Introduction to secret trusts

Types of secret trusts

English law recognises two categories of secret trust, namely ‘fully secret trusts’ and ‘half-secret trusts.’ The central difference between these categories is the extent to which the testator’s will discloses that the person named as the recipient of a bequest is intended to take the property as a trustee rather than for himself. Whilst the difference might appear slight, for a long period of time it was held that only fully secret trusts should be recognised as valid, and even though half-secret trusts are now accepted, the rules governing their creation are somewhat more restrictive.

Fully-secret trusts

A fully-secret trust is created when a testator bequeaths property to a specified person in his will who has agreed that he will hold the property left to him on trust for a third party. In a fully-secret trust neither the fact of the trust nor the identity of the beneficiary are revealed in the will.  

Half-secret trusts 

The performance of a fully secret trust is to some extent dependent on the integrity of the beneficiary who has agreed to act as the secret trustee. There is always a danger that the secret trustee will ignore the trust and take the property left to him by will for his own benefit and refuse to apply it to the intended secret beneficiary. This danger will be avoided if the testator indicates in his will that the recipient of the bequest is not intended to take the property absolutely, but as a trustee. By this means the identity of the ultimate beneficiary remains concealed, but the beneficiary named in the will is clearly seen to be a secret trustee.

Secret trusts arising on intestacy

Although secret trusts generally arise in the context of a testamentary disposition, a secret trust may arise in a case of intestacy, provided that the person entitled to the deceased’s estate on his intestacy had agreed that he would receive the specified property as a trustee and not for himself absolutely. As Romer J stated in Re Gardner [1923] 2 Ch 230:

‘…The principle has been applied…where the owner of property refrains from making a will and so allows the property to pass to the donee as on intestacy.’

Why does equity enforce secret trusts?

The enforcement of secret trusts seems at odds with the policy of public regulation and scrutiny of testamentary dispositions embodied in the Will Act and probate process. Superficially, the enforcement of a secret trust even seems to be inconsistent with the terms of s 9, since such enforcement appears to permit a testamentary disposition without satisfaction of the requisite formalities. Historically, equity justified the enforcement of secret trusts on the ground that to refuse to uphold them because of a lack of formality would be to allow the Wills Act to be used as an instrument of fraud. This historic explanation has been eclipsed by a more fashionable alternative, which is that a secret trusts is an inter vivos trust, declared by the testator and the secret trustee, which remains incompletely constituted until the death of the testator, at which time it is constituted through the operation of the will passing title to the trust property to the secret trustee. The explanation has the advantage that it does not presuppose a conflict between the enforcement of the secret trusts and the requirements of s 9 of the Wills Act. The secret trusts arises altogether outside of the will, which simply operates according to its terms.