Explanation of Secret Trusts, Where They Arise and How They Operate.

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Secret trusts arise where a testator explains to X that they want property to be held on trust for Y and then leaves the property to X in their Will. It is also possible that a secret trust arises where in reliance on a promise to implement the trust by X, no Will is made (Strickland v Aldridge 1804 9 Ves 516 REF1). The onus of proving a secret trust is on the person claiming that it exists, on the balance of probabilities - the 'ordinary civil standard of proof' (Re Snowden 1979 3 All ER 172 REF2). There are three elements necessary for a secret trust (Ottaway v Norman (1971) 3 All ER 1325 REF3). Intention The Testator must intend that the property be used in accordance with a direction. This must be intended as a binding obligation on the trustee, not merely an "unfettered discretion". (Re Snowden (REF2), McCormick REF44, Margulies v Margulies and others [2000] All ER (D) 344 REF4 on 'precatory words').

Communication The Testator must communicate their intention to the intended trustee, along with the terms of the trust. An example may be a sealed envelope to be opened on the testator's death, provided that the intended trustee knows the property is to be dealt with in accordance with the contents of the envelope (Obiter in Re Boyes (1884) 26 ChD 531 REF5, and confirmed in Re Keen 1937 Ch 236 REF6). A mere request to hold "as instructed by any papers left with the will" would not amount to acceptable communication. Oral communication is effective but in the case of a half secret trust, must be consistent with the terms of the Will (Re Keen REF6). If however the intended trustees do not find out about the intentions until after the testator's death, there will be no secret trust (Wallgrave v Tebbs 1855 2 K & J 313 REF7). Agreement There must be agreement or acquiescence, including silent acquiescence (Moss v Cooper 1861 1 John & H 352 REF8) of the intended trustee, which may be express or implied (Wallgrave v Tebbs 1855 REF7). If there is no evidence of the trust in the Will, the trust is fully secret. If there is evidence in the Will but no indication of the terms or the ultimate beneficiary, it is half secret. Fully secret trusts require communication and acceptance before the death of the testator - half secret trusts require communication (including the terms) and acceptance before the execution of the Will. This avoids a Testator merely naming a trustee and deciding terms later with 'unwitnessed testamentary dispositions', thus choosing to ignore the requirements of the Wills Act 1837 (REF9) entirely (Blackwell v Blackwell 1929 REF10, example in Clause 5 of the Will in Re Keen 1937 REF6). It is however difficult to see the difference between this and a fully secret trust, where the testator can choose his secret beneficiary at any time up to his death - surely also ignoring the provisions of the Wills Act. Execution of Trusts - Usual Rules Usual rules for testamentary formality are found at s9 of the Wills Act (as amended by the Administration of Justice Act 1982 s.17) and for trusts at s.53(1)Law of Property Act 1925. (12) Execution of Secret Trusts There is however a conflict as secret trusts and half secret trusts do not need to be made in writing/by deed. The original justification of this was based on the equitable maxim - equity will not allow a statute to be used as an instrument of fraud. Where the Testator clearly did not intend to make an outright gift to X and without admission of oral or other evidence such a gift may be fraudulently obtained (thus using the statute to exclude clear evidence of the Testator's true intention), it may be submitted subject to s.7 Statute of Frauds 1677 (now s.53(1) LPA) - Critchley p.21, Reading 6 (REF13). Do secret trusts operate outside the Will? The more recent view is that there is no such conflict between s.9 Wills Act and secret/half secret trusts because they operate outside the will ("dehors" - Unit 24 p.41 REF14) and change