Creation and formalities
Secret trusts form an exception to s 9 of the Wills Act 1837 which dictates that any disposition made in a will must be made in writing, signed by the testator whose signature is witnessed by two people.
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 allow a testator to make a certain disposition without the gift becoming publicly known.
Secret trusts are usually created when a testator tells someone (eg, a trusted friend or a solicitor) that they wish to pass property to them to hold on trust for an intended beneficiary. The property would then pass to the intended beneficiary on the testator’s death, even if there is no mention of the bequest in the will. There must be evidence that at the time of creation, the testator intended to impose a legally binding obligation and that the trustee had agreed to be a trustee from the outset.
If the will refers to another document in defining a trust, the document will become incorporated into the will. As a result, the trusts will be treated as if set out in the will, irrespective of the testator’s intention 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 one of which there is no mention in the testator’s will. The property is apparently left in the will to a beneficiary, but the property will actually be passed on to another beneficiary named by the testator in the secret trust. The testator must, during their lifetime, have communicated to the beneficiary named in the will the terms of the trust on which the property is to be held. This will 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 while they are still alive, no trust can result, even if there is later 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 his intention to create a secret trust but such was never communicated.
If the testator discloses to the beneficiary named in the will that he is to hold the legacy on trust, but fails to inform him of the terms of that trust, the trustee will hold the property on resulting trust for the estate.
After the wish to create a trust is communicated, the trustee has to accept a secret trust and they may do so by express words or by silent acquiescing in it.
If the trustee renounces or dies before the testator, the fully secret trust cannot operate.
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. An example of the wording which could be used in a will to create such a trust is leave the property to the trustee ‘to be held upon such trusts as I have declared’. Under a half-secret trust the trustee is named and therefore cannot claim beneficial interest.
When making a disposition of that kind, the testator’s intention must be communicated to the trustee at the time the will was made or at any time beforehand. Therefore, the time limit for half-secret trusts is stricter than for fully secret trusts. The terms of the trust must also be accepted by the legatee prior to the testator’s death.
If a half-secret trust fails for lack of communication, the secret trustee holds the property for those entitled to residue or on intestacy. The trustees cannot hold beneficially because the will makes it clear that they are taking as trustees.
If the trustee under a half-secret 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, if the terms of the trust can be ascertained despite the death of the testator, the trust property devolves on the half secret trustee’s personal representatives who can choose new trustees under the Trustee Act 1925.
Where a beneficiary under a secret trust predeceases the testator, the beneficiary’s personal representative will inherit instead.
Half-secret trust are in policy terms favoured more than secret trust as with fully secret trusts there is bigger room for fraud.