4- Secret and half-secret trusts

Question 1

Introduction?

Answer 1

Most trusts need no formalities, just three certainties and vesting of title.

BUT in order for a testamentary trust to be valid, the will it is contained in much be valid under s.9 Wills Act.

However, a trust can exist within a will without the need for it to be specified on its face.

Question 2

What is a testamentary trust?

Answer 2

A trust in a will

Question 3

s.9 Wills Act

Answer 3

Just do initially- make sure it is met, because if not any secret trust in the will cannot stand.

1. writing, 2. signed, 3. attested.

Question 4

What happens if s.9 is not met?

Answer 4

Property passes to the trustee named in the will absolutely or to the residuary estate.

Question 5

What is a secret trust?

Answer 5

Where testator leaves property to an individual in his will, but intends him to hold the property on trust for the benefit of another.

The will makes no indication of the testator’s intention that the property should hold be held on trust. It looks like an absolute gift to the ‘trustee’.

Question 6

What is a half secret trust?

Answer 6

Where testator leaves property to a named individual in his will ‘on trust’. He intends that individual to hold the property on trust for another, who is not named in the will.

The will indicates the existence of a trust, but does not identify the beneficiary

Question 7

How might a legatee use the statute as an engine of fraud?

Answer 7

Being aware that he is supposed to hold property on trust, he may seek to take the trust property absolutely.

Question 8

Blackwell v Blackwell HOL- Requirements?

Answer 8

1. Intention to create a trust
2. Communication to the legatee
3. Acceptance by the legatee

Question 9

What must be shown to demonstrate the testator’s intention to create a trust?

Answer 9

Must show the T intended to subject the legatee to a mandatory obligation to hold the property for the secret beneficiary.

Question 10

Meaning of fraud in the testamentary context?

Answer 10

Deceit. It must be deliberate and conscious wrongdoing by the legatee.

Recognition of a fully secret trust is prompted by a desire to prevent fraud.

So where the alleged secret trustee denies the existence of the trust and claims to take the property, a higher standard of proof must be satisfied, as in Ottaway

Question 11

Ottawa v Norman

Answer 11

1. Standard of proof of intention to create the trust- The person seeking to establish the secret trust bears the burden on proving it has been created.
2. Clear evidence will be required before the court is willing to conclude that T intended something different from what is on the face of the will.
3. Drew analogies between secret trusts and rectification, where a high standard of proof is required to show that the document does not reflect the actual intention of the parties so that it should be altered through exercise of the equitable jurisdiction, so similar high standards should exist for secret trusts.

Question 12

Re Snowden

Answer 12

Intention
Case: Testatrix made his will 6 days before she died. Left her residuary estate to her brother absolutely. Brother died 6 days after her death. He left his property to his son.

Testatrix’s solicitors who had prepared and witnessed the will gave evidence that she had wanted her brother to divide her estate for her so she could be fair to everyone.

Decision: Megarry
1. The ordinary civil standard of proof on a balance of probabilities applied to establish a secret trust, save where fraud was asserted against the alleged trustee.

2. Doubted the higher blanket standard because secret trusts operate outside the will and do not require the formal terms of the will to be altered.
3. On the facts fraud did not need to be proved, and even the lower civil standard was not met. T not considered to have intended to impose any legally enforceable obligation on her brother- a moral rather than legal obligation.

Question 13

Evaluation of Snowden

Answer 13

1. Creates a paradox. The worse the trustee’s conduct is alleged, the higher standard of proof of intention to create the trust is needed.
2. Since fraud in the narrow deceit sense used for testamentary trusts does not need to be proved to establish a secret trust, it would therefore be preferable for the beneficiary not to plead it and just satisfy the balance of probabilities.

Question 14

Cases for communication and acceptance of a fully-secret trust?

Answer 14

Re Boyes;
Collin Cooper;
Re Keen
Ottawa v Norman

Question 15

Re Boyes

Answer 15

Fully-secret communication and acceptance.
Case: testator instructed solicitor to prepare a will for him leaving all his prop to the solicitor absolutely, but to be held and disposed of according to written directions which would be given subsequently.
Never gave solicitor the instructions, but after his death an unattested paper was found which declared his wish that the property was held for T’s mistress, and only a small sum had been left to the solicitor absolutely. Solicitor therefore claimed to hold the property as directed for mistress.

Decision: Kay
1. Communication and acceptance may be made before or after the will is executed, but must have been made before death.

2. Property was therefore not held on trust for the mistress because T had not communicated the object of the trust before death.
3. A RT arose whereby solicitor held property on trust for T’s next of kin.
4. Obiter- constructive communication may have been successful if T had put the trust in a sealed envelope in S’s hands and S had agreed he would hold the property according to it, even though he didn’t know the contents.

Question 16

Re Collin Cooper

Answer 16

Fully secret- communication and acceptance.
Case: T declared a fully secret trust of £5,000 in his will and communicated the terms to his trustees before the will was executed. A month later testator made a new will that purported to cancel the previous one. New will stated that:
-£5,000 bequeathed to his trustees was to be increased to £10,000 and that the trustees knew the testator’s wishes as regards the use of the sum. BUT did not communicate the fact the amount had been increased to the trustees.

Decided:
1. Changes to the terms of a secret trust after the will has been executed will not be effective if the changes to the terms have not been communicated to the trustees.

2. The initial £5,000 was held on the terms of the secret trust, as had previously been communicated.
3. The additional £5,000 was held on RT for those entitled to the testator’s residuary estate, because this additional amount had not been communicated to the trustees.

