A more recent version of these Secret Trusts notes – written by Cambridge/Bpp/College Of Law students – is available here.
The following is a more accessble plain text extract of the PDF sample above, taken from our GDL Equity and Trusts Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:
Topic 6 - Secret Trusts
[fits both Express Trusts or Purpose Trusts]
? Express 'inter vivos' Trust = Lifetime trust must be sufficiently clear and Settlor comply with rules of formalities/constitution.
? Testamentary trusts ('Will Trust or Trust under Will') = Trust that arises from the death of the testator. Formalities in the S9 Wills Act 1837. o Will = public document and there may be situations where a person wishes to set up a trust upon his death without revealing the details in his/her will: o Example Reasons - Testator wishes to provide for a mistress or illegitimate children without his family finding out!
? Or undecided as to the details of who is to benefit
? Or under old law land could not be left by will for charitable purposes. o
Secret Trusts = Takes effect on death - Courts recognised trusts validity existence/terms not fully disclosed in will (public document), provided certain criteria are fulfilled.
= Secret Trusts form an exception to the testamentary formality requirements.
Secret Trust mechanisms: o Fully Secret Trust (FST) = Outright gift (i.e. a testamentary disposition) in the will to intended trustee; trust not mentioned in will at all. o Half Secret Trust (HST) = Gift in will to intended trustee stated to be 'on trust' or using terminology indicative of trust rather than moral obligation i.e. mentioned in the will but the terms of trust are not fully disclosed.
= Details of Trust don't appear in will but trustee separately informed by testator, during their lifetime, of the trusts on which the property is to be held.
? ? ? ? Creation of Express Trusts: (no issue for trust created by will)
? 1. 3Cs
? 2. Statutory Formalities o Lifetime (inter vivos) S53(1)(b) LPA 1925 [for land]
o Testamentary S9 Wills Act 1837 o = Secret Trusts are the exception! = more flexible, so if don't comply with formalities, Secret Trust can still be seen to be valid
? 3. Constitution (title to trustee) o to PRs (personal representatives = executors) who pass it onto trustee Operation FST:
? Will contain gift to secret trustee = GIFT (i.e. Cottage TO albert; 10K to Jane)
? No details of trust in will
? Executor transfer LT in property, through will, to secret trustee (legatee) separately informed of terms. Constitutes trust, and hold property on trust for the secret beneficiary. o Secret T separately informed of terms of the trust, otherwise not bound by trust.
? For HST:
? Only difference = executor transfer LT of property to Trustee who is clear/known, will then constitute trust (i..e 100K to Ernie on trust
? State exception to S9 Wills Act
? Identify ST property = HST or FST
? Communication o Existence - before death/time of will signing (Wallgrave v Tebbs_ o Terms (Re Boyes) o Sealed envelope (Re Keen) o Property (Re Colin Cooper)
? Reliance Requirement Conditions and Justification for upholding validity/enforcing Secret Trusts?Validity =
o Any gift/trust taking effect on death must normally comply with formalities S9 Wills Act (unless valid DMC). o Document not complying with Wills Act can be incorporated by reference into a will (provided existence when will executed and referred to in will as being in existence).
? If done, document treated as public, so defeat object of secrecy o Secret Trust = can be established as valid trust based on informal instructions to intended secret trustee, if certain criteria met (but still inconsistencies in rules). o Standard of proof = on person claiming that a trust exists, on balance of probabilities (Re Snowden). Requirements (Kasperbauer v Griffith) =
o 1. Intention by testator, or person prepared to die intestate, to create trust binding inheritor of their property. o 2. Communication of trust by trustee ('outside will') o 3. Acceptance of trust by trustee o = Testator will rely on acceptance by making a will, leaving will unrevoked or not making will at all. Constituted by gift in will to secret trustee. Will takes effect on death.
Justification for enforcing Secret Trusts:
[always mention Theories, as absolute basis for Secret Trusts in E&W - whenever discussing Secret Trusts, should always be addressed]
? If courts to recognise trusts that don't comply with Wills Act, must find justification for ignoring requirements of statute. 2 main theories:
? 1. 'Fraud Theory' - prevention of fraud:
? Based on rule "equity will not permit a statute to be used as an instrument for fraud". (i.e. equity will not permit them to use requirements of Wills Act to keep the property, but will ensure they hold it on trust) Case = McCormick v Grogan (FST only).