nothing that is written in it (Re Snowden 1979 2 All ER 172 REF2). This is difficult to grasp as with a fully secret trust, the Will states that the gift to X is outright and only the terms of the trust alter this. Pearce and Stevens argue that the trust is 'incompletely constituted' until the death of the testator. The agreement and acceptance to hold the property on trust take place inter vivos but the trust comes into effect when on death, the Will transfers legal title to the trustee (Pearce & Stevens, Reading 14, REF15). Whilst this is a strong argument, the formalities requiring half secret trusts to be communicated and accepted prior to the execution of the Will so as not to ignore the Wills Act, seems inconsistent with the view that secret trusts operate outside the provisions of the Wills Act entirely. Are secret trusts necessary to prevent fraud? The allowance of secret trusts avoiding the requirements of the Wills Act is said to be made to prevent fraud. A trustee agrees to hold property on trust and a gift is made to him on that basis (Re Boyes, REF5). To plead absence of the Wills Act formalities as a defence and thus claim the gift is outright, would be to use statute as an instrument of fraud, and would be against the equitable maxim. Maudsley disagrees, pointing out that with a half secret trust, fraud is rarely an issue as the trust is apparent from the Will and there is no possibility that the legatee can keep the Property (although the intended beneficiary may not get it where terms are not clear) - (Maudsley, pg. 116 REF 16). Where the terms of the trust have not been communicated properly but the trust is proved to exist (Re Boyes, REF5), the legatee will hold the property for the benefit of the residuary beneficiaries or those entitled under intestacy rules. Maudsley therefore concludes "there is no possible excuse for the intervention of equity to save a disposition from the impact of the statute". Are secret trusts consistent with policy and other law? Secret trusts appear to create a gap in the "stringency of the law" with regard to testamentary dispositions and are therefore arguably against policy. Where arguments arise that the formalities of the Wills Act operates against the intended beneficiaries, Maudsley argues that many statutes do this and equity does not interfere in every case (Maudsley, pg. 116 REF 16). Moffat follows this argument, querying that if secret trusts are 'express trusts' as has been implied, are such secret trusts containing land required to be in writing under LPA1925 s.53(1)(b) (Moffat p.119-120, REF17)? Sheridan (1951) (REF18) suggests that half secret trusts are express (and so LPA1925 s.53(1)(b) applies) but fully secret trusts are constructive, avoiding the provisions of s.53(1)(b). This brings us back to the original justification - should half secret trusts, if express, be enforced even if they don't comply with s.53 on the original grounds of prevention of fraud? Hodges argues in relation to formalities that, if the testator is content in complying with the formalties of the Wills Act to transfer the legal title to the secret trustee (in a half secret trust), why should they be allowed to (or want to) avoid them in relation to the equitable interest? (Hodge, D. R. - Reading 10 REF19) There seems to be little logic for avoidance of formality for half secret trusts. Are secret trusts testamentary in nature? In examining the nature of the secret trust, Critchley points out that the arrangement has no effect and confers no interest before the testator's death - therefore, the trust is surely testamentary rather than inter vivos, and ought to comply with s.9 Wills Act 1837 (and indeed, s.15). Hodges agrees the disposition of property under a secret trust is testamentary in nature, noting that the trust takes effect 'only upon the vesting under the Will of the trust property' and that it shares the characteristics of a gift under a Will as it can be 'revoked or altered at the whim of the Settlor' (Hodges, Reading 10 REF19). Secret trusts are arguably