TRUSTS LAW: SECRET TRUSTS (TERM 1 WEEK 3)

WC’s Outline

Link between Formalities & Secret trusts:

Where the settlor is dead:

General v Specific Intention?

Jones v Lock
Paul v Constance
Ottoway v Norman
Re Snowden

Secret Trusts-

Blackwell v Blackwell;

-the fraud theory

-operating dehors the will

Principle v Policy ?

Doing equity, doing what the settlor would have wanted? Key cases pertaining to Secret trusts:

 Ottoway v Norman
 Re Snowdon
 Paul v Constance
 Gold v Hill

When talking about secret trusts, I need to know about formalities.

 application of formalities to testamentary trusts and within this context,

 justifications for the continuing existence of secret (and half-secret) trusts.
 In doing so, we investigate the legal characterisation of secret-trusts; are they express or
constructive trusts? ?
 Do they conform with the requirement of writing?
 We will also (continue to) examine the role of intention in determining express trusts, and
consider the role intention (specific or general) has played in secret-trusts cases.
 Is Equity right to override the express requirements of legal form to uphold intention?

Formalities & the Secret Trusts

The effect of s9 is prima facie to defeat any attempt to create testamentary trusts expressly by way of
any instrument which does not comply with s9. This is because the will itself is void.

Given the clear language of s9, how do we justify case law which enables T to leave property by will to
A absolutely and apparently beneficially

but, T while alive (communication can be at any time before death), has informed A that the property
is to be held on specific trusts.

Secret Trust

Provided A has accepted the trust, it is enforceable as a SECRET TRUST [sometimes called a ‘fully
secret trust].
The effect of recognising ST’s is to permit a contravention of the WA requirement that specific
testamentary intention be evidenced in writing.

Note that communication of the full details of the trust is required here.

Acceptance of the trust can be express or implied, hence silence is acceptable. If trustee actually stays
silent after the settlor/testator had expressly told the trustee about the trust (and of course its
existence), it is deemed that the trustee had accepted the Secret trust with silence.

Adequate communication will have taken place if details of the trust are written down and placed in
the trustee’s possession in a sealed envelope marked ‘Not to be opened until after my death.’ Re
Keen

Secret trusts are constituted when the will takes effect upon death of the settlor. Most commentators
believe that these trusts are constructive by definition.

Half-Secret Trust

A slightly varied scenario which is also permitted in law, is where T leaves property to A by way of
trust in her will. The details of the trust are not apparent on the will, but have been communicated to
A before or at the time of making the will – Blackwell v Blackwell. This is known as the HALF-SECRET
trust.

Curiously, in Blackwell v Blackwell, Sumner V-C justified the timing for communication of the half-
secret trust as ‘to hold otherwise would be to enable the testator to ‘give the go-by’ to the
requirements of the Wills Act.’

This claim will be examined below.

- where there is a half-secret trust, it is clear the trustee cannot defraud the settlor’s estate. Where
the half-secret trust fails, the trustee holds on resulting trust for the residuary devisee or legatees, or
those entitled under an intestacy.

II. Timing was the issue in Rawstrom v. Freud [2014] EWHC 2577 (Ch). Which involved the
multi-million pounds estate of the celebrated artist Lucian Freud. The testator’s will trust
left the residue of his estate to his daughter and solicitor (hereafter ‘Y’) in the simple
form ‘to Y’. There is undoubtedly a fully secret trust where the will says ‘to Y absolutely’,
but if it simply says ‘to Y’ that might imply ‘to Y on trust’ and might be considered a half-
secret trust. This was the argument brought by one of the artist’s illegitimate sons. What
was the outcome?

JUSTIFYING THESE TRUSTS

Equity is a jurisdiction that all revolves around FAIRNESS.

II. ‘Preventing Fraud’: Historically thought to encapsulate the maxim: ‘Equity will not
permit a statute to be used as an instrument of fraud’ McCormick v Grogan (1869):-

It would be fraud for the ‘trustee’ to rely on the absence of compliance with formalities, and retain
the trust property absolutely.

This historic justification is problematic -

 (a) with regard to the ultimate destination of trust property –

Why should it be assumed that if the ‘trustee’ cannot take, the secret beneficiary must
receive? Why not just make the ‘trustee’ hold these trusts on a resulting trust back to
the estate?

