12. Secret trusts

Why people use them

A testator may want to provide for someone without saying so in a will, which becomes a public document. In the past this was often a mistress or a child born outside marriage. Today a secret trust is more often used when the testator has not yet decided who should benefit, or has forgotten someone.

Two kinds

Fully secret trust: the will gives property to a person apparently absolutely. Nothing on the face of the will shows a trust. For example, George leaves Le 50,000,000 to his friend James, having privately told James that the money is for Henrietta, and James agreed. On George's death James takes the money as trustee for Henrietta.

Half-secret trust: the will shows that the legatee takes as trustee, but does not say for whom. If George's will leaves the money to James "on the trusts I have told him about", the trust is half-secret. James cannot keep the money for himself, because the will shows he is a trustee.

Why equity enforces them

A secret trust seems to conflict with section 9 of the Wills Act 1837, which requires dispositions on death to be in a signed and witnessed will. Two explanations are given.

Fraud: equity will not allow the Wills Act to be used as an instrument of fraud. It would be fraud for James to take the money for himself after promising to hold it for Henrietta. This explains fully secret trusts well. It works less well for half-secret trusts, because the trustee could not keep the property anyway.

Dehors the will: the modern view is that the trust arises outside the will. The testator and the trustee create a trust during the testator's life, which is constituted when the will transfers the property. On this view the Wills Act is not being ignored at all.

Fully secret trusts: the requirements

Ottaway v Norman sets out three elements: intention, communication and acceptance.

Intention: the testator must mean to impose a binding obligation, not just a moral wish. In Re Snowden the testatrix said her brother would know what to do. Megarry V-C found only a moral obligation, so the brother's son took the estate absolutely.

Communication: the testator must tell the trustee both that there is a trust and what its terms are, before the testator dies. In Re Boyes the trustee knew he was to hold on trust but the terms were found only after death. The trust failed. Handing over a sealed letter marked not to be opened until death, with the trustee knowing it contains the terms, is enough. Communication covers only the property it relates to. In Re Cooper the testator told the trustees about a gift of 5,000 pounds and later increased it by codicil without telling them. Only the first 5,000 was held on the secret trust.

Acceptance: the trustee must accept, expressly or by silence. In Moss v Cooper a legatee who was told and said nothing was bound.

Joint trustees: Re Stead says that if property is left to tenants in common, only those told are bound. If it is left to joint tenants, all are bound if one was told before the will was made, but only those told are bound if communication came after. The rule is criticised.

Half-secret trusts: communication

For a half-secret trust, Blackwell v Blackwell confirmed that the trust is valid and that the same three elements apply. Lord Sumner suggested the terms must be communicated before or when the will is made. Re Keen applied this: communication after the will is too late, and the communication must also be consistent with the will. The rule is criticised as borrowed from the doctrine of incorporation by reference. Other common-law countries have rejected it.

When a secret trust fails

If a fully secret trust fails, the legatee usually keeps the property, because the will gave it to him absolutely. If he admits he was to be a trustee, he holds it on resulting trust for the estate. If a half-secret trust fails, the legatee holds on resulting trust for the residuary beneficiaries, or the next of kin.

Death or withdrawal of the trustee

If the trustee of a fully secret trust dies before the testator, the gift lapses and Re Maddock suggests the trust fails. If a half-secret trustee dies first, equity will not let the trust fail for want of a trustee, so the personal representatives act. If the trustee dies after the testator, the trust has already been constituted and does not fail. A trustee may withdraw before the testator's death if he tells the testator.

Can the secret trustee benefit?

Irvine v Sullivan allowed a fully secret trustee to keep a surplus. Re Rees' Will Trusts held that a half-secret trustee could not, because the will showed he took as trustee. Re Tyler's Fund Trusts doubted the difference.