useful as a will is public document and a testator may wish to keep a gift secret from family perhaps to avoid upset. They also offer flexibility - property can be left to trusted friend or solicitor whilst retaining ability to decide on ultimate distribution. However, there seems to be a large division in opinion between the rules for secret trusts and half secret trusts. It is helpful to consider the purpose of formalities laid down in the Wills Act and similar formalities such as contained in the Land Registration Act, which are there to avoid the possibility of 'doubt, uncertainty and fraud' (Hodges p.39 Reading 10 REF19). It seems clear there is no justification for this loophole in the law - if secret and half secret trusts are accepted, why not accept improperly executed wills and incomplete land transfers? Adopting a purposive approach, modern legislation is in place to protect both testators and beneficiaries from fraud - it seems illogical, unjustified and inconsistent that the secret trusts should be allowed to escape the provisions of such legislation. 1297 words References: 1) Strickland v Aldridge 1804 9 Ves 516 cited in Re Boyes (1884) 26 Ch D 531, Reading 7 - Resource Book 4 Units 23 - 32 - W301: Law: Ownership & Trusteeship - rights & responsibilities, The Open University, Milton Keynes 2) Re Snowden 1979 3 All ER 172 in Moffat, G. Trusts Law - Text and Materials (3rd Edition, 2002) pg.129, Butterworths/LexisNexis. 3) Ottaway v Norman (1971) 3 All ER 1325 quoted in Moffat, G. Trusts Law - Text and Materials (3rd Edition, 2002) pg.114, Butterworths/LexisNexis. 4) Margulies v Margulies and others [2000] All ER (D) 344 found online using ixquick. 5) Re Boyes (1884) 26 ChD 531 - Reading 7 - Resource Book 4 Units 23 - 32 - W301: Law: Ownership & Trusteeship - rights & responsibilities, The Open University, Milton Keynes 6) Re Keen 1937 Ch 236 Moffat, G. Trusts Law - Text and Materials (3rd Edition, 2002) pg.114, Butterworths/LexisNexis. 7) Wallgrave v Tebbs 1855 2 K & J 313 in Hayton, D. J. Hayton & Marshall Commentary and Cases on The Law of Trusts and Equitable Remedies (11th Edition, 2001) pg.107, Sweet & Maxwell, London 8) Moss v Cooper 1861 1 John & H 352) cited in Moffat, G. Trusts Law - Text and Materials (3rd Edition, 2002) pg.114, Butterworths/LexisNexis. 9) Wills Act 1837 in Moffat, G. Trusts Law - Text and Materials (3rd Edition, 2002) pg.113, Butterworths/LexisNexis. 10) Blackwell v Blackwell 1929 AC 318 (HL) in Hayton, D. J. Hayton & Marshall Commentary and Cases on The Law of Trusts and Equitable Remedies (11th Edition, 2001) pg.111, Sweet & Maxwell, London 12) Re Edwards 1948 Ch 440 - can't figure where I found this case, perhaps found online? 13) Critchley, P. Instruments of Fraud, Testamentary Dispostions and the Doctrine of Secret Trusts (1999) 115 LQR 631 - Reading 6 - Resource Book 4 Units 23 - 32 - W301: Law: Ownership & Trusteeship - rights & responsibilities, The Open University, Milton Keynes 14) Unit 24 - Secret Trusts and Mutual Wills - A: Secret Trusts, Manual 4 Units 23 - 32 - W301: Law: Ownership & Trusteeship - rights & responsibilities, The Open University, Milton Keynes 15) Pearce & Stevens, The Law of Trusts and Equitable Obligations (2nd Edition, Butterworths) pp.324-326 - Reading 14 Resource Book 4 Units 23 - 32 - W301: Law: Ownership & Trusteeship - rights & responsibilities, The Open University, Milton Keynes 16) Maudsley, R. H. Incompletely Constituted Trusts in R Pound (ed) Perspectives of Law (1964) pp254-256, in Moffat, G. Trusts Law - Text and Materials (3rd Edition, 2002) pg.116, Butterworths/LexisNexis. 17) Moffat, G. Trusts Law - Text and Materials (3rd Edition, 2002) Butterworths/LexisNexis. 18) Sheridan (1951) as for 12, - can't figure where I found this case, perhaps found online? 