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E- Seminar prep - Secret trusts
- Module
- Equity & Trusts
- Institution
- University Of Lincoln (UoL)
This seminar explores the secret trusts. Find the questions and answers for this topic.
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Problem qs on secret trusts will require you to say whether the trust is valid and so you must beable to apply the tests for the validity. It will probably involve the decisions in Re Keen (1937)
and Re Stead (1900). If you decide the trust is valid, there will be subsidiary points to watch out
for. For example, did trustees / beneficiaries witness the will? Is it a trust of land? Also bear in
mind the question of certainty.
1. What is a secret trust? When might it be used? Be prepared to differentiate between fully-
secret and half-secret trusts.
A secret trust arises when a testator wishes to benefit some person who cannot be named in
the will; therefore the testator will ask a trusted confidant to agree to an arrangement
whereby the confidant will receive a gift under the will ostensibly for her own benefit but
which is in fact to be held on trust by that person for a third person who cannot be named in
the will. Equity will enforce this arrangement as a secret trust so that the confidant cannot
claim to be beneficially entitled to the property left in the will. The secret trust operates in
spite of the provisions of the wills act 1837 and therefore illustrate equitys determination to
prevent statute being used as an engine for fraud. (Rochefoucald v Boustead (1897).
Secret trusts fall into two categories , fully secret trusts and half secret trusts. Fully secret
trusts arise in circumstances where neither the existence nor the terms of the trust are
disclosed in the terms of the will. Oral evidence of the agreement between the testator and
trustee is generally satisfactory. The settlor must have intended to create such a trust. That
intention must have been communicated to the intended trustee. The trustee must have
accepted the office and the terms of the trust explicitly or impliedly. (Ottaway v Norman
(1972).
For a valid half-secret trust, the settlor must intend to create such a trust. Further, the
existence and terms of the trust must be communicated to the intended trustee before the
execution of the will. The intended trustee must then accept the office of trustee and
acquiesce to the terms of the trust. (Blackwell v Blackwell(1929))
2. There are several theories supporting the enforcement of secret trusts, including the ‘fraud
theory’ and the ‘dehors the will theory’, amongst others. Explain these theories and assess
their validity. There are numerous articles on secret trusts available to help with your
analysis.
The fraud theory is the traditional justification- the secret trust is enforce despite non-
compliance with the formality requirement as it would be fraudulent/unconscionable to
allow the legal owner to keep the property. The Wills Act 1837 created the modern
framework for formality requirements for a valid will- the statute makes no mention of
secret trusts. The fraud theory continued to be used to justify the enforcement to trusts that
did not comply with the formality requirements. “equity will not permit a statute to be used
as an instrument of fraud” – Rochefoucauld v Boustead [1897] 1 Ch 196. Lord Westbury in
Mcgormick v Grogan (1869-70) states “the court of Equity has decided that even an act of
parliament shall not be used as an instrument of fraud, and if an act of parliament
intervenes, the court of equity does not set aside the act of parliament, but it fastens on the
individual who gets a title under that act, and imposes upon him a person obligation because
he applies the act as an instrument for accomplishing a fraud.” Problems with the fraud
theory is that the secret trust arises when the testator dies, not in response to fraud. Half
secret trusts do not allow for any fraud, we know x is a trustee. The theory really only
applies where a fully secret trustee is caught reneging on the promise.
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