property in anyway, that is not accordable with his trusteeship, for example by gifting the property to Nancy, then he will be guilty of a breach of his duties under he trust. In addtion it could be argued that there is no mention that the disposition to Fred to differ from that of the original will was put in writing, and thus the trust to Fred to leave the property to Nancy would fail by virtue of it not meeting the formality requirements of the Law of Property Act 1925 Section 53(1).

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