2. Secret Trusts Flashcards
Secret Trusts: General Principles
Two theories that attempted to circumvent the s9 Wills Act and s53(1)(b) LPA 1925 requirements respectively:
- The DEHORS THE WILL theory
- The FRAUD theory
DEHORS THE WILL (Blackwell v Blackwell)
- States that STs arise outside and independently if the will and are therefore really INTER-VIVOS trusts, despite being constituted via a will. s9 Wills Act does not apply to Inter-Vivos trusts.
- Has been applied in (Re Gardner (No. 2); Re Young)
- NB the problems this has created however.
FRAUD (McCormick v Grogan; Kasperbauer v Griffith)
- Based on the equitable maxim, “equity will not permit a statute to be used as an instrument of fraud”. Therefore, to prevent this, STs should be viewed as CONSTRUCTIVE TRUSTS, then not having to comply with s53(1)(b) LPA.
- – For FSTs, done to prevent the T fraudulently taking the property outright. As on the will’s face it appears as an outright gift.
- – For HSTs, done to prevent the T from fraudulently using the property in a way the testator didn’t intend. As purpose of the trust is not on the will.
s9 Wills Act Requirements
GR with testamentary trusts is that they meet s9 requirements
- They must be:
- – IN WRITING
- – SIGNED
- – ATTESTED (witnessed)
STs operate as an exception to these requirements. HOWEVER, they must still comply with the 3 certainties and be correctly constituted.
Types of Secret Trust
HALF-SECRET TRUST
- Where the existence of the ST is disclosed on the face of the will but NOT its terms or the beneficiary.
- – EG: 500 to T on trust
FULLY SECRET TRUST
- Where the trust is not disclosed at all on the face of the will and appears as an outright gift to the trustee.
- – EG: 500 to T
NB: in practice, to prevent T’ees from taking the property in an FST, or using the property wrongly in an HST, it is common for settlor’s to tell the B of the ST and for settlor’s solicitor to retain evidence of the trust.
Secret Trust Requirements
There are 4 requirements that must be met in order for a ST to be valid (Kasperbauer v Griffith):
- INTENTION
- COMMUNICATION
- ACCEPTANCE
- RELIANCE
Secret Trust Requirements: Intention
The testator must have intended to create a legally binding trust.
Neither of the following were sufficiently imperative to constitute a secret trust:
- “knows what she has to do” (Kasperbauer v Griffith)
- “knowing his wishes” (Marguiles v Marguiles)
Secret Trust Requirements: Communication
CONTENT
- The following must be communicated about the trust.
- – Its existence (Wallgrave v Tebbs) - that it is a trust not a gift must be communicated.
- – Its property (Re Colin Cooper)
- – Its terms (Re Boyes)
- These requirements are the same as the 3 certainties (intention, subject and objects). Any issues with 3 certainties should be discussed here.
METHOD
- The terms of the trust may either be communicated:
- Orally, In Writing or,
- By Sealed Letter (Re Keen)
- – 1. The T must understand that the terms of the trust are CONTAINED in the letter
- – 2. The communication must be (Re Keen) - consistent with the will + not refer to a future communication (Re Bateman.
TIMING
- The timing requirements vary depending on the type of ST.
- FST may be comm. at any point before testator’s death (Wallgrave v Tebb)
- HST must be communicated before or at the time of the will’s execution i.e. when testator signs the will (Re Keen)
- Where a sealed letter is used, the point at which it is deemed communicated is WHEN THE SETTLOR HANDS it to the STrustee.
RECIPIENT
- GR: communication must take place to ALL Ts.
- EX 1: Communication to a 1 T will be sufficient if occurs before or at time of will’s execution AND Ts are all Joint Tennants (Re Stead). In this scenario, all JTTs would be bound. If comm after execution of will, only those who received communication will be bound.
- If Tenants in Common, communication to ALL is required.
