Equities - Secret trusts

Question 1

Secret trust - definition

Answer 1

A trust that takes effect on death and is either not fully disclosed in the will or not mentioned at all.

Question 2

Two types of secret trust…

Answer 2

• Fully secret trust (FST):

On the will - “£100,000 to Mary.”

It seems like an outright gift , however if Mary had promised the testator to use this money for charity - FST formed.

Half Secret Trust (HST):

On the will - “£100,000 to Mary to hold on trust for the purpose I have communicated to her.”

Question 3

For a secret trust to be created, it must satisfy the following elements…

Answer 3

(Kasperbauer)

1) Communication of the terms by the settlor
2) Acceptance by the secret trustee
3) Reliance by the settlor.

Question 4

Communication - what must be communicated?

Answer 4

• Existence of the trust (Wallgrave v Tebbs)
• Terms of the trust (Re Boyes)
• Subject matter of the trust (Re Colin Cooper)

Question 5

Communication - when must it be communicated?

Answer 5

FST - Before death

HST - before or at the time the will is executed

• In addition, the language must be consistent with the will
• Re Keen: reference in the will to a future communication was struck down by the court as the term had already been communicated.

Question 6

Communication - to whom must it be communicated?

Answer 6

General rule - to all trustees, otherwise only trustees you told will be bound

Exception:
- Where trustees are joint tenants, if you have multiple owners of the same property, this becomes a species of co-ownership - treated in law as one person.

• Communication to one trustee is fine if it is before the execution of the will (Re Stead)

If communication is made to one trustee after the execution of the will then only that trustee will be bound - other trustees can take the subject as if they themselves are beneficiaries.

Question 7

Communication - how must it be communicated?

Answer 7

Oral communication is valid however poses a problem of enforcement - evidential difficulty proving words were actually spoken.

Sealed envelope

• Not to be opened until death
• e.g. Re Keen (1937) - ship sailing under sealed orders
• Conditions:
  1) Secret trustee knows it contains terms
  2) Secret trustee accepts it on that basis

Question 8

Acceptance - methods

Answer 8

Express: trustee can say “I agree”

Implied: silence can potentially bind the trustee e.g. accepting an envelope in silence

(Moss v Cooper)

Question 9

Acceptance - disclaimer

Answer 9

General rule - one can disclaim anything as a trustee

However in a secret trust you are also disclaiming the beneficiary. As a result courts are undecided on whether disclaimer can truly be made for a secret trust.

Question 10

Re Maddock

Answer 10

Court of appeal - FST

Trustee can disclaim responsibilities and defeat the whole secret trust.

Trustee predecease - fail

Question 11

Blackwell v Blackwell

Answer 11

House of Lords - HST - applied DWT

Equity will intervene to prevent a trust from failing due to a trustee disclaimer.

Question 12

Reliance - how can testator rely?

Answer 12

• By making a will (FST and HST)
• By not changing a will (FST only)
• By not making a will (FST only)

Question 13

Re Gardener

Answer 13

Predecease of beneficiary

Trust should fail and gift should become part of residuary estate.

In this case court declared that once communication and acceptance occurs, a trust arises - doesn’t make sense!

Question 14

Re Baillie

Answer 14

Oral HST of land was deemed invalid - transfer of land falls under LPA 1925 s.53(1)(b)

Question 15

Ottaway v Norman

Answer 15

Oral FST of land deemed valid

Question 16

s.15 Wills Act 1837

Answer 16

If you sign (witness) a will to which you are a beneficiary, you are automatically disinheriting yourself from it.

Question 17

Re Young (1951)

Answer 17

Young was a witness to the will but also a secret beneficiary, which he had no idea about. Held that he benefited from the trust, not the will. The trust arises in lifetime, not death and therefore s.15 of the Wills Act was not applicable.

Secret trusts operate outside the will. (Dehors will theory)

Question 18

Kasperbauer v Griffith

Answer 18

Requirements for a secret trust.

i) Intention
ii) Communication to trustee
iii) Acceptance by trustee

Question 19

Re Keen

Answer 19

Communication

Re sealed envelopes - trustee must know that envelope contains terms and accept on that basis.

Language must be consistent with that of the will - reference in the will to a future communication was struck down by the court as the term had already been communicated.

Question 20

Re Stead

Answer 20

Exception to communication rules:

1) Before will is executed
2) Secret trustees are joint tennants

Question 21

Dehors will theory

Answer 21

Secret trusts exist outside of the will

Question 22

Re Bateman

Answer 22

HST - communication

Reference to a future communication on the face of the will - cause trust to fail due to inconsistency of language