The present factual scenario calls attention to the laws surrounding the creation of fully secret and half secret trusts. Secret trusts are quite unique in that they allow the creation of valid trusts even thought the formal rules for the creation of trusts by will have not been met.
Originally, the concept of secret trusts was developed to allow testators to make provisions for beneficiaries whose identities, or even existence, were best kept quiet, such as illegitimate children or mistresses.
There are two types of secret trusts: fully secret trusts and half secret trusts. In a fully secret trust, property is given by a will to a trustee or legatee absolutely without mention of any trust. In other words the gift appears to be absolute and there is no trust at all on the face of the will. However, at any time during the testator’s lifetime, the details of a trust and the intended beneficiaries thereof must have been communicated to the legatee, either orally or in writing, and if the legatee agrees, he will hold the property on trust for the hidden beneficiaries when the testator dies. Not only the identity of the beneficiaries but also the existence of a trust are secret. However, the trust obligation cannot be imposed on the legatee of an absolute gift without the legatee’s consent, and so it is necessary that the fact of the trust and its details are communicated to the trustee and accepted by him/her during the testator’s life. However, this can be done either before or after the creation of the will. More importantly, perhaps, it is the fact that the acceptance of the trust obligations by the trustee can take any form and may even be implied from silence. Once the trustee has accepted the legacy, he is usually barred from receiving any personal benefit from the legacy, even though it appears to have been given to him/her absolutely. Therefore if the testator has communicated the fact of the existence of the trust to a legatee, but not who the beneficiaries are, the trustee will hold the property on trust for the next of kin or those entitled to the residuary estate. The only exception to this is where the legatee can prove that he was also one of the intended beneficiaries.
Half secret trusts are quite different from fully secret trusts both as to the conditions for their validity and the way in which they operate. In a half secret trust the trust property is left on trust in the will; only the identity of the beneficiaries remains hidden. It is therefore clear that the legatee is not entitled to the trust property absolutely, although it is not clear for whom he holds on trust. However, one of the key differences between half secret trusts and fully secret trusts is that with half secret trusts the details of the trust must be communicated to the trustee, and accepted by him/her, before or at the same time of the execution of the will. Unlike with fully secret trusts, it is not enough that the identity of the beneficiaries be communicated at any time prior to the testator’s death. It may be enough, however, if the trustee is given exclusive access to the information before the will is made, for example if he/she is given a sealed envelope which he/she must not open until the testator’s death.
In the present factual scenario, then, we can see that the £50,000 left to Ian and George by Harold form, at least on the fact of it, the subject of a fully secret trust. On the face of the will, the money seems to have been left to Ian and Harold absolutely. However, the day before he made the will Harold informed George that he wished the £50,000 to be held on trust for Mary. On the face of it this constitutes a valid fully secret trust. Although the money seems to have been left absolutely, the testator, Harold, informed George that he wished the property to be held on trust. Clearly, however, the fact that Ian was told nothing of this seems to create a problem. In such a situation, it has been held that with fully secret trusts, if there are two legatees or trustees, the gift in the will may be to them as tenants in common or as joint tenants because they are not declared trustees. If it is to them as tenants in common, only those who actually accept the trust are bound by it and the others may keep their share. If, on the other hand, the gift is made to the legatees as joint tenants, an acceptance by any one before the will is made will bind all, irrespective of the wishes of the others, although acceptance after the will is made will bind only those accepting. On the present facts, it is difficult to advise Natalie or Ian as to which of the two principles apply here. In other words, it is uncertain whether Ian and George should be considered tenants in common or joint tenants of the £50,000. Clearly, if they are tenants in common then Ian can keep £25,000 to himself as an absolute gift, and only the other £25,000 goes to Mary. If, however, the courts take the view that Ian and George hold the £50,000 as joint tenants, then George’s acceptance of the trust terms binds Ian as well as the acceptance was made before the will was actually made. Again, however, it is impossible to advise with any certainty. I would, however, advise Natalie that either way she is not entitles to the money; either Ian keeps half and the other half goes to Mary, or it all goes to Mary. The fact that Ian would keep the money if the trust were to fail is supported by the case of Wallgrave v Tebbs. Here, property was left to the defendants as joint tenants. The action was brought to declare the transfer void on the basis that the transfer had been made upon trust for the defendants to carry out certain charitable purposes intended by the testator. It was alleged that the defendants knew of this intention and that a letter setting this out had been drafted, albeit never signed. The defendants denied that they had any communication with the testator about his will. It was held that there was no evidence of understanding between the testator and the defendants; there was no communication between them, which could be construed as a trust to give effect to the testator’s intent. The transfer to the defendants was valid. They held the property absolutely for their own purposes.
