What is a ‘secret trust’?
A secret trust is so-called because either there are no words in a will imposing a trust, or the actual terms of the trust created are not disclosed.
English law recognises two categories of secret trust – ‘fully-secret trusts’ and ‘half-secret trusts’. The difference lies in the extent to which the testator’s will discloses that the recipient of the trust property under the will is intended to take the property as a trustee only, rather than for themselves beneficially.
How do fully-secret trusts work in practice?
A fully-secret trust is created when a testator bequeaths property to a specified person (the ‘legatee’) in his will who has agreed that they will hold the property on trust for a third party/parties on the testator’s death. Neither the fact of the trust nor the identity of the beneficiary/ies are revealed in the will itself.
Importantly, the fully-secret trust fails if it is not communicated to the legatee during the testator’s lifetime. If it fails, the legatee is the outright beneficiary of the trust property.
The success of a fully secret trust much depends on the integrity of the legatee who agrees to act as the secret trustee – they could ignore the trust, and take the property for their own benefit and refuse to apply it for the benefit of the intended secret beneficiary. The risk of this happening can be mitigated by a testator using a half secret trust instead.
How do half-secret trusts work in practice?
In a half-secret trust, the testator specifies in his will that it is not intended that the legatee is not intended to take the property absolutely (ie. for their own benefit), but as a trustee. However, the identity of the ultimate beneficiary/ies remains concealed, but the will makes it clear that the legatee is a trustee and not a beneficiary.
The half-secret trust will fail if the details have not been communicated to the trustee before the will is executed. The trustee would then hold the property on trust for those entitled to the residuary estate under the terms of the will (or on intestacy).
Can secret trusts arise on intestacy?
Although secret trusts are generally used when someone makes a will, they can arise in cases of intestacy (where the deceased left no valid will). A secret trust may arise provided the person entitled to the deceased’s estate on their intestacy had agreed they would receive the specified property as a trustee, and not for himself absolutely.
Why does equity enforce secret trusts?
The enforcement of secret trusts seems at odds with the policy of public regulation and scrutiny of wills under the Wills Act 1837, and the probate process. However, secret trusts were originally conceived as a vehicle to prevent fraud.
Therefore, equity (fairness and justice) justifies upholding secret trusts on the grounds 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, ie, a secret trustee will not be allowed to keep the property on the pretext that the Wills Act or other laws were not complied with. The courts will usually allow extrinsic evidence to prove the existence of a secret trust.