Secret & Half Secret Trusts

Question 1

Where would you usually find a secret/half-secret trust?

Answer 1

Only exists in wills

Question 2

What was the purpose of a trust of this nature historically?

Answer 2

Used to provide for a mistress or child born out of wedlock

Question 3

What is a secret trustee known as?

Answer 3

Either a trustee, or in the case of a full secret trust an ‘ostensible beneficiary’

Question 4

What was set out in McCormack v Grogan?

Answer 4

• Where a person either expressly promises or by his silence implies, that he will carry out the testator’s intentions into effect, and the property is left upon the faith of that promise or undertaking, it is in effect a case of trust
• Trustee expressly or implicitly agrees to do as asked by testator in life
• But the trust or part of it is left unrevealed in the text of the will

Question 5

What is the problem with creating secret/half-secret trusts?

Answer 5

They must comply with the requirements for wills to be valid in accordance with the Succession Act 1965.
If the trust is not expressly set out in the will, it could be argued that it does not comply with these requirements.

Question 6

What happens if a secret trust fails?

Answer 6

The intended secret trustee could take the property absolutely
or
Intended secret trustee could hold the property on resulting trust for the testator’s estate.

Question 7

Why recognise secret trusts?

Answer 7

1. Equity will not allow a statute to be used to create a fraud
2. ‘Dehors the will’ (outside the will): argument that the secret trust is not subject to succession act as details agreed outside the will.

Question 8

How does a (fully) secret trust appear in the will?

Answer 8

The fully secret trust will appear as a gift to the beneficiary in a will.
(e.g. ‘My house to Sophie’ might be written in the will, but in reality the testator intends Sophie to keep the house for someone else, has communicated this to her in life and has obtained her assent to this. Although Sophie appears as a beneficiary, she is in fact a secret trustee)

Question 9

What are the elements of a secret trust as per Lord Westbury in McCormack v Grogan?

Answer 9

1. Intention to create a trust must be present
2. The testator must have communicated this fact to the secret trustee in life
3. The secret trustee must have agreed to this (implicitly or expressly) in life

Question 10

Which case re-affirmed the requirements for a secret trust?

Answer 10

Blackwell v Blackwell

Question 11

What different element was set out in Ottaway v Norman?

Answer 11

Could be accepted expressly or by acquiescence

Question 12

What happened in Cullen v Attorney General for Ireland?

Answer 12

• A gift was set out in the will but intended to be held on secret trust by the recipient for the benefit of a charity.
• A gift to a charity in a will would have been exempt from certain taxes.
• The court held that these taxes were payable here as if the recipient were keeping the gift for themselves.
• This was justified on the basis that the trust had taken effect outside of the will.

Question 13

Can a beneficiary witness the will?

Answer 13

Yes

Question 14

Why can a beneficiary witness the will?

Answer 14

• Ordinarily under s 82 of the Succession Act 1965, a beneficiary will lose their interest to any gift under a will if they witness it.
• But as the secret trust is viewed as outside the will, a beneficiary to such a secret trust may witness the will and keep their interest.

Question 15

What was the decision in O’Brien v Condon?

Answer 15

It was found that the beneficiary could benefit from the secret trust despite witnessing the will

Question 16

Can a named legatee/devisee witness the will?

Answer 16

It appears so (Re Armstrong)

Question 17

What happened in Re Young?

Answer 17

The testator left property to his wife with the stipulation that she should use it to make certain bequests that he had previously informed her about (half secret).
One of these bequests was to go to the testator’s chauffeur (a sum of £2000).
The chauffeur had witnessed the will.
Therefore, if the gift had been expressly disclosed in the will, the chauffeur would not have been able to benefit.
However, as the trust took effect outside the will, the chauffeur could receive the £2000.

Question 18

What happens if the ostensible legatee/devisee dies before the testator?

Answer 18

The trust will fail (Re Maddock)

Question 19

What happens if the trustee dies before a testator in a half-secret trust?

Answer 19

The trust will survive if the purposes were known (Prendiville v Prendiville)

Question 20

What the courts decide in Brown v Pourau (NZ)?

Answer 20

Communication by testator in life viewed as key element. Acceptance could be inferred by silence.

Question 21

What 1902 Irish case set out that acquiescence or silence could amount to acceptance?

Answer 21

French v French

Question 22

When should communication be made?

Answer 22

During the testator’s lifetime

Question 23

Explain the decision in Re Boyes?

Answer 23

Objects of trust not specified to secret trustee during life of testator and therefore the trust failed
but (obiter)
‘It may possibly be that the legatee would be bound if the trust was put in writing and placed in his hands in a sealed envelope, and he had engaged that he would hold the property given to him by the will upon the trust so declared although he did not know the actual terms of the trust.’

Question 24

What happened in Re Stead?

Answer 24

The tenant in common to whom the trust information was communicated is bound by it; the other is not and may take their share independent of the trust.

Question 25

What did Re Stead say in relation to joint tenants?

