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Secret Trusts

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S9 Wills Act 1837 (as amended) – requires wills to be made in writing, signed and witnessed
o Non-observance of the Wills Act means wills are invalid

Concept of a Secret Trust
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They are inter vivos, but become valid at the time of death – so the secret trusts are not part
of the will but they have a relationship to the will, and take effect because of it
o Therefore there cannot be any inconsistency between the two
o Defines whether they will be express trusts and therefore not only require the
satisfaction of the three certainties but also fall outside the Wills Act s9
Fully secret trusts - way of characterising these as a primary and secondary donee – the first,
who would otherwise be the beneficiary, is actually a trustee, and the second is the true
beneficiary - but the gift is not apparent on the face of the will
Half-secret trusts – made clear in the will that the ‘beneficiary’ is not an absolute
beneficiary, but actually holds the property on some kind of trust for another unknown
beneficiary
Problem of enforcement? Few people know the terms of the trust – can be done by oral
instruction to the first donee, so what’s to stop the first donee from keeping the property?
o Risk of fraud – could ignore or misapply the instruction – danger that the trustee
may deny the existence of the trust to be entitled to the benefit as if it were a gift
o This could be avoided by getting the trustee to sign a copy of the terms and giving
them to the beneficiary so they can enforce it
Purpose of a secret trust
o Historically not about flexibility but privacy (though more flexibility now, because
they are ambulatory and revocable) – wills are public documents, so anybody can go
any survey the wills of people who have died – also avoids the danger of people
contesting the will
Equity will not allow a statute to be used as an instrument of fraud
o This is why the Wills Act cannot be used to plead that a secret trust should not be
enforced - thus a secret trust is an express trust and falls outside of the Wills Act
o Primarily about the fear of fraud on the testator, but also a risk to the true
beneficiary (the ultimate legatee) - they may not even know about it
Re Snowden - "The whole basis of secret trusts is that they operate outside the will,
changing nothing, but fastening a trust to the property in the hands of the recipient," who
can be called the ostensible beneficiary, or the primary donee, the secret trustee etc
o Idea that equity steps in and challenges what the will declares – the will says that
one person is the beneficiary/outright owner, where actually another person is –
equity imposes that trust on the primary donee and thus overlook the express terms
of the will - therefore, you require good proof that the instruction was actually given
to the primary donee – but the standard of proof is the ordinary one (balance)

Requirements for a fully secret trust
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Testator must make a will leaving a gift to the ostensible beneficiary absolutely – must make
it quite clear that the primary donee is the outright owner

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Debate as to whether there must actually be a contract between the trustee and the
testator – suggested that the strictness of normal contract rules do not apply
The basic requirements are laid down in Ottoway v Norman
o Intention – this will be exactly the same as under certainty of intention under Knight
v Knight and relevant case law
o Communication
o Acceptance – consent on the part of the trustee (or ‘primary donee’ under Ottoway)
Communication
o Of the fact that there is a trust, and what the terms of the trust are
 Re Boyes – communication of the existence of the trust, and told that the
terms would be communicated by letter – letter only discovered after death,
and the communication must be inter vivos (Wallgrave v Tebbs), so no trust
 Re Keen – sealed envelope with the terms of the known trust were handed
to the trustees inter vivos – held to be valid, upon the analogy of a ship
sailing with sealed orders
o Communication of the extent of the trust
 Re Cooper – testator left 5k on secret trust, communicating those terms
effectively, but changed the amount to 10k in a codicil, which he did not
communicate to the trustees – held that the original 5k was under trust
obligations, but not the difference
o Multiple trustees?
 Re Steed - Where there are a number of trustees and only some or one of
them have been informed, it depends upon whether they are holding
together as one (joint tenants, rather than tenants in common)
 Where they are tenants in common, they cannot assume the responsibility
of being a trustee on each other’s’ behalf, so only those who are informed
will be bound – the others can take their share as a gift
 Where they are joint tenants, a further distinction is made on timing –
where some are informed before the will is executed, they will all be bound,
but where it is made after the will, only those who are informed will be
bound, and those who are not may take the property as a gift
Acceptance
o Moss v Cooper – testator left property to three individuals and communicated to
each of them that they were to use the property for certain charitable purposes
...
"
Inter vivos declaration of trust and communication to ostensible beneficiaries
 Therefore they are not testamentary – so the Wills Act should not apply
 Developed in Blackwell v Blackwell to accommodate half-secret trusts –
biggest advantage is that, since (it argues that) the trust is not testamentary,
it does not directly conflict with the Wills Act
Postulates two distinguishable stages in the creation of a secret trust
 Communication of the terms to the trustee, at which point the trustee by
default will accept them
 Death of the testator, when the trust becomes fully constituted, and the
property will transfer to the trustee – not therefore completely independent
of the testator’s will - can be revoked at any point until then
 Trust is not enforced directly under the will, however, as the trustee has
already agreed to be bound by the terms – some species of inter vivos
contract? In a sense, analogous to the rule in Strong Bird
Practical operation can be seen in Re Young – in this case the testator left money in
his will on trust – his widow agreed during his lifetime that 2k would be used for the
benefit of the testator’s chauffer in her will
 Problem was that the chauffer was a witness to the testator’s will, and the
Wills Act declares that persons who witness the will cannot get a benefit
under it, so the validity of the trust was challenged
 Court said that because it is a secret trust, and operates outside of the will
(dehors the will), they didn’t need to abide by s15 of the Wills Act, because
they are acquiring by virtue not of the will but of the trust itself