19) Hodge, D. R. Secret Trusts: The Fraud Theory Revisited (1980) Conv 341- Reading 10 Resource Book 4 Units 23 - 32 - W301: Law: Ownership & Trusteeship - rights & responsibilities, The Open University, Milton Keynes 20) Re Young 1951 1 Ch 344 - Reading 9 Resource Book 4 (pg.33) Units 23 - 32 - W301: Law: Ownership & Trusteeship - rights & responsibilities, The Open University, Milton Keynes 21) s.15 Wills Act 1837 Reading 9 Resource Book 4 (pg.33) Units 23 - 32 - W301: Law: Ownership & Trusteeship - rights & responsibilities, The Open University, Milton Keynes 22) s.33(1)(i) Trustee Act 1925 in Moffat, G. Trusts Law - Text and Materials (3rd Edition, 2002) pg.213, Butterworths/LexisNexis. 23) Re Walker (1939) Ch. 974 in Hayton, D. J. Hayton & Marshall Commentary and Cases on The Law of Trusts and Equitable Remedies (11th Edition, 2001) para 4.92 - 4.112, Sweet & Maxwell, London 24) Re Stoneham's Settlement 1953 Ch 59 (p.85) Unit 25 Control of Trusts: Control of Trustees - B: Appointment, Retirement and Removal of Trustees, Manual 4 Units 23 - 32 - W301: Law: Ownership & Trusteeship - rights & responsibilities, The Open University, Milton Keynes 25) Re Beloved Wilkes Charity (1851) 3 Mac & G440 in Hayton, D. J. Hayton & Marshall Commentary and Cases on The Law of Trusts and Equitable Remedies (11th Edition, 2001) para 9-319, Sweet & Maxwell, London 26) Hayton, D. J. Hayton & Marshall Commentary and Cases on The Law of Trusts and Equitable Remedies (11th Edition, 2001) para 9-319 - 9-320, Sweet & Maxwell, London 27) s.19 TLATA 1996 in Hayton, D. J. Hayton & Marshall Commentary and Cases on The Law of Trusts and Equitable Remedies (11th Edition, 2001) para 8-17, Sweet & Maxwell, London 28) Saunders v Vautier (1841) 4 Beav 115 in Hayton, D. J. Hayton & Marshall Commentary and Cases on The Law of Trusts and Equitable Remedies (11th Edition, 2001) para 9-154, Sweet & Maxwell, London 29) Unit 23 Discretionary and Protective Trusts - B: Protective Trusts, Manual 4 Units 23 - 32 - W301: Law: Ownership & Trusteeship - rights & responsibilities, The Open University, Milton Keynes. 30) s.33 Trustee Act 1925 in Moffat, G. Trusts Law - Text and Materials (3rd Edition, 2002) pg.213, Butterworths/LexisNexis. 31) Re Smith (1928) Ch 915, Hayton, D. J. Hayton & Marshall Commentary and Cases on The Law of Trusts and Equitable Remedies (11th Edition, 2001) para 4-98, Sweet & Maxwell, London 31) s.310 Insolvency Act 1986 33) Klug v Klug (1918) 2 Ch 67 cited in Unit 25 Control of Trusts: Control of Trustees - D: Controlling the Trustees, Manual 4 Units 23 - 32 - W301: Law: Ownership & Trusteeship - rights & responsibilities, The Open University, Milton Keynes 34) Scott v National Trust (1998) 2 All ER 1936 discussed in Moffat, G. Trusts Law - Text and Materials (3rd Edition, 2002) pg.427 and Chapter 13, Butterworths/LexisNexis. 35) s.8(1)(b) Trustee Act 2000 cited in Hayton, D. J. Hayton & Marshall Commentary and Cases on The Law of Trusts and Equitable Remedies (11th Edition, 2001) para 9-124, Sweet & Maxwell, London 36) Khoo Tek Keong v. Ch'ng Joo Tuan Neoh (1934) AC 529 cited in Hayton, D. J. Hayton & Marshall Commentary and Cases on The Law of Trusts and Equitable Remedies (11th Edition, 2001) para 9-125, Sweet & Maxwell, London . 37) Re Manisty's Settlement (1917) Ch 17 used in Hayton, D. J. Hayton & Marshall Commentary and Cases on The Law of Trusts and Equitable Remedies (11th Edition, 2001) para 9-208 onwards, Sweet & Maxwell, London 39) Vestey v IRC (No 2) [1979] Ch 198 at 206, [1979] 2 All ER 225 at 235, DC, per Walton J; affd [1980] AC 1148, [1979] 3 All ER 976, HL - butterworths/halsburys online. 40) s.1(1)(a) Variation of Trusts Act 1958 41) Re Tinker's Settlement (1960) 1 WLR 1011 cited in Moffat, G. Trusts Law - Text and Materials (3rd Edition, 2002) pg.267, Butterworths/LexisNexis. 42) Knocker v Youle 1986 2 All ER 914 cited in Moffat, G. Trusts Law - Text and Materials (3rd Edition, 2002) pg.263, Butterworths/LexisNexis. 43) Unit 25 Control of trusts: Control of Trustees - A: Variation of Beneficial Interests, Manual 4 Units 23 - 32 - W301: Law: Ownership & Trusteeship - rights & responsibilities, The Open University, Milton Keynes. 44) McCormick v Grogan (1869) LR 4 HL 82 quoted in Moffat, G. Trusts Law - Text and Materials (3rd Edition, 2002) pg.113, Butterworths/LexisNexis.