Secret Trust Requirements: Acceptance
Acceptance may occur through either (Moss v Cooper):
- WORDS
- SILENCE
Where a STrustee qualifies acceptance with a condition, the court will judge the qualification OBJ. in deciding whether acceptance is valid.
Secret Trust Requirements: Reliance
Reliance requires that the testator, in reliance on the STrustee having accepted the ST, either:
- CREATES his will
- leaves his existing will UNCHANGED (Moss v Cooper)
- DOES NOT MAKE a will at all (Strickland v Aldridge)
Other Issues
There are several potential issues that can arise in the context of STs
- ST of Land
- Beneficiary as a witness to the will
- Pre-decease of the beneficiary
- Disclaimer by STrustee
- Death of the STrustee
Other Issues: Secret Trust of Land
GR: STs are inter-vivos trusts, therefore, a declaration of a T of land must be evidenced in writing in order to be enforceable (s53(1)(b) LPA). Failure here will make the T unenforceable, not void.
Case law is contradictory on whether it must be in writing to be enforceable.
- FST, oral declaration was enforceable (Ottaway v Norman)
- HST, oral declaration unenforceable (Re Baillie)
Better approach is to see ST as constructive trusts (FRAUD Th.), so, as a form of implied trust, need not comply with s53(1)(b) & 53(2) LPA.
Other Issues: Beneficiary Witnessing the Will
GR: beneficiary not able to benefit under a will that they witnessed (s15 Wills Act).
- This has been determined not to apply to STs according to DTW Th., because the beneficiary can be seen as a beneficiary under a separate inter-vivos trust, NOT under the will. (Re Young, per Danckwerts J)
Two Problems:
- The trust’s CONSTITUTION is ignored
- – Constitution can only take place on settlor’s death, until which point the trust is not binding or enforceable.
- The REVOCABLE nature of the will is ignored.
- – If BenInt. vests via mere communication and acceptance of the trust, then the testator would be unable to revoke their will. This being in contravention of a fundamental principle of probate.
NB: A STrustee witnessing the will is not problematic, as they do not benefit from the will.
- HST, are clearly a trustee not a beneficiary.
- FST, despite appearing as beneficiary, in reality they are not.
Other Issues: Beneficiary Pre-Deceasing the Testator
Typically, GR: a gift will lapse. This rule does not apply to STs (Re Gardner (No. 2) per Romer J) on DTW Th.
- as ST arises on communication & acceptance for which the beneficiary will be alive. The beneficial title is deemed to vest in them inter-vivos.
Gift held on trust for Bs estate.
Encounters the same two problems faced with Beneficiary Witnessing the Will.
Other Issues: Disclaimer of Gift by the Trustee
Conflicting law on whether T can disclaim a gift.
(Blackwell v Blackwell) can be regarded as the best authority. This concerned a HST.
- Not possible to disclaim a gift.
Obiter in (Re Maddock), on discussing a FST, held that it IS possible to disclaim a gift.
If it IS possible, whether the trust then fails is unclear. May depend on whether HST or FST.
- HST: arguably, court wouldn’t allow trust to fail due to EMaxim “equity will not allow a trust to fail for want of a trustee”, they would presumably appoint another trustee.
- FST: if disclaimed, legal title can never pass to trustee on settlor’s death. If so, no constitution, trust fails and disclaimed gift held on resulting trust for testator’s estate (Re Maddock, obiter per Cozen Hardy J). - depends on DTW Th. not being recognised.
Other Issues: Death of a ST
Unclear whether T would fail.
As with disclaiming a ST, it may depend on whether it is a HST or FST.
Failure of a Secret Trust
Consequences vary depending on HOW the ST failed:
- Failure to communicate HST.
- – Trustee holds property on trust for the settlor’s residuary estate.
- Failure to communicate FST OR STrustee accepting the trust.
- – Trustee takes the property absolutely.
- ST existence is communicated but not its TERMS.
- – Property held on resulting trust for the testator’s estate.
