Secret Trusts Summarised Notes for the Equity and Trusts Law module, LLB, at City, University of London (achieved a 1st class using these) - can of course be used for other universities as well! Should be used with the full bundle of notes!
SECRET TRUSTS
Introduction to Secret Trusts
Dahors: exception caused by court of Chancery, outside the will, contrary to Wills Act, s.9 Wills
Act requires will to be in writing, signed by testator, or other person in his direction, 2 witnesses
Clandestine arrangement between testator + trustee, operates outside terms of will, equity
enforces settlor’s true intentions to benefit third party even though contrary to Wills Act 1837
Arises when testator wished to transfer benefit of property to person without specifying a person
as a legatee under will – a confidant is asked to act as trustee for secret arrangement to hold for
that third person equity enforce trust for intended beneficiary despite breaching Wills Act
Contrary to s.9 Wills Act 1837 states no will valid unless in writing and signed by testator and
witnessed, no oral evidence effective (prevent fraud) those identified in properly executed has
rights issue person in will may not be whom testator wished to take benefit
TYPES OF SECRET TRUST
FULLY SECRET TRUST
Not referred at all in will, testator communicated terms of arrangement to secret trustee, property
intended to pass to beneficiary will then be left to secret trustee without a mention made in will for
why property is being left to secret trustee, both existence and terms concealed
HALF-SECRET TRUST
Trust is mentioned in some form in will, existence in trust but terms not disclosed (if all were
disclosed then is testamentary trust not secret); manner it is disclosed varies
E.g. ‘I leave sum of 1k to Freddie for purposes he knows all about’ can be half-secret
E.g. ‘I leave 1k to Freddie to carry out wishes set out in my letter in December 1998) half-secret
Explicit reference to another document DOCTRINE OF INCORPORATION BY REFERENCE
Circumstances or something said by testatorhalf-secret words have more one interpretation
SECRET TRUSTS ON INTESTACY
Dying person not make will and property passes on intestacy, dying person might agree with person
who take title in property as next of kin under Intestacy Rules not to make a will on basis next of kin
would give effect to dying person’s wishes by way of secret trust next of kin induced to not make
will in reliance of promise to give effect to dying persons’ wishes, hold property for beneficiaries
Example of secret trust
Testator creates secret arrangement which benefits X but real intent to benefit Y
Must form an arrangement with some person intended to act as trustee for beneficiary not in will
E.g. married has children, another child from adulterous relationship with mistress, benefit
mistress + illegitimate child, leave money in will to best friend, best friend pass illegitimate child
If reference e.g. ‘in terms of my desires he knows about’=half-secret disclosed no precise terms
Rawstron v Freud [2014]: left residuary estate to 2 women, one his solicitor spoke to every day for
20years, clause 6 of his will: ‘I give all residue of my estate (out of which shall be paid my funeral and
expenses and debts) and any property I have power of appointment to Mary and Rose jointly’, 2
women claimed told to hold property on trust for purposes not allowed to tell D, Freud’s sonheld
fully secret trust as will itself not make existence of trust clear and replaced earlier will which
created a half-secret trust, held impossible to find anything for son as Freud not died intestate
Role of secret trust
Secret trusts is with express trusts an exception to needs of will trusts, as set in s.9 Wills Act 1837
Original purpose to prevent statute/common law being used as instrument of fraud
Early cases secret trust needed to prove fraud, hard as standard of proof for fraud requires
claimant to prove beyond reasonable doubt D was acting fraudulently
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, FULLY SECRET TRUST
Fully secret trust is where only trustees and settlor is aware of existence of trust and terms,
property would be left to a person under will, or will have passed to him under Intestacy Rules
Communication is during lifetime of testator
Before law required proof of fraud, now new test from Ottaway v Norman
Ottaway v Norman [1972]
Ottaway devised his bungalow, half his residuary estate and sum of money to Miss Hodges for
use during her lifetime, provided she bequeath property to claimant after her death, she failed to
do this in her will, but in her will left property to Mr and Mrs Norman, plaintiff brought action
against Hodges’s executors claiming entitlement under secret trust
Requirements= intention to benefit the claimant-beneficiary; communication of that intention to
the intended secret trustee; and acceptance by the secret trustee of that obligation
Held bungalow and residuary estate pass to plaintiff as it was found Hodges knew Ottaway’s
intentions, but money not as court found hard to see entitled to money during lifetime
Intention, communication and acceptance
Wallgrave v Tebbs [1855] can accept by ‘expressly’ or ‘silence implies’ accepts obligations
INTENTION
Evidence of sufficient intention create express trust, settlor must intend legal titleholder of
property under will (or intestacy) be trustee of property for another (subject to fiduciary
obligation + intent create merely moral and non-legal obligation provide welfare another person)
Not sufficient to impose moral obligation – Re Snowden
Re Snowden
Elderly woman unsure how to deal with property at death, left property to elder brother with words
‘he shall know what to do’, her brother died only days later held deceased women only intended
to impose moral obligations on him, not impose trust obligation, so property beneficial for brother
McCormick v Grogan [1869]
Testator executed will for estate to pass to Mr Grogan, testator got ill, testator told will is in desk
with letter ‘I do not require you to act strictly in accordance with instructions and leave in your
entirely good judgement to do as you think, and as parties are deserving’, claimant considered
himself deserving and overlooked by Grogan held testator not intend to impose trust obligations
on Grogan, so Grogan held property subject to moral obligations, no secret trust
COMMUNICATION
Settlor’s intention must be communicated to trustee to create secret trust and terms, without no
trust, communication + acceptance must be at any time during life of testator
For fully secret trusts communication any time before death – of existence and terms
What precisely is needed to be communicated depends on nature of property and intentions
If more than 1 beneficiary, need identity + communicate manner property to be distributed
Communication orally or letter to intended secret trustee, also by sealed envelope with terms of
trust available before testator’s death instructions not to open envelope until after death
Re Boyes [1884]
Testator informed intended trustee meant to leave property to him under a secret trust, terms of
trusts would be communicated before testator’s death, not communicated, found 2 documents
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