Secret Trusts

Question 1

What are secret trusts?

Answer 1

• Wills Act 1837, section 9.
• A will only take effect on death.
• Wills become public documents.
• Secret trusts arise when either (1) the existence or (2) the terms of a trust are not disclosed in the will.
• Secret trusts are said to be an exception to section 9.
• This is a type of private trust.
• A secret trust is always constituted outside a provision that is in somebody’s trust.
• Always after someone dies
• A secret trust arises where a person who has made a will (the testator) leaves a gift to someone in their will but intends that the recipient

Question 2

What 3 things in Section 9 relating to the will do you need for a will to be valid?

Answer 2

1. A will has to be in writing.
2. Got to be signed by the creator (testator/testatrix)
3. Signature must be witnessed by 2 people.

• S9 says if these 3 do not happen, then it is not valid.
• A will is a document that is ambulated, which can revoke the will and replace it.
• This only takes place when someone dies.
• They will automatically have legal affect after death of testator/testatrix.
• Probate is something after someone dies.
• You apply for grant of probate along with forms and a copy of will to the registrar.
• Once probate is granted, the executor then gets authority to collect assets of the deceased estate.
• The system introduces a measure of accountability that the executor exercises their authorities properly once probate is granted.
• Looking through the copy of the will, you can see whether the deceased made any gifts within their will or granted anything of setting any trust in their will.
• Separate communication outside the will, can be a letter, might be a piece of paper.
• Doesn’t need to be signed or witnessed.

Question 3

Why have secret trusts?

Answer 3

• Secrecy!
• Historically used to provide for secret mistresses and children from such relationships.
• This was historically intended to be used by men.

Question 4

What are the two types of secret trusts?

Answer 4

1. Fully secret trusts.
2. Half secret trusts.

Question 5

Fully secret trust example:
- In my will, I leave £500,000 to Alice.
- On the face of the will, Alice is the absolute legatee (i.e. the person entitled to that gift).
- But, whilst I was alive, I asked Alice (and she agreed) to hold the £500,000 on trust for Brian.
- Alice is the secret trustee, and Brian is the secret beneficiary.

Answer 5

You must do 2 things:
1. In your will, you must leave a gift to somebody.
2. You must be able to communicate the gift properly.

• The secret is the third bullet point and what is needed to create a fully secret trust.
• If you read the will, it will show what gift is being given.
• A gift has been made, is not a secret because that is out of the will.
• The recipient of the will is a secret, the terms of the will and the terms of the beneficiary.
• A fully secret trust is a gift masquerading.

Question 6

Half secret trusts example:
- I give £500,000 to Alice for her to hold that money on trust.
- Whilst I was alive, Alice agreed to hold the £500,000 on trust for Brian.
- Alice is a trustee – no secret about this.
- But Brian is still the secret beneficiary.

Answer 6

• If you read the will, will state that a trust has been created.
• It is never a gift in a will or a trust that is disguised in a will.
• It is clear who the trustee is

Question 7

Why are secret trusts upheld?

Answer 7

• Prevention of fraud on the beneficiary - McCormick v Grogan (1869).
• Secret trusts operate outside (dehors) the will, so that the rules governing wills don’t apply to secret trusts.

Question 8

Creation of secret trust

Answer 8

• Intention to create a secret trust.
• Communication of the terms of the trust to the trustee.
• Acceptance by the trustee.
• Moss v Cooper (1861).

Question 9

Communication for fully secret trust can be:

Answer 9

• at the same time as the will is made or,
  
  • after the will is made.
• But the communication must be made before the testator’s death.

Question 10

Fully secret trust:
Cases of communication made before the testator’s death

Answer 10

• Moss v Cooper (1861). – All about timing.
• Walgrave v Tebbs (1855).
• Re Boyes (1884).

Question 11

Fully secret trust:
Cases of communication made before the testator’s death -

RE BOYES

Answer 11

• Fully secret trust.
• Issue was timing of the communication.
• Testator tried to make a secret trust.
• Secret trustee was their solicitor.
• Solicitor knew.
• Solicitor was told he was going to be given extra detail near the time.
• Solicitor confirmed.
• Testator died without giving any extra info.
• After death, document was found with that info.
• We could predict, the secret trust failed because communication of terms of secret trust had not succeeded.
• Solicitor was not allowed to keep the gift.
• Court held that the property could not possibly been a gift to the solicitor.
• Should be returned to testator, trust failed and so did gift.
• Timing of communication.
• The testator did not intend to give gift.

