Print Email Download

Paid Writing Services

More Free Content

Get Your Own Essay

Order Now

Instant Price

Search for an Essay


The two types of secret trust

The secret trusts comprise both (fully) secret trusts and half-secret trusts. They are a relic of a bygone era and do not conform to established trust principles. Their prior purpose has largely disappeared with the changing patterns and expectations of social behaviour. They do however find a limited place with the testator who is hesitant and cannot make up his mind. Some explanation of the similarities and difference of the two types of secret trust will lead on to an evaluation of why they might be justified.

Description

The fully secret trust is not apparent from the face of the will which subsequently becomes a document available to the public following probate after the testator's death. In previous centuries people were embarrassed about mistresses and illegitimate children and wished to provide for them following their own death but in a way that did not embarrass their families. This problem was largely solved by the facility of secret trusts. Although often the two types of secret trusts are dealt with together this creates some difficulties because they are so different even to the extent that they break different convention rules. Lord Viscount Sumner said in Blackwell v Blackwell [1929] that once the trustee agrees to the testator's intentions "the proposed donee encourages him to bequeath the money in the faith that his intentions will be carried out."

The two types of secret trusts share some rules such that the secret trustee must accept the trust. This acceptance can be express or implied; Wallgrave v Tebbs [1972]. The secret trustee must be under a legally binding obligation, a purely moral one is inadequate; McCormack v Grogan.

Some rules the secret trusts do not share and this is indicative of their different natures. Most importantly for a fully secret trust the terms of the trust may be communicated to the secret trustee at any time up to the point of the testator's death whereas for a half secret trust this must be done by the time the will is made. If communication does not happen before the testator dies the secret trustee retains the property for himself. Communication is still effective even if it is done by a sealed envelope which contains the details of the trust; re Keen [1937]. Where the secret trustee dies before the testator the outcome depends on whether it was a secret trust or a half secret one. For the fully secret trust as in Re Maddock [1902] the trust fails. This occurs because on the face of the will there is no trust just a beneficiary (who was intended to be the secret trustee) and the rule is such that the beneficiary must survive a testator. However the contrary view was given in Blackwell v Blackwell [1929]. In a half secret trust, where the trustee pre-deceases the testator, the existence of the trust is already apparent form the face of the will. Equity steps in here since "equity will not allow a trust to fail for want of a trustee"; Re Smirthwaite (1861).

Practical and legal problems

To be valid a will must strictly comply with formalities. According to s.9 Wills Act 1837 a will must be in writing, it must be signed in the presence of two independent witnesses who also must sign. The secret trusts partially avoid these formalities since property ultimately passes to the secret beneficiaries upon the death of the testator but the details of these are not in a signed and witnessed will. The will is being used, since it deposits the property with the secret or half secret trustee and yet the will does not detail the identity of the ultimate beneficiary. In some respects the secret trusts are not so much operating outside of the will (since they require the will in order to become effective) as outsides the formalities required of a will; they are acting outside the Wills Act 1837. Following on from this idea by s.25 Wills Act 1837 the beneficiary must survive the testator. This does not apply to fully secret trusts. This is a further example of how the secret trust contravenes statute surrounding a will. In Re Gardner (No 2) [1923] the secret trust is made and the beneficial interest is created before the testator dies. This is perplexing since a will only becomes effective upon death; the testator being at liberty to change it right up to this point.

Lord Hatherley in McCormick said that where a person takes property from the testator knowing and agreeing to give that property to another he "will be fixed as trustee with the performance of such instructions."

The fraud

The fraud occurs whereby the secret trustee keeps the property for himself. Taken to an even greater extent the fraud is where the secret trustee encourages the testator to leave the property by will to him agreeing to hold it on trust. By this assurance the testator complies. This was described by Lord Hatherley in McCormick "" fraudulent inducement held out on the part of the apparent beneficiary in order to lead the testator to confide to him the duty which he so undertook to perform." Subsequently the secret trustee retains the property for himself. These scenarios are possible in a fully secret trust. The secret trusts work because of the well known equity maxim "equity will not allow a statute to be used as an instrument of fraud." If the secret beneficiary challenges (with adequate evidence) the secret trustee the court will not allow the trust to fail because it is not in writing and not complying with the Wills Act 1837. In McCormick v Grogan the way the secret trusts function was described as the secret trustee fulfilling his obligation to the testator and the fraud being avoided. If a court utilises the fraud theory and finds that there was a secret trust then a finding of fraud requires a higher standard of proof than for most other civil claims. In re Snowden Megarry V-C considered the anomalous situation where there was no question of fraud and felt that the usual standard of proof (on balance of probability) applied. The required standard of proof may vary according to the situation deduced from the facts of the case.

