Secret trusts in English law

Secret trusts do not comply with the formality requirements (such as witnessing) laid down in the Wills Act 1837.

Although various justifications have been given for this, they are generally categorised as either based on preventing fraud, or as regarding secret trusts as outside (dehors) the operation of the Wills Act.

The first is considered the traditional approach – if the courts do not recognise secret trusts, the trustee given the property in the will would be able to keep it for himself, committing fraud.

However, a secret trust does not have to obey the separate formalities of the Law of Property Act 1925, even when it concerns land and one solution to this problem is to consider them constructive.

[2][3] Alastair Hudson, Professor of Equity and Law at Queen Mary, University of London, suggests the potential for a third class of secret trust.

If this is the case, the next-of-kin would be obliged to hold the property on trust and fulfil the dying person's wishes.

A half-secret trust appears closer to fulfilling the formality requirements as laid down in the Wills Act, so the conclusion that it is less likely to be enforced seems contradictory.

It would also spark considerable litigation on whether a particular clause resulted in a fully secret or half-secret trust.

[11] The "fraud" referred to is the denial of the existence of the trust by the intended trustee of the will, thus allowing him to apply it for his own purposes.

The narrower ground is that the trustee should be debarred from denying the existence of the trust because of his wrongful conduct at the time he made the undertaking, as identified by Lord Westbury in McCormick v Grogan.

Save in case of a will and except the plain reading of clauses within the will, having admitted external evidence as operating under the proper introduction of the doctrine of incorporation by reference, a conclusive claim that it is necessary to observe further the formality requirement cannot be disregarded, because Will Act clearly set out the requirements of property transfer in case of failure has to be based on result trust that a party ultimately intended.

It appears to create an alternative route: the trustee may bring false oral testimony in favour of a third party who was not the intended beneficiary, a party that cannot benefit if the law did not uphold half-secret trusts in conclusion but it could operate without court's interference.

Those in favour of its enforcement must therefore observe the imposition of resulting trust as required under three certainties rule, and the "fraud" theory seems insufficient to do so, since there is no sublet and significant impact for dishonest act and if otherwise fraud can be upheld; and therefore no conduct on the part of the trustee to warrant it.

Indeed, the formality requirements of the Wills Act created the need for a set of prima facie documents, like the one commonly referred to.

[24] The response has been to view the secret trust as a disposition inter vivos ("between the living") rather than testamentary under exception.

Although the testator is unlikely to consider the trust having come into existence at the time of the will upon his death, whether a disposition is arguably though less convincingly regarded as an inter vivos is a question for the courts as well as parliament.

[24] Looking at the definition of a "testamentary disposition" and "inter vivo trust" as applied in other sorts of cases is inconclusive.

In neither case the formality requirements are said to be neglected, but neither judgment expressly considered why 53(1)(a) and 53(1)(b) made an impact that a prima facie express trust could be set up.

However, an express trust may still be exempted from the requirements of 53(1)(a) and 53(1)(b) by a separate application of the equitable maxim "equity will not allow a statute to be used as a cloak for fraud" – the fraud would be for the trustee to deny the existence of the secret trust, but this time the statute concerned would be the Law of Property Act, a line of reasoning dependent upon the case of Rochefoucauld v Boustead.

Some authors place fully secret and half-secret trusts in different categories, including Alastair Hudson and Lionel Astor Sheridan.

Fully secret trusts are awkward because of the lack of evidence pertaining to their existence and terms.

In Ottaway v Norman,[29] Brightman J set out the test for proving the existence of a fully secret trust.

In Re Boyes,[35] Kay J came to the conclusion that communication requires allowing the trustee the chance to refuse his office; as such, it cannot be done after death.

The two ways this can be done were laid out by Wood VC in Wallgrave v Tebbs,[37] when he said: Where a person, knowing that a testator is making a disposition in his favour intends it to be applied for purposes other than his own benefit, either expressly promises, or by silence implies, that he will carry on the testator's intention into effect, and the property is left to him upon the faith of that promise or understanding, it is in effect a case of trust".

[41] Lord Sumner said that: The necessary elements [to create a half-secret trust], on which the question turns, are intention, communication and acquiescence.

[43] In Blackwell, Viscount Sumner said that: "[a] testator cannot reserve to himself a power of making future unwitnessed dispositions by merely naming a trustee and leaving the purposes of the trust to be supplied afterwards", a passage given its traditional interpretation in cases such as Re Keen,[44] becoming a "cornerstone" of what has become known as the 'prior acceptance rule'.

[45] Although that interpretation has been confirmed as the law in further cases, Professor John Mee said that Viscount Sumner suggested that acceptance by the trustee (whether of a half-secret or fully secret trust) must take place within the testator's lifetime before the execution of the will.

[26] Where a beneficiary under a secret trust predeceases the testator, his or her personal representative will inherit instead, as in Re Gardner.

Against this, it has been argued that the arrangement is the result of a personal obligation as thus fails if renounced or if the trustee predeceases the testator.

As in McCormick v Grogan,[13] the standard is high; the person trying to enforce the trust must show "most clearly and distinctly" that it exists.