Question 12

Fully secret trust:
Cases of communication made before the testator’s death -

WALGRAVE -

Answer 12

• Clear that testator did not intend to create a secret trust.
• Because if he had, he would make sure that the letter he had already written, was actually given to the opposed person during his lifetime.
• You can only go off what was intended.
  In the will, there was a gift, court went off that.
  The trust failed, but the gift did not.
• Fully secret trust, the terms must be communicated before the trust.

Question 13

For an attempted fully secret trust, there are 3 possible outcomes:

Answer 13

1. A valid fully secret trust is created.
2. The ‘trustee’ takes the gift beneficially (i.e. they keep the property for themself).
3. A resulting trust is created, and the property goes back into the testator’s estate. (outcome in re boyes)

Question 14

Communication:
Half secret trusts -

RE BATEMAN

Answer 14

• There was some money held on a half secret trust
• In the will, it said that the identity of the secret beneficiaries shall be stated in a sealed letter.
  It was not satisfied, because of the words ‘shall be’.
• Landmark case illustrated that the first limb related to a half secret trust.
• If there is any evidence, we fouful the second rule of communication.

Question 15

Communication:
Half secret trusts -

RE KEEN

Answer 15

• Will said that the testator was leaving £10,000 on trust, may be notified to my trustee during my lifetime.
• Prior to making the will, the testator gave a seal on the envelope.
• The sealed envelope was handed over, it was said in the will, the trustee is not to open envelope until after testator death.
• Court held that the communication was before the will was made.
• The sealed envelope was given to trustee before the will was made.
• Instructed to open envelope after, the half trust was indeed satisfied.
• The second limb is that there must not be no evidence that contradicts the terms of the will.
• Court held there was contradictions.
• The second limb was NOT satisfied.
• Wording of the will and opening envelope after death, this is where the contradiction of the term failed of communication.
• Both limbs of this rule must be satisfied.

Question 16

For an attempted half secret trust, there are 2 possible outcomes:

Answer 16

1. A valid half secret trust is created.
2. A resulting trust is created, and the property goes back into the testator’s estate.

Question 17

Increasing the legacy communication EXAMPLE:
* During my lifetime I say to Alice – “I am leaving £100,000 in my will to you but I want you to hold it as trustee for Brian”.
* Alice agrees = half secret trust.
* Without informing Alice, I sign a codicil to increase the amount of the legacy by £25,000 to £125,000.
* Who gets what? Re Colin Cooper (1939).

Answer 17

• We need to rely on the case.
• The original money will be held by Alice for Brian because we have 3 requirements relating to that money.
• However, the additional, is not to be held on a half secret trust because its only to be related to the £1,0000.
• That £25,000 is not held on a trust for Brian.
• Those documents made it clear that the intention was not to be for the money of the gift.
• The 25,000 falls back into the residue of the state
• The additional went back to the deceased state.
• The same principle applied if you intended to make a fully secret trust, but the outcome would be different.
• Intention is for it to be a gift.
• Brand new document is called codicil.
• 2 things to be aware of about codicil;
• The legal requirement is exactly same of a codicil, is the same as a will.
• Codicil needs to be in writing, witnessed by 2 people and signed by the testator/testatrix.

Question 18

A secret beneficiary is a witness to the will?

Answer 18

• Wills Act 1837, section 15. A gift to a witness does not affect the validity of the will, but that gift is void.
• Re Young (1951).
• The whole theory of the formation of a secret trust is that the Wills Act 1837 has nothing to do with the matter.
• Secret trusts operate outside the will.
• It tells us a beneficiary cannot be a witness under a will.
• If you witness my will, that gift to you fails.
• In that case, the testator created a half secret trust.
• The identity of the trustee was clear in the will.
• The beneficiary in the will was not clear.
• One of the secret beneficiaries also witnessed the will.
• The outcome was that if a secret beneficiary witnessed a will, the gift is still valid.
• The reasoning from court was under these circumstances, secret beneficiary is not valid to gift.
• If that person witnesses the will, the trust does not fail.

Question 19

Secret trustee pre decreases a testator?

Answer 19

• General rule - Wills Act 1837, section 25.
• Fully secret trust:
• The proposed secret trustee is the beneficiary named in the will.
• So, if the proposed secret trustee dies before the testator, the beneficiary named in the will has died before the testator.
• The gift lapses & the secret trust will fail.
• Half secret trust – “a trust will not fail for want of a trustee”. Re Maddock (1902).

Question 20

Secret Trustee Pre decreases a testator?
- General rule - Wills Act 1837, section 25.

