Secret Trusts Flashcards
Secret Trust
- 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.
Fully secret trust
Outright gift in the will to the intended trustee
Half secret trust
- 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.
Kasperbauer v Griffith [2000]
Requirements for Secret Trust
- 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.
Kasperbauer v Griffith [2000]
3 Certainties
- knows what she has to do too vague to create a legal obligation on his wife to hold on a secret trust.
Margulies v Margulies [2000]
3 Certainties
claimant’s older brother knowing his wishes and giving what’s appropriate did not create a binding legal obligation.
Wallgrave v Tebbs [1855]
- 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.
What must be communicated in a Secret Trust?
- Existence
- Terms of the trust
- Subject Matter
Wallgrave v Tebbs (1855)
Communication
Settlor has to communicate existence of the trust
Re Boyes (1884)
Communication
- Terms of the trust be communicated. If not, there can be no trust and property is held on resulting trust for deceased’s estate.
Re Colin Cooper (1939)
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
Re Keen (1937)
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.
Re Stead [1900]
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.
Moss v Cooper [1861]
Acceptance
Silence was held to be sufficient acceptance in a secret trust
Moss v Cooper [1861]
Reliance
Reliance can be made by not changing the will
Stickland v Aldridge [1804]
Reliance
Reliance can be made by not making a will – rely on undertaking of next of kin
Ottoway v Norman [1972]
Reliance
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.
Re Keen (1937)
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.
Re Bateman’s Will Trusts [1970]
A half-secret trust will fail if the will allows for future communication.
McCormick v Grogan [1869]
Fraud Theory
- 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
Narrow view of Fraud Theory in McCormick v Grogan
If secret trustee induces the testator to leave him his property and then didn’t carry out his wishes, would be fraud.
Broad view of Fraud Theory in McCormick v Grogan
Inducement isn’t necessary. If property left to trustee and trustee doesn’t carry out the terms, would be fraud.
Blackwell v Blackwell [1928]
Fraud Theory
- 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.
Blackwell v Blackwell [1928]
Dehors the Will Theory
- 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.
Re Gardner (No 2) [1923]
Pre-Decease of Beneficiary
- 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
Re Young [1951]
Secret Beneficiary a Signatory
- 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
Kasperbauer v Griffith [2000]
LPA 1925 s53(1)(b) Exemption
- 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.
Ottoway v Norman [1972]
LPA 1925 s53(1)(b) Exemption
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.
Re Bailee [1886]
LPA 1925 s53(1)(b) Exemption
- Half-secret trust in land failed because didn’t comply with written formalities.
- However, pre-dates Blackwell when half secret trusts were never enforced.