Answer 25

- Distinction made between whether the promise of one joint tenant was made before the will or after the will was executed. - Before the will executed: If communicated to one during life before the will executed , both tenants are bound by the trust. - After the will executed: If communicated to one during life after the will was executed, only the joint tenant informed of the trust is bound by it. - This approach has been criticised as unnecessary.

Question 26

What does Biehler say about a half-secret trust?

Answer 26

‘A half secret trust arises where a testator leaves property to an individual in a will and expressly directs that this individual is to hold the property on trust without specifying the terms of the trust’.

Question 27

What was the initial stance on half-secret trusts?

Answer 27

- More difficult to reconcile with lack of compliance with will formalities as the existence of a trust is apparent in the will. - Initially, reluctance in England to recognise these trusts. - Initially, same approach in Ireland but this changed with Riordan v. Banon (1876).

Question 28

What happened in Riordan v Banon?

Answer 28

- Refusal to acknowledge half-secret trusts would undermine the intention of the testator

Question 29

What happened in Re Watters' Will Trusts?

Answer 29

- The will set out that the testator’s property should be used for ‘charitable purposes and objects known to my executors’. - Was this sufficiently made known to the executors? - During his life, but after execution of the will, the testator had several general discussions with one of his executors about how he wished his assets to be used after death and left a memo setting this out in detail found after he died. These discussions were found not to be specific enough to constitute communication before death. There was no trust.

Question 30

What happened in Re King's Estate?

Answer 30

- There was no trust in this case. But Monroe J set out key principles in relation to when secret trusts arise. 1. A testator cannot reserve to himself the right of declaring trusts by an instrument informally executed subsequent to the execution of his will. This would be to repeal the [then] statute of wills. 2. If a testator at or before the execution of his will communicates to a person to whom he proposes to give a legacy that the legacy is given upon trust to be applied in a particular way, and if the legatee expressly or tacitly consents to take the legacy on these terms, the Court of Chancery will not permit him to be guilty of a fraud, but will compel the execution of the trust so communicated.

Question 31

As per Re King's Estate, where do the rules apply?

Answer 31

1. This rule applies whether the existence of the trust be indicated on the face of the will, or the legacy by the terms of the instrument be given absolutely. 2. The rules applies when the communication is made subsequently to the execution of the will: Moss v. Taylor. 3. It is essential to the creation of a valid trust that the communication should be made to the legatee in the testator’s lifetime, and that the legatee should not object to execute the trust.

Question 32

As per Re King's Estate, when is there a valid trust where the bequest is to two or more legatees?

Answer 32

If the bequest be to two or more legatees, a valid trust is created if the communication be made to any one of them, before or at the time of the execution of the will. If the communication be made after the execution of the will, it must be made to all the legatees on whom the trust is sought to be imposed.

Question 33

The terms in which the trust is expressed must not be vague or uncertain. True/False?

Answer 33

True (Re King's Estate)

Question 34

What happened in Re Browne?

Answer 34

In this case a fully secret trust was found due to lack of information re trust in the will. However, Overend J stated obiter, that even if the trust was a half-secret trust, the fact communication had taken place after the execution of the will would have made no difference.

Question 35

What is the English stance?

Answer 35

1. Took a long time for half-secret trusts to be recognised 2. Communication has to be *before* the execution of the will

Question 36

What happened in Blackwell v Blackwell? (Eng)

Answer 36

- Testator gave money on trust to legatee with the instruction to apply the income ‘for the purposes indicated by me to them’. Instructions were given to one legatee and accepted in outline by the rest before the execution of the will. - Viscount Summer: ‘ it is communication of the purpose to the legatee, coupled with acquiescence or promise on his part, that removes the matter form the provision of the Wills Act and brings it within the law of trusts.’

Question 37

What happened in Re Keen? (Eng)

Answer 37

- Before the execution of the will, one of the trustees was given a sealed envelope with name of beneficiary which was deemed to constitute communication. - However, as the phrase in the will suggested that notification would take place after execution, this was not sufficient.

Question 38

What was decided in Re Bateman's Will Trusts?

Answer 38

- Communication and acceptance of half secret trust must occur before the execution of the will. - Approved obiter in Re Freud (2014).

Question 39

What was decided in Canada regarding communication?

Answer 39

Communication of the trust even very shortly after the will was made would cause a half-secret trust to fail. (Jankowski)

Question 40

Explain Prendiville v Prendiville

Answer 40

- Estate left to wife in will ‘ to be used by her according to my wishes- as she has been advised’. - Before he died the testator set up a document with instructions on how his wife was to deal with the property in her own will. - Wife made a statutory declaration that the instructions she received from her husband had been communicated and accepted by her before she died. It was not clear if this had happened before or after the execution of the will. - Wife left no will so a dispute arose between her next of kin and the purported beneficiary to the half secret trust. - Barron J held that it did not matter at what time the communication took place and a valid half secret trust subsisted.