Answer 20

• S25 relating to general rule which relates to gifts under a will:
• This General rule, which is subject to a few exceptions,
• S25 says that if I leave a gift of £1,000 to you in my will, and if you pre-deceased me, you die before me then when I die, that £1,000 that I left to you In my will, it would have gone to you if you were still alive but that gift fails.
• IF S25 say, if there’s a gift in a will and if the recipient of that gift pre-deceased the testator, then the gift fails and the property just falls into the residue of the estate.

Question 21

Secret Trustee Pre decreases a testator?-
Half secret trust – “a trust will not fail for want of a trustee”.
Re Maddock (1902).

Answer 21

• A case called Re Maddock, deals with this particular issue.
• This case tells us that the outcome of the general rule differs depending upon whether or not ive tried to create a fully secret or a half secret trust.
• If I’ve tried to create a fully secret trust, if I do that as my framework, which looks like a gift which turns out to be a secret. Gift turns out to be the transfer of the property in order to constitute that fully secret trust.
• Re Maddock tells us that the fully secret trust fails.
• Why? That is a reasonable outcome, because S25 will apply to that gift there in the will.
• That gift fails and therefore consequently, the secret trust that I’ve communicated outside the will can never be constituted.
• Gift fails, trust cannot be constituted.
• Legal title is never transferred from me to my trustee because the gift fails and therefore the secret trust fails as well.
• The secret trust will fail because of the interaction between the way that you create a fully secret trust and the application of Section 25.
• If the secret trust, pre-deceased, the trust will FAIL.
• Under the same circumstances if I try and create a half secret trust.
• The outcome is different because remember previous I’ve referred to equitable maximums.
• The equitable maxim is that a trust will not fail for want of a trustee.
• If I try to create that half secret trust, it will be clear in my will who the trustee is.
• It will be clear in my will that I intended to create a trust.
• Re Maddock tells us that the half secret trust will not fail because of the equitable maxim.
• Section 25 will not apply because the will refers to Specifically as a trustee, not a donee. Its not a gift under these circumstances.
• Section 25 relates to the death of a donee, not a trustee.
• When a donee dies, you would need to simply appoint a replacement trustee under those circumstances because equity will not let this half secret trust fail for want of a trustee.

Question 22

Secret beneificary pre decreases a testator?

Answer 22

• The outcome is the same for Fully Secret and Half Secret Trusts.
• Re Gardner (No 2) (1923). The secret trust does not fail.
• The trustee holds the property for deceased beneficiary’s estate.

Question 23

Re Gardner (N02) (1923). The secret trust does not fail

Answer 23

• For both secret trust and a half secret trust, the identity of the beneficiary is always a secret.
• You’ll never find the identity of the secret beneficiary in the will.
• In Re Gardner it tells us that if any secret beneficiary dies before a testator, then the secret trust does not fail.
• If it’s a straightforward gift and whoever gets the benefit of a gift under section 25, if that person predeceased the testator, then the gift fails but the secret trust, according to Re Gardener does not fail.
• Why was that?
• The Court decided that under these circumstances, a secret beneficiary, whilst you are still alive, you acquired an equitable interest in the trust property as soon as the trustee accepted appointment as my secret trustee.
• The secret beneficiary get an equitable interest in the property, even if you die before the testator.
• The beneficiary is died before me. The Trustee receives the property and holds that property on trust for the secret beneficiary estate. This is the outcome.
• This is what happens when a secret beneficiary dies before a testator.

Question 24

Can a secret trustee benefit under a secret trust?
Re Rees (1949).

Answer 24

• If a testator wishes his trustee to benefit from a secret trust, the intention should appear in the will for all to see.
• The trustee cannot benefit from the secret trust.
• In Re Rees, we had a testator.
• The testator went to his solicitor to draft a will and in the will the testator wanted to create a half secret trust, and the solicitor was going to be the trustee.
• In a half secret trust, the solicitor is nominated as the trustee.
• The solicitor claimed that the terms of the half secret trusts were that the solicitor were to make certain payments to the secret beneficiary.
• And then whatever property, whatever money was left over after those payments had been made, the solicitor could keep.
• Pay money to a secret beneficiary. You can keep the rest.
• The court held in retreat that the solicitor was not entitled to keep the remainder of that property.
• The court decided in that case that as a matter of general public interest, if a testator wanted your trustee to benefit from a secret trust, then the intention that should appear in the will for everyone to see.
• You cannot benefit from a secret trust if you are the trustee because it is not clear in the will.

Question 25

More than one secret trustee – can both be bound?
Re Stead (1990) - fully secret trusts only if:

Answer 25

1. A gift in a will is made to the secret trustees jointly, and
2. Communication is made to one of the secret trustees before or at the time the will is made. Then both are bound.
   Otherwise, only the knowing secret trustee is bound.