Whether it is sufficient justification for the acknowledgment of the secret trusts

In Blackwell Lord Viscount Sumner described as "[seeming] to be a perfectly normal exercise of general equitable jurisdiction" whereby the "Court of conscience" does not allow the secret trustee to retain legally owned property. The court of conscience to which he refers is equity; and he described the equitable obligation of the secret trustee as acting on his conscience thus pressurising the trustee to perform the testator's intentions. Integral to the argument of this binding obligation is the fraud theory whereby if the testator retains the property himself the fraud is committed. Whilst Lord Viscount Sumner's theory may well amount to sufficient justification for the existence of the fully secret trust it is another matter regarding the half secret trust. For the half secret trust Lord Viscount Sumner's consideration of the obligation binding in equity is still applicable but the prevention of fraud aspect of the theory is no longer relevant.

In the half secret trust it is clear from the will that the legatee holds on trust but it is not clear for whom. There is less opportunity for fraud in this situation. Therefore since there can be no fraud it is unclear how they arise, certainly the fraud theory cannot explain their existence. In Blackwell both secret trusts were said to be outside the Wills Act 1837. Here, in a half secret trust (unlike the situation concerning the fully secret trust), the beneficiaries have to be named in communication before or at the time that the will is made. As in the case of fully secret trusts a sealed envelope containing the instructions suffices and the same rules apply regarding acceptance by the trustee. In Johnson v Ball (1851) this was described as "incorporation by reference" to an existing document. However if this refers to a future document it contravenes the Wills Act 1837.

The most recent theory is the "Outside the will" theory which is also known as "dehors the will" and it arises because of the obligation on the legatee. Although the quote in the question in the extract from Blackwell refers to the fraud it was Lord Viscount Sumner's dicta in this case subsequently summarised in Re Snowden that gave rise to the dehors the will theory. Since the fully secret trust does not operate within the will the beneficiary of the secret trust could witness the will; Re Young [1951]. This could not happen if the trust operated within the will since according to the Wills Act 1837 a witness cannot be a beneficiary. The major advantage of the dehors the will theory is that there is no conflict with the Wills Act 1837 because the secret trusts are not concerned with the will. However s.1 of the Wills Act 1837 refers to any testamentary disposition. To circumnavigate this aspect the secret trusts are viewed as inter vivos trusts. Clearly dehors the will really needs to mean dehors the Wills Act.

The dehors the will theory has been criticised (see Challinor, 2005) since if the secret trust is operating outside the will it must be operating within the region of trust law and should therefore comply with the rules and formalities of trust law. However the secret trust also breaks trust law since it binds property which is not yet acquired and this is prohibited in the law of trusts. The secret trusts can get around this problem. Secret trusts are also described as inter vivos trusts; the trust being created by communication from testator to the secret trustee with due acceptance and the trust is only completely constituted when the testator dies and the property vests in the secret trustee. By this route there is compliance with the law of trusts since the trust is not constituted until the testator dies and the secret trustee is in actual possession of the property so it is no longer just an expectancy. Whilst there is some support for the dehors the will theory this is not universal. The case of Re Maddock [1902] runs contrary to this theory because the trust failed since the secret beneficiary died before the testator; the case supports the secret trust taking effect upon death.

Controversy surrounds the type of trusts created. Moffat, 2005 explains that the majority of textbooks treat them both as express trusts. Mainly because the half secret trust is apparent from reading the will the express trust described the half secret trust well. Express trusts need to comply with the s53(1)(b) and s.53(1)(c) Law of property Act. Non-compliance did not cause a problem in Ottoway v Norman [1972] Ch 698 and if the trust had been an express one it would have failed for non-compliance with this statute. Therefore this problem means that the fully secret trusts may instead be implied trusts probably constructive trusts which are found to be in existence rather than expressly created.