Secret Trusts

Question 1

What are the 2 theories for why secret trusts are allowed contrary to s9 WIlls Act and LPA?

Answer 1

The dehors the will theory,

The fraud theory

Question 2

The dehors the will theory

Answer 2

(Blackwell v Blackwell)
Secret trusts arise independently of the wills and are therefore in fact inter-vivos trusts, despite being constituted via the will. As inter-vivos trusts the s 9 Wills Act requirements do not applies
Applied in Re Gardener and Re Young

Question 3

The Fraud theory

Answer 3

(McCormick v Grogan; Kasperbauer v Griffith)
Based on the equitable maxim that ‘equity will not permit a statute to be used as an instrument of fraud’. Secret trusts should be viewed as constructive trusts and therefore do not need to comply with s 53(1)(b) LPA 1925
In the case of fully secret trusts this prevents the trustee fraudulently taking the property outright
In the case of half-secret trusts it prevents the trustee using the property fraudulently in a way the testator did not intend

Question 4

What is a half-secret trust?

Answer 4

Where the existence of the secret trust is disclosed on the face of the will but not its terms of the beneficiary

Question 5

What is a fully-secret trust?

Answer 5

Where the trust is not disclosed at all on the face of the will and it appears as an outright gift

Question 6

What are the 4 requirements for a valid secret trust?

Answer 6

(Kasperbauer v Griffith)
Intention
Communication
Acceptance
Reliance

Question 7

What is intention?

Answer 7

The testator must have intended to create a legally binding trust and the 3 certainties must be satisfied

Question 8

What phrases were insufficiently imperative to constitute a secret trust?

Answer 8

‘Knows what she has to do’ (Kasperbauer v Griffith)
‘Knowing his wishes’ (Margulies v Margulies)
‘Wishes’ often not imperative enough but other language together with this may be conclusive

Question 9

Communication - 4 constituents

Answer 9

Content, method, timing, recipient of communication

Question 10

Communication - content - what must be communicated about the trust?

Answer 10

(i) The existence of the trust (Wallgrave v Tebbs)
(ii) The property subject to trust (Re Colin Cooper)
(iii) The terms of the trust (Re Boyes)
It must be clear who the beneficiary of the trust is

Question 11

Communication - method - how the secret trustee is informed about the trust?

Answer 11

Can be oral or in writing or
By sealed letter given to the trustee in the testator’s lifetime to be opened after their death (Re Keen); compared to a ship sailing under sealed orders.
The secret trustee must understand that the terms of the trust are contained in the letter
The letter must not refer to future communication, i.e. ‘as I shall direct’ / ‘as shall be stated by me’ (Re Bateman)

Question 12

Timing

Answer 12

The requirements vary depending on the type of trust:
Fully secret trusts may be communicated at any point before the testator’s death (Wallgrave v Tebb)
Half-secret trusts must be communicated before or at the time of the will’s execution (signing) (Re Keen)
Communication by sealed letter takes place when the letter is handed over

Question 13

Recipient of communication - general rule

Answer 13

only those to whom communication is made are bound to act as trustees

Question 14

Recipient of communication - exception for half-secret trusts

Answer 14

As long communication is made to at least one trustee before the will is signed the rest of the trustees will be bound (Re Gardom)

Question 15

Recipient of communication - exception for fully-secret trusts

Answer 15

If the trustees are (1) all joint tenants they will all be bound if communication took place (2) before the execution of the will (Re Stead)

If the trustees are all joint tenants and communication occurs after the execution of the will only those who actually received communication will be bound (Re Stead)

If the trustees are tenants in common communication to all trustees is required others only the trustees to whom communication was made will be bound and the trustees to whom communication was not made will take their share of the property as an outright gift (Wallgrave v Tebbs)

Question 16

Communication for half secret trusts?

Answer 16

must be consistent with the will (Re Keen)
Look at the specific wording used
‘Purposes’ – there must be more than one purpose
‘Made known to them’ – multiple trustees required and they must be informed
‘Purposes we have discussed’ – suggests oral discussion, not written

Question 17

How can the secret trust be accepted?

Answer 17

Through words or implied through silence if it is reasonable to infer acceptance in the circumstances (Moss v Cooper)
The testator must reasonably believe that the trust has been accepted

Where the secret trustee qualifies his acceptance with a condition, i.e. he will only carry out a reasonable request, the court will judge the qualification objectively in deciding whether acceptance is valid

Question 18

What must the testator do IN RELIANCE on the secret trustee having accepted the secret trust?

Answer 18

Either:
Create his will
Leave his existing will unchanged (Moss v Cooper)
Not make a will at all (Strickland v Aldridge)

Question 19

What are some potential issues that can arise?