Question 26

Re Stead CASE

Answer 26

• Maria Stead left property and her will to somebody called Marshe and somebody else called Andrew after Maria died.
• Marche said that Maria had communicated with him before the will was made.
• Let him know the terms of the secret trust that was to apply to that gift in the will.
• No communication whatsoever between Maria and Andrew.
• So in that case, the court held that under those specific circumstances, the rules on communication were that the unknowing trustee is bound by the communication and acceptance by the knowing trustee.
• Both of these requirements have been satisfied.
• The first requirement is that the gift in the will must be made to the secret trustees jointly.
• You need to read the will to understand whether or not the gift was made jointly or not.
• By jointly, Joint tenants or tenants in common.

Question 27

Joint tenants

Answer 27

• Joint tenants is if you and I own property as joint tenants, if we own property then we own that property jointly. We own 100% of it. The consequences of that is if one of us dies, the surviving joint tenant owns the whole of the property before the death they both owed 100% of it.

Question 28

Tenants in common

Answer 28

• Tenants in common, is if you own property as tenants in commons, then you own your own individual shares. If a will it says, I’m giving you something equally, then you’ve got equal shares. Equally means you owe 50%, I owe 50%. Therefore, we hold that property as tenants in common. We’ve both got our individual shares and that right of survivorship, that fact that under a joint tenancy the survivor has a right to own property.

Question 29

Re Stead Continue: Rule applied

Answer 29

Applying this to the rule:
* The 2 secret trustee in the will, if I wanted them to own it jointly, you would say you want to gift it to the secret trustee to hold jointly.
* If the words ‘hold jointly’ is in the will, then it would be clear that I intended to give both to own 100% of the money to own it as joint tenants.
* If that were the case, then the first part of the rule in Re Stead would be satisfied.
* If the first par in Re Stead has not been satisfied, if you are to hold the money jointly, you are not bound by the secret trustee acceptance.
* Both parts of the rule need to be satisfied with the first one isn’t.
* Secret trustee is not bound and will be entitled to keep the money.
* But both parts of the rule need to be satisfied.
* Second part relates to the timing of the communication to the secret trustee.
* It relates to the timing of the testator’s communication the secret trustee. Re Stead says that the testator had to communicate with the knowing trustee either before or at the same time as the will was made.
* So if I communicated with the secret trustee at any time after the will was made, but before my death, the second part of this role in Re Stead would not be satisfied and the other secret trustee keeps the money.
* If I complied with both parts of the re stead requirements, then both secret trustees are bound by the terms of my fully secret trust.
* If I don’t comply, then the secret trustee is not bound.

Question 30

Three Specific words of warning relating to
re stead:

Answer 30

1. The case only applies to secret trust -You cannot apply it to a half secret trust because both trustee would be referred to in the will and as such both trustee would be bound.
2. This rule only relates to a specific issue, namely fully secret trust, More than one proposed secret trustee and if the testator did not communicate with all of the proposed secret trustee, and under those circumstances,
   - This case answers this question of is the ongoing trustee bound?
   - It is a risk that is so specific and you only apply reset under all of those circumstances.
   - Don’t apply re stead to any other situations
3. This relates to the second limb, the second limb of reset.
   - Don’t confuse that with the general rules relating to communication for secret trusts.
   - You know that the general rule relating to communication for a fully secret trust is that the communication must be before the death of the testator.
   - The timing of the communication for a half secret trust is that It cannot be after the will is made, its got to be either at the same time or before the will is made.
   - But the rule is Re Stead in so far as it relates to timing is the same as the general rule for half secret trusts, namely communications.
   - Even though it always relates to fully secret trust drafts and it can never relate to a half secret trust.

Question 31

Secret trusts of land:

Answer 31

• Fully Secret
  
  • Express trust of land would have to satisfy section 53(1)(b) of the Law of Property Act 1925.
  • Ottoway v Norman (1972).
• Half secret
  
  • Re Baillie (1886).

Section 53 says that any declaration of trust relating to land must be in writing.
In contrast to Ottoway v Norman and re Baillie -
- In Ottoway v Norman it was held that a fully secret trust of land could be valid even if the communication was not in writing.
- However, contrast that with Re Baillie, we had a half secret trust and, in that case, it was how the half secret trust failed because the communication was not in writing.
- So we’ve got conflicting authority as to whether or not a secret trust relating to land must be in writing.
- Section 53 1 b says that it MUST.
- Ottaway v Norman suggest that for a fully secret trust, it doesn’t have to be in writing.
- Whereas Re Baillie says that for a half secret trust, if land is involved, it does need to be in writing.