NOTE : Hodge defends the prevention of fraud theory by saying that it would be a fraud
on the beneficiary to deprive her as a consequence of a failure to comply with the
formalities. Why should a volunteer receive assistance from equity?

- Should the property not just revert to the estate on resulting trusts? What policy
reason drives the property forward? Facilitating intention?

AND
(b) in relation to the validity of half-secret trust, how to explain moving the property
forward?

- The historic maxim fails to explain these trusts, because the trustee is obviously
incapable of fraud under the structure of the half-secret trust. Again, the idea of
defrauding the beneficiary rears its head [see Hodge above], but this provokes the
same critical response.

II. The modern theory ‘dehors (out of agreement with) the will’:

- The modern analysis is that there is no conflict between s9 and both these trusts
because such trusts operate outside the will:

The modern theory received approval:

“the whole basis of of secret trusts … is that they operate outside the will, changing nothing that is
written in it, and allowing it to operate according to its tenor, but then fastening a trust on to the
property in the hands of the recipient” per Megarry VC in Re Snowden [1979].

- BUT: The ‘modern’ theory cannot apply satisfactorily to HALF-SECRET TRUSTS since
such trusts are mentioned in the will.

- More generally, ‘outside the will’ [as in an inter-vivos declaration (written /oral)
does not mean outside the Wills Act.

SEEING AS THE COURTS HAVE EVOLVED JUSTIFICATIONS TO ENFORCE THE SECRET

TRUST, MIGHT THE POLICY BEHIND THESE TRUSTS ACTUALLY BE ONE OF
FACILITATING THE INTENTION OF THE TESTATOR? IS THIS A SPECIFIC INTENTION TO
GIFT ON TRUST, OR MERELY IS A GENERAL INTENTION SUFFICIENT? WE SHALL
CONDUCT THIS INQUIRY BY LOOKING AT SOME CASES BELOW.

Before we conduct the inquiry into intention, some general points:

- The standard of proof is the ordinary civil standard, although where fraud is alleged
a higher standard is in principle, required – re Snowden referring to the facts and
reasoning in Ottaway 8 years earlier.
 - The question is whether the testator intended to create a binding trust obligation
or merely a moral one: the test in McCormick v Grogan.
- Curiously, secret and half-secret trusts are the only express (intentional) trusts
where trustees have to consent to their appointment and have full details of the
trusts in advance. Could it be that Blackwell per Sumner VC justifies enforceability
for these trusts on the basis of reliance on the promise of the trustee? If so, other
than fulfilling the testator’s wishes, such trusts may be enforced in order to prevent
trustees from behaving unconscionably already. This suggestion of course meets
with the same criticism as the historic prevention of fraud theory.

Overview of Secret Trusts:

(1) Arises when testator wishes to benefit some person who can’t be named in will.

(2) Testator asks a confidant to be a secret trustee – hold BI / equitable interest on trust for a
beneficiary.

(3) Secret Trustee  He owes beneficiaries personal obligations

(4) Equity will enforce this arrangement as a secret trust so confidant cannot claim to be
beneficially entitled to property left in will, in spite of WA 1837 s9 provisions => This shows
you equity’s determination to prevent statute from being used as an engine of fraud.

(5) Secret Trusts operate contrary to strict provisions of s9 WA 1837  which seeks to achieve
certainty. => This issue sheds light on the law of evidence

(6) Background to secret trust initially was to make sure equity did not allow statute to be used
as an instrument of fraud. Meaning secret trustees cannot assert their title to property that
is meant to be held beneficially for secret beneficiary.  McCormick v Grogan (full secret
trust) & Blackwell v Blackwell (Half Secret trusts) : Don't want fraudulent reliance on
common law or statutory rights.

(7) Reality is that it is hard to prove fraud  Re Snowden

(8) However nowadays, it’s used because people live their lives in a particular way and they
don't want their private lives to be known (For e.g. Man caring for Mistress and Child born
out of wedlock by making Secret Trust)

Intention – Communication – Acceptance of Office of Trustee

Full Secret Trusts

-Arise in circs where neither existence nor terms of trusts are disclosed in terms of the will.  To the
rest of the world an outright gift is made but the reality is there is a secret trust….

-Oral evidence of agreement between testator and trustee satisfactory.

-Settor MUST have intended to create trust, that intention was communicated to intended trustee
and trustee must have accepted the office and the terms of trust