The £25,000 bequeathed to Brenda form the subject matter of a half secret trust. This is because the existence of a trust is clear from the will by virtue of the words: for the purposes that I have communicated to her, even though the beneficiaries remain secret. However, it is necessary for the validity of a half secret trust that the purposes of the trust are communicated to the trustee before or at the time the will is made. In Blackwell v Blackwell, for example, a testator, by virtue of a codicil, gave five persons £12,000 upon trust to invest as they thought fit and to apply the income for the purposes indicated by me to them. With a power to pay the sum of £8,000 to such person or persons indicated by me to them as they thought fit. Detailed parol instructions were given by the testator to C, one of the trustees. The object and outline was known and accepted by all five before the codicil was executed. On the same day, soon after the codicil was executed, C wrote and signed a memorandum of the detailed instructions. The income was to be applied for the benefit of a lady and her son. The widow and her son brought an action to test the validity of the legacy. It was held that parol evidence was admissible to establish a trust, and that the codicil and memorandum gave rise to a valid trust. As mentioned above, however, it may be enough if the trustee is given exclusive access to the information before the will is made, for example if he/she is given a sealed envelope which he/she must not open until the testator’s death. In Re Boyes, however, a testator instructed his solicitor to draft a will leaving all his property to the solicitor absolutely, but to be held by him and distributed according to instructions that were to be subsequently given to him. The will was so drafted but no further instructions were given to the solicitor during the testator’s lifetime. After the testator’s death, an unattested paper was found indicating the testator’s wish that the property be given to X and Y with a small amount for the solicitor. The solicitor accepting this agreed to hold all but his share on trust for X and Y. The High Court, however, held that the terms of the trust were not communicated during the testator’s lifetime.
In the present scenario Harold only communicates his purposes to Brenda three days after making his will. Moreover, the sealed envelope disclosing Lucy’s name was given to Brenda three days after the will was made, and as a result the disposition fails as a half secret trust even though Brenda agreed to comply. The fact that Harold preferred not to disclose his mistress’s name personally and preferred to communicate this via the sealed envelope is not of itself an obstacle to the validity of the will. It is the fact that the details of the trust or the existence of the envelope were not communicated to Brenda until after the will had been created. In this situation the money reverts to the next of kin or whoever is entitled to the residuary estate, in this case Natalie. Interestingly, in the case of fully secret trusts, the failure of the trusts would result in the donee taking the gift absolutely.
The current state of the law has been criticised by many as inconsistent and arbitrary. It has in fact remained stagnant in the last couple of hundred years, and many claim that it is in desperate need of modernisation.
- McCormick v Grogan (1869) LR 4 HL 82
- Moss v Cooper (1861) 4 LT 790
- Re Boyes (1884) 26 Ch D 531
- Re Bateman  1 WLR 1463
- Tee v Ferris (1856) 2 K&J 357
- Re Stead  1 Ch 237
- Wallgrave v Tebbs (1855) 2 K&J 313
- Blackwell v Blackwell  AC 318
- Dixon, M, Equity & Trusts, 2nd edn, 1998, London: Cavendish Publishing Limited.
- Edwards, R and Stockwell, N, Trusts and Equity, 5th edn, 2002, Essex: Longman.