Date of accrual of the beneficial interest
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In principle, it should be the death of the testator that crystallises the rights of the
beneficiary, since secret trusts can be revoked at any stage before this
However, in Re Gardner, it was held that the beneficiary was entitled to her interest when
acceptance of the terms of the trust was made – submitted that this case was a wrong
decision, because it is inconsistent with the legal principle – the trust remains unconstituted
until the death of the testator, so the beneficiary has no rights until then

Express trusts or constructive
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Acceptance of the dehors theory does not per se answer whether secret trusts are express
trusts or constructive trusts
o If they are express trusts, there will be difficulties with formalities like LPA 53(1)(b)
for land trusts, where constructive trusts are exempt from the writing requirement
by 53(1)(c)
o Re Baille – secret trust for land was unenforceable because it was declared orally
 However, subsequent case law has allowed secret trusts of land not
satisfying 53(1)(b) without question, implying that they aren’t
o Also, the three certainties will have to be met for every secret trust

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Secret trusts as express trusts
o The dehors theory would logically suggest that they are express, because they
involve an inter vivos declaration that requires its own certainty
o Difficulty with secret trusts for land can be avoided with the rule in Rochefoucauld v
Boustead that equity will not allow 53(1)(b) to be used as an instrument of fraud –
this would not mark a reversion back to the fraud doctrine because it does not
justify the existence of secret trusts, but merely avoids a distinction between types
of property under the LPA, crucially not the Wills Act
o Kasperbauer v Griffith – court decided in this case that secret trusts are express
trusts, so they always have to satisfy the three certainties – this trust failed for
certainty of intention

Articles

Critchley on Instruments of Fraud and the doctrine of secret trusts
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S9 Wills Act applies to testaments and any other testamentary disposition – necessary not to
establish whether the secret trust is part of the will but whether it is in itself testamentary
Key characteristics of testamentary dispositions are that they are by definition ambulatory
and revocable until death – shared by secret trusts, so evidence that they are testamentary
However, Elias argues that testamentary dispositions must also be UNILATERAL – operating
by the settlor’s sole choice – not the case with secret trusts, because there has to be an
acceptance of trusteeship (this aspect is not really emphasised or supported in the case law)
o However, if the argument is accepted, it still doesn’t change anything – the bilateral
concept is not contractual as there is no consideration, so it is merely a passive
consent requirement – this is no different to the witnessing requirement for
testamentary dispositions – so they share all testamentary characteristics
So the dehors the will theory is fatally flawed because it confuses the idea that secret trusts
fall outside the will and that they fall outside the Wills Act – fails to satisfy the latter because
they are (arguably) testamentary, so is not an adequate justification for disapplying s9
Incorporation by reference as the justification for half-secret trusts? Advocated by Matthews
o If true, then the fraud theory would justify fully secret trusts, because they are not
clear on the face of the will, so the existence of the trust could be denied if s9 were
to apply to them – thus there would be a justification for each type of secret trust
o The doctrine permits part of a testamentary disposition to be expressed in a
document which does not comply with the testamentary formality requirements –
basically what a half-secret trust is doing
o For starters, both incorporated documents and half-secret trusts require their
completion/communication at the time the will is executed, whereas fully secret
trusts can be completed/communicated at any time before death
o First difference is that the incorporation theory does actually require reference to a
specific written document, even if no other formalities – that’s why they are
permitted to be informally included (they are still physically evidenced as a
minimum) – doesn’t work as a justification for half-secret trusts
The fraud theory – question is whether it can justify the informality of secret trusts
o But if the justification is fraud, then the higher standard of proof should apply

