Secret trusts

Creation and formalities 

A trust of land generally needs to be made in writing while a testamentary disposition needs to be signed or acknowledged by the testator in the presence of two or more attesting witnesses.

In the case of secret trusts the gifts are not fully included or defined in the will but take effect as if they were. The principles provide for situation where a testator wishes to make a certain disposition but does not want to make that gift publicly known.

The usual creation takes place with the testator arranging to leave a legacy to a trusted fried or often a solicitor who undertakes to hold it upon certain trusts for the benefit of another person or object. There must be evidence that at the time of creation the testator intended to impose a legally binding obligation as opposed to purely moral.

If the will makes a reference to another document in defining a trust, then the document will become incorporated into the will. As a result the trusts will be treated as if set out in the will irrespectively of the intention of the testator to create a secret trust. Therefore, the advantage of secrecy will be lost.

There are two types of secret trusts – fully secret and half-secret trusts and the differences are discussed below.

Fully secret trusts

  • A fully secret trust is a trust of which there is no mention in the testator’s will. The property is given to the person apparently beneficiary. However, the testator must have communicated to that person during his lifetime certain terms of trusts on which the property is to be held. This will normally include defining who the trust is to benefit and the identity of the property to be held on trust. If the testator’s wish to create a secret trust has not been communicated, no trust can result even if there is evidence to the intention. Therefore, no trust can be established and no equitable remedy exists if after the death of the testator documents are found evidencing of his intention to create a secret trust but such was never communicated.  

  • If the testator discloses to the legatee the fact that he is to hold the legacy on trust, but fails to inform him of the terms of that trust, then the trustee will hold on resulting trust for the estate.

  • After the wish to create a trust is communicated, on his part the trustee has to accept a secret trust and he may do so by express words or by silent acquiescing in it.  

  • In case the trustee renounces or dies before the testator, the trust cannot operate. 

Half-secret trusts

  • Half-secret trusts differ from fully secret trust in that they may be referred to in the will but normally the beneficiary under the disposition is not named or defined and is secret to the world. Example of appropriate wording in creation of such could be to the trustee “to be held upon such trusts as I have declared”. Under a half-secret trust the trustee will be named and therefore cannot claim beneficial interest.  

  • When making disposition of that kind, the testator’s intention must be communicated to the trustee at any time prior to or contemporaneous with the will. Therefore, the time limit for half-secret trusts is stricter than for fully secret trusts.  

  • Trusts which are referred to in the will but are not defined will be enforceable only in certain prescribed circumstances. Firstly, the trusts are described in the will as having been communicated prior to or contemporaneous with the will. Second condition is to show that they were so communicated as in accordance with the terms of the will.  

  • If the trustee under a half trust dies before the testator, equity will not allow a trust appearing on the face of the will to fail for lack of trustee and therefore personal representatives will hold on the half secret trust if the terms of such can be ascertained despite the death of the testator.

  • Half-secret trust are in policy terms favoured more than secret trust as with fully secret trusts there is bigger room for fraud. 

Secret trustee and benefit

A question may arise from the trustee with regards to any entitlement from the gift for example a specific sum or possibly any surplus after performing the trust. The issue asks for consideration of the testator’s intention and it is likely to become a matter of construction by looking into the language of the will. Difficulty arises especially where the will itself is silent on the matter and the only available evidence is extrinsic. There may be cases where evidence may be admissible as to all the terms of a trust, including any entitlement of the trustee himself. However, such evidence is not likely to be lightly admitted.  

If the secret trust fails for uncertainty, the secret trustee holds on trust for the residuary legatee or next-of-kin.