Answer 19

Secret trusts of land
Beneficiaries as witnesses to the will
Pre-decease of the beneficiary
Disclaimer by the trustee
Death of the secret trustee

Question 20

Issues - secret trusts of land

Answer 20

There is contradictory case law about whether s 53(1)(b) (in writing) applies:

In Re Baillie, a half-secret trust case, it was held that s 53(1)(b) must be complied with. However, in Ottaway v Norman, a fully-secret trust case an oral declaration of land was sufficient (i.e. s 53(1)(b) was not complied with).

The utility of these cases is questionable. Re Baillie was decided before the approval of half-secret trusts in Blackwell v Blackwell and, therefore, it failed as a result of the half-secret nature of the trust rather than a lack of signed evidence. Ottaway carries limited weight because there was no express discussion of s 53(1)(b).

Instead a better approach is to consider secret trusts constructive trusts under the fraud theory (Kasperbauer v Griffiths – see above). As constructive trusts they are not required to comply with s 53(1)(b) (s 53(2)). This conclusion is further supported by Paul Todd who stated that if secret trusts are outside s 9 Wills Act they are also outside the requirements of s 53(1)(b).

Question 21

Issue - A beneficiary witnessing the will

Answer 21

A beneficiary is not permitted to benefit under a will to which he is a witness (s 15 Wills Act 1837). However, s 15 Wills Act does not apply to secret trusts according to the dehors the will theory (Blackwell v Blackwell – see above). This suggests that a inter-vivos trust is created separately from the will and therefore the beneficiary does not benefit under the will he witnesses and the trust is valid (Re Young)

Note: a secret trustee witnessing the will is fine because he does not benefit from the will
For a half-secret trust it is clear on the face of the will that he is a trustee and not a beneficiary
For a fully-secret trust the secret trustee is not in fact a beneficiary, despite this appearing to be the case

Question 22

Issue - beneficiary predeceasing the testator

Answer 22

the gift will lapse and return to the settlor’s estate under a resulting trust. This rule does not apply to secret trusts (Re Gardner (no 2)). Instead the gift vests in the secret beneficiary’s estate. The decision in Re Gardner (no 2) is based on the dehors the will theory (Blackwell v Blackwell), whereby the secret trust arises on communication and acceptance of the trust by the secret trustee. At this point, therefore, the beneficiary has an interest in the property
The approach in Re Gardner has been criticised because:
It ignores the revocable nature of the will and
It ignores the constitution of the trust, as the trustee does not have legal title until the testator’s death.
Most academics think Re Garnder is the wrong decision

Conclusion: the trustee holds the property on trust for the beneficiary’s estate, if Re Gardiner (No 2) is followed. Otherwise, the property results back to the testator’s estate.

Question 23

Issue - disclaimer by the trustee

Answer 23

The law conflicts on whether a trustee can disclaim a gift
Re Maddock, a fully secret trust case, held that it is possible for a secret trustee to disclaim a gift. However, the obiter dicta Blackwell v Blackwell, a half secret trust case, contradicts this. Blackwell held that it was not possible to disclaim because equity would not allow a trust to fail for want of a trustee. Furthermore, by failing to carry out the legacy the trustee is defrauding the beneficiary.
Difficult to know which to apply. Re Maddock was a Court of Appeal decision on a fully secret trust (how does this fit with the facts). Blackwell was a house of lords case on a half-secret trust, but the rational is of general application

If the trustee is able to disclaim the gift whether the trust fails depends on the trust’s nature
Half-secret trusts: the court would not allow the trust to fail on the basis of the equitable maxim that ‘equity will not allow a trust to fail for want of a trustee’ and will appoint another trustee
Fully-secret trusts: the legal title would not pass to the trustee on the settlor’s death. Therefore no constitution would take place and the trust would fail with the disclaimed gift held on trust for the testator’s estate (Re Maddock)

Question 24

Issue - death of a secret trustee

Answer 24

Half-secret trusts: the court would not allow the trust to fail on the basis of the equitable maxim that ‘equity will not allow a trust to fail for want of a trustee’ and will appoint another trustee

Fully-secret trusts: the legal title would not pass to the trustee on the settlor’s death. Therefore no constitution would take place and the trust would fail with the disclaimed gift held on trust for the testator’s estate (Re Maddock)

Question 25

Issue - failure of a secret trust

Answer 25

The consequences of the failure depend on which of the requirements has not been met

(1) Failure to communicate a half-secret trust will result in the trustee holding the property on trust for the settlor’s residuary estate
(2) Failure of (a) the testator to communicate a fully secret trust or (b) for the trustee to accept the trust, will result in the trustee taking the property absolutely
(3) Where the trust’s existence is communicated but not its terms, the property is held for the testator’s estate on resulting trust