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Problem that this justification doesn’t extend to all cases within what is effectively
the blanket ban on secret trustees relying upon the formalities of s9 – in some cases,
the secret trustee might be fraudulently trying to deny the existence of the trust by
relying on the lack of formalities, but for instance in Muckleston v Brown, the secret
trustee was trying to rely on the s9 formality requirements to prevent the intended
charitable trust from failing under another old statute (entirely altruistic, honest
trustee) – so fraud cannot justify this blanket ban
Answering argument is that the ban is preventative rather than curative – focuses on
the potential for abuse of the system rather than undoing it when it occurs – but
even this only applies to fully secret trusts
For half-secret trusts, there is no possibility of denying its existence, so there is no
potential for fraud, and that justification fails
However, it would seem odd that an apparent gift to X (fully secret trust) could
create trust obligations informally expressed, but that the slightly more formally
expressed gift with secret trust terms could not constitute a trust – seemed to be
the reasoning in Blackwell – shouldn’t be the case that the closer you get to obeying
the s9 formalities without actually doing so, the less likely you are to successfully
create trust obligations – therefore if secret trusts are allowed under the fraud
justification, then half-secret trusts should be allowed to tag along as well – the
difficulty in the ex post facto rationalisation shouldn’t be allowed to make any
practical difference

Challinor on debunking the myth of secret trusts
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The dehors theory, as Critchley points out, cannot account for the departure from the Wills
Act despite its explanation as to why secret trusts fall outside of wills, since they are still
testamentary
o On which note, they are therefore NOT inter vivos trusts, though the declarations of
them clearly have to be
o So the fraud theory is the only one that can justify (at least fully) secret trusts
The fraud maxim was originally applied only in interpretation, and now that it is being used
to entirely circumvent the Wills Act
o However, this is not inconsistent with the fraud maxim’s use in other areas of law,
like in Rochefouchauld v Boustead under the formalities and constitution topic
o But it doesn’t explain half-secret trusts, as above under Critchley
However, Hodge argues that it is not the personal fraud of the purported legatee, but a
general fraud committed upon the testator and the beneficiaries by reason of the failure to
observe the intentions of the former and of the destruction of the beneficial interests of the
latter, which secret trusts seek to avoid (in response to the argument that not all of the
trustees’ reliance upon s9 will be fraudulent)
o But this is nothing more than an assertion that the settlor’s wishes should be
respected even if he does not construe them correctly according to statute – trusts
fail frequently for that very reason, so it cannot be enough per se
o Given that the role of equity has never been to subvert clear legislative intent, it
would seem that the law of equity has gone too far in the area of secret trusts
o However, even the commentators who argue this recognise that the doctrine of
secret trusts is now far too well established to be overruled but by Parliament

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Challinor disagrees, and says that the lack of justifications for the continued existence of
secret trusts means that they should be promptly abolished

Meager on Secret trusts – do they have a future?
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Conducted a survey of wills and probate lawyers, in order to establish whether secret trusts,
as it is speculated, have fallen out of use, and whether they can still be used in the future –
about a fifth of them had been involved in the creation of a form of secret trust
o Half of the survey subjects considered that secret trusts were not obsolete
Secret trusts were enquired about for a number of purposes, most popularly for giving gifts
that the surviving family would not approve of, of gifts within squabbling families, but also
things like avoiding challenge – if it is likely that the gift publically made would attract
challenge, then the risk can be avoided by giving it secretly through another
o They are very much still in use, one recently having been upheld in Re Freud
Finally, the overwhelming majority of subjects thought that legislation to regulate the use of
secret trusts was unnecessary, or even counterproductive, since their benefit is essentially in
their informality, and any regulation would detract from this, and from its confidentiality
Notes that it would only amount to a tiny degree of publicity to give the solicitor who drafts
the will a copy of the terms of the secret trust – it couldn’t go further than that because of
confidentiality, and it would solve any difficulties presenting where the trustee seeks to deny
the existence of the trust – it would constitute evidence of its existence if challenged



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