Secret Trusts

Question 1

Secret Trust

Answer 1

• A trust which takes effect on death.
• Details of the trust do not appear in the will
• Trustee is separately informed, during their lifetime, of the terms on which the property is to be held.

Question 2

Fully secret trust

Answer 2

Outright gift in the will to the intended trustee

Question 3

Half secret trust

Answer 3

• Arises where it is clear from face of the will that the property is left on trust, but the will does not contain the terms of the trust.
• Settlor must communicate a Half-Secret Trust before/same time as will’s execution.
• If there is a clear intention to create a trust but the half-secret trust is not valid, there will be a resulting trust for the testator’s estate.

Question 4

Kasperbauer v Griffith [2000]

Requirements for Secret Trust

Answer 4

• basic requirements for a secret trust are:
  
  • Intention by testator to create trust
  • Communication to secret trustee
  • Acceptance by secret trustee
• Testator then relies on that acceptance.

Question 5

Kasperbauer v Griffith [2000]

3 Certainties

Answer 5

• knows what she has to do too vague to create a legal obligation on his wife to hold on a secret trust.

Question 6

Margulies v Margulies [2000]

3 Certainties

Answer 6

claimant’s older brother knowing his wishes and giving what’s appropriate did not create a binding legal obligation.

Question 7

Wallgrave v Tebbs [1855]

Answer 7

• Settlor must communicate a Fully Secret Trust before their death, whether before or after signing the will.
• Instructions to trustees found in testator’s papers after his death was not held to be valid communication so the trust was invalid.

Question 8

What must be communicated in a Secret Trust?

Answer 8

• Existence
• Terms of the trust
• Subject Matter

Question 9

Wallgrave v Tebbs (1855)

Communication

Answer 9

Settlor has to communicate existence of the trust

Question 10

Re Boyes (1884)

Communication

Answer 10

• Terms of the trust be communicated. If not, there can be no trust and property is held on resulting trust for deceased’s estate.

Question 11

Re Colin Cooper (1939)

Answer 11

Trustee is only bound to hold the subject-matter that has been communicated to them.

Settlor communicated to trustee leaving them a certain amount of property in their will, and then executed a codicil in which they increased trust property, but didn’t tell the secret trustee. Court held that secret trustee was only bound to hold property that has been communicated to them

Question 12

Re Keen (1937)

Answer 12

Communication will be accepted in a sealed envelope so long as trustee knows it contains terms, and accepts it on the basis of not knowing the terms.

• Nothing to believe that this wouldn’t work for more contemporary sealed communication.

Question 13

Re Stead [1900]

Answer 13

In a joint-tenancy, if communication of a secret trust is only made to one of the tenants before the execution of the will, all tenants are bound. In a tenancy in common, the other tenants will not be bound.

Question 14

Moss v Cooper [1861]

Acceptance

Answer 14

Silence was held to be sufficient acceptance in a secret trust

Question 15

Moss v Cooper [1861]

Reliance

Answer 15

Reliance can be made by not changing the will

Question 16

Stickland v Aldridge [1804]

Reliance

Answer 16

Reliance can be made by not making a will – rely on undertaking of next of kin

Question 17

Ottoway v Norman [1972]

Reliance

Answer 17

Can rely on an oral obligation to make a will in favour of the secret beneficiary.

• Testator left bungalow to his housekeeper on obligation that she would leave it for his son in her will. She neglected to do this and court ruled son could rely on the obligation imposed.

Question 18

Re Keen (1937)

Answer 18

Will must be consistent with the method of communication.

• So for a half-secret trust, the will must say “I have communicated” (past tense) to be valid. If says, “I will communicate” will be invalid.

Question 19

Re Bateman’s Will Trusts [1970]

Answer 19

A half-secret trust will fail if the will allows for future communication.

Question 20

McCormick v Grogan [1869]

Fraud Theory

Answer 20

• If it is clear an obligation is placed on the trustee, even though the terms are not left in the will, the court will uphold and enforce those trusts as per the Wills Act.
• Equity will not allow a statute to be used as an instrument of fraud.
• Friend leaves Grogan everything in his will and leaves a letter with instructions for the property, but giving Grogan wide discretion. Friend dies. Grogan distributes as he believes friend wants. Sued by those who miss out.
• Court deem not a secret trust because no legal obligation to carry out terms of letter

Question 21

Narrow view of Fraud Theory in McCormick v Grogan

Answer 21

If secret trustee induces the testator to leave him his property and then didn’t carry out his wishes, would be fraud.

Question 22

Broad view of Fraud Theory in McCormick v Grogan

Answer 22

Inducement isn’t necessary. If property left to trustee and trustee doesn’t carry out the terms, would be fraud.

Question 23

Blackwell v Blackwell [1928]

Fraud Theory

Answer 23

• In a half-secret trust, simply not carrying out the terms of the trust was defrauding the secret beneficiary because they didn’t receive the terms of the property AND the settlor because not carrying out their instructions.

Question 24

Blackwell v Blackwell [1928]

Dehors the Will Theory

Answer 24

• Secret trusts are not testamentary trusts; they are lifetime trusts (because provisions made during settlor’s lifetime) and so they are not subject to the formalities of the Wills Act.
• Problematic - secret trusts contained in a will / constituted after settlor dies - testamentary in nature
• However, approved at every level of judiciary.

Question 25

Re Gardner (No 2) [1923] Pre-Decease of Beneficiary

Answer 25

* **Normal Rule** - If beneficiary of secret trust dies before settlor, when will is carried out nowhere for that property to go, that trust will fail. * **Re Gardner (No 2) (1923)** – Secret Trust is **valid on communication** to the trustee **and** their **acceptance**. **Therefore, when testator dies, interest will pass to beneficiary’s estate.** * **Problem** - Violates probate and trust law, and indicates a will can be revoked * Case is binding but unlikely to be followed

Question 26

Re Young [1951] Secret Beneficiary a Signatory

Answer 26

* **Normal Rule** - **s15, Wills Act 1837** – if you witness a will, you are unable to benefit from anything in that document * **Re Young [1951]** - **secret trusts operate outside the will and are immune to s15 Wills Act 1837.** Therefore, if a secret beneficiary witnesses a will, unlikely to have any effect on their interest

Question 27

Kasperbauer v Griffith [2000] LPA 1925 s53(1)(b) Exemption

Answer 27

* **Failure to comply with s53(1)(b) does not invalidate a secret trust of land.** * Court indicated that **original justification for upholding secret trusts was Fraud Theory**, and **constructive trusts are used to prevent unconscionable conduct,** then doesn’t make sense for **s53(1)(b)** to invalidate a secret trust of land.

Question 28

Ottoway v Norman [1972] LPA 1925 s53(1)(b) Exemption

Answer 28

An **oral trust of land** can be upheld as a **valid fully secret trust** * Absence of writing would indicate you don’t need **s53(1)(b)** but this was never raised in the case.

Question 29

Re Bailee [1886] LPA 1925 s53(1)(b) Exemption

Answer 29

* Half-secret trust in land failed because **didn’t comply with written formalities**. * However, **pre-dates** **Blackwell** when half secret trusts were never enforced.