o o o
o o o
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o?i.e. If individuals conscience if affected by knowledge, shouldn't be able to keep property in question. Case clear possible for intended trustee to fraudulently keep the property, where there is nothing to indicate that they hold on trust. FST = prevention of fraud, as fraudulent if secret trustee kept the property for themselves (as there is nothing to indicate that they hold on trust). Fraud if they had knowledge of trust before receiving property through will. Principle - will not allow someone to defraud Settlor/Beneficiary. Harder to justify HST: HST = requirement of Wills Act, cannot be used as instrument to defraud beneficiary. Half-secret trustee is trustee on face of will and cannot take beneficially. I.e. if Half-secret trustee T, doesn't carry out trust agreed with testator, so property is held on resulting trust for testator's residuary legatee (or next of kin on intestacy if trust was residuary estate), instead of meant for secret beneficiary B - also fraudulent behaviour? Deprived B of property testator was providing B, where testator would have replaced T had he told testator he would no longer obey instructions (T tricked testator into passing property not to B but X, residual legatee. Case = Blackwell v Blackwell Court had to find another justification for enforcing HST (argu less persuasive): i.e. argument is it really fraud, as on face of will person is clearly T, so because they are a T, they are never allowed to keep property, so how could it fraud: Blackwell indicated - even if T not able to keep property for themselves to create fraud like FST, they can still by denying trust, be defrauding B, as they won't be receiving property they were supposed to be receiving!
? Summary = Codicil 12k left to 5 people to be applied 'for the purposes indicated by me to them'. Terms communicated before codicil executed, and HoL held enforceable. Wider view of fraud - failing to give effect to testator's wishes which secret trustee promised to carry out i.e. intended trustee inequitably trying to frustrate testator's wishes for secret beneficiary.
2. 'Dehors the Will Theory' (Door Will Theory)
= Secret Trusts operate outside the will. So outside statute of Wills Act 1837, so testamentary formalities of S9 do not apply to them. And potentially, as outside Will, not bound by Probate issues. Problem - argument doesn't really work: o Secret Trusts are really neither Testamentary or Inter Vivos, more a hybrid. SC relies on a Will (a testamentary document), and you can't have a SC without Settlor passing away (not fully lifetime either even though communicated during Settlor's lifetime). o SC are constituted via the Will. Secret T will always receive LT in property through the will (they rely on it) - so artificial to say SC operate outside the Will when they are reliant on it for constitution.
o?Dehors Will Theory = inherent problems, but acceptance judicially at every level from HC to HoL.
Case = Blackwell v Blackwell - HoL also said secret trusts operate outside (dehors) the will and thus outside Wills Act. o Communication/Acceptance create the trust inter vivos o Will does not create the trust - just device for constituting it by transferring property to the trustees o = Trust thus 'dehors' (outside the will) Support Case = Re Gardner (No 2) o Secret beneficiary predeceased testator. Normal rule a gift under a will lapses if B predeceases. Held B interest arose as soon as trusts were communicated/accepted, as interest was created by agreement, not by the will (so B share did not lapse). o DUBIOUS decision - as until testator's death, trust not completely constituted, as testator can change mind, as B can only hope trust will take effect when testator dies (hopefully solvent and not changed mind leaving property to someone else). Case = Re Young o Secret trust benefitted chauffeur, who witnessed will. Wills Act S15 provides 'witness to will cannot benefit under that will'. o Held chauffeur entitled under oral trust declared inter vivos, as B does not take under the will so not affected by S15 Wills Act.
Different rules applying to creation/validity of Fully and Half Secret Trusts Fully Secret Trusts:
? = arise when someone dies intestate or where no indication on face of deceased's will that a trust exists, but deceased intended inheritor of property to hold it on trust for someone else.
? Unless valid secret trust established for absolute gift - person inheriting will take property beneficially.
? 1. Intention - Secret Trust intended:
? Clear obligation to make inter vivos transfer of property:
? (Ottaway v Norman) = doctrine equally applies to an obligation to make a will in favour of secret beneficiary. o Case = Testator agreed to leave bungalow to housekeeper, and she would devise the bungalow by her will to the testator's son, which she failed to do. Held son was entitled to the bungalow on basis obligation was accepted.
? 3Cs: o Clear SC intended by testator o Property subject to trust and beneficial entitlements are clear (subjectmatter) o Know who beneficiaries are (objects)
? Three Certainties = Intention, subject-matter, objects.
? Must be clear person setting up trust intended to impose binding legal obligation on trustee, not merely moral/family obligation.
? Case = Kasperbauer v Griffith (failed from 3Cs)
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