Question 17

Re Keen (secret) 1937

Answer 17

Fully secret- communication and acceptance.
Case: By his will T gave his trustees (2 nephews and his solicitor) £10,000 to be held on trust for persons and charities as he would notify them of during his life, and in default of such notification, to fall in the residual estate. In a previous will testator had created an identical clause, but the amount had been £5,000.

Before will was altered to £10,000 T had provided a sealed envelope to the solicitor to be kept in his will and opened on his death. Solicitor understood this to be a notification of the terms in his will and held the envelope as a trustee, not as solicitor.

Issue: Was the £10,000 be held on trust for the individual in the envelope, or should it form part of the residuary estate?

Decision: Wright
1.Giving a sealed envelope to one trustee is sufficient communication of the identity of the beneficiary, even though it was not read until after death. This is because it have the trustee the means of knowing who the beneficiary was before death.

2. Analogous to a ship sailing under sealed orders. Though the exact terms are not ascertain by the captain until later, he has the means of knowing the orders.
3. BUT, the letter is unattested, so it cannot be admitted.
4. AND the claim must also fail because there is inconsistency between the will and the trust in the letter. The will refers to a future direction as to the identity of the beneficiary, but the testator gave him the direction before the 10K will.

Question 18

Ottaway v Norman

Answer 18

Communication and acceptance of fully secret trust.
Case: T left his bungalow, its contents and money to his housekeeper. He made an agreement with her that when she died she would leave it in her will to his son. She made a will in accordance with this agreement. BUT 4 years later she changed her will, leaving the bungalow to D.

Decision:
1. On her death T’s son obtained a declaration that D held the bungalow on a fully secret trust for him. He had communicated his intention to her and she had accepted.

2. BUT son’s argument that his father intended to leave the money on a suspensory trust to him- i.e. the housekeeper could spend as much as she wished, but on her death the remainder should pass to him.
3. There was no evidence that F required the housekeeper to keep the money separate from her own money, so there was no ascertainable fund to which the trust could attach.
4. Obiter is significant because, if a suspensory trust had been established, son would have had a proprietary interest in the residue. But on what type of trust?
   - Secret trusts are usually seen as express, and are constituted on death, but this could not be true of a suspensory trust because it would not be constituted on the testator’s death.
   - Better analysed as a CT that attaches to any residue of the testator’s estate when the legatee dies. This is when subject matter becomes certain.

Question 19

Cases for communication and acceptance of a half-secret trust?

Answer 19

Blackwell v Blackwell
Batemans Will Trust
Re Keen

Question 20

Blackwell v Blackwell

Answer 20

Testator must communicate terms of trust to legatee, and they must be accepted by him, before, or at same time as execution of the will (main difference from secret trust).

Sumner: A testator cannot reserve to himself a power of making future unwitnessed dispositions by merely naming a trustee and leaving the purposes of the trust to be supplied afterwards.’

Not a very convincing justification, but the most convincing that exists.

Question 21

Batemans Will Trust

Answer 21

Half secret trust will fail if it allows for future communication, even if communication has already taken place before the will was executed.

the words ‘as shall be communicated by me in a sealed letter in my own handwriting and addressed to my trustees’ indicated a future constructive communication and therefore the trust failed

Question 22

Re Keen (half-secret)

Answer 22

The reason communication of the terms of the trust after the will has been executed cannot be effective to declare a half-secret trust is because this involves the testator reserving power to change a will informally, contrary to the Wills Act.

BUT this is unconvincing. No such rule of communication applies to fully secret trusts, and it is inconsistent with the dehors-the-will theory since such trusts are not declared by the will, but independently by the testator and constituted only following testator’s death.

Question 23

Effect of failure?

Answer 23

Property will be held on RT for those entitled to the testator’s residuary estate.

Where it is not possible to prove even that the testator intended the legatee to take property as a trustee, he will take it beneficially (absolutely).

Question 24

Re Freud (deceased) 2014

Answer 24

Shows the continued importance of secret trusts.

Case: ‘I give all the residue of my estate to daughter and solicitor jointly’. ‘The residue’ was the vast majority of his £42 million estate. He had at least 14 children by different women.

Son claimed the will was an (attempted) half secret trust
If he could establish this, he could go on to argue that the trust was potentially invalid depending on when communicated RT for estate.

It was not clear when communication was at the time, but if it could be proven that the trust was not communicated before or at the time of execution of the will, the trust would fail.
• He wanted it to be invalid. An invalid half secret trust means the property is held in RT for the settlor’s estate. This would mean the £42 million would not go to the parties in the will. It would come back into the estate and be distributed under the rules of intestacy.
• These rules would give C a substantial share in this property.

His argument: since the property was being left to the solicitor, this must mean it was being held on trust.
• A difficult argument. Trust is not mentioned in the will at all, so must use the solicitor point to try to infer one was attempted.
• Argued F had lots of children. He could not have intended that the solicitor take all of the money in these circumstances, so the attempted trust is therefore visible on the face of the will (as is necessary for a half secret trust).

2. RP/DR claimed (valid) fully secret trust
   A fully secret trust is not visible on the face of the will.

HELD: valid fully secret trust
Construction of the will showed RP and DR were to take absolutely, ie there was no trust on the face of the will.
• The mere fact that part of the estate was given to the solicitor did not of itself indicate a trust.

Compared will to earlier version, where half secret trust was created:
Beneficiaries remained secret (but son wasn’t one of them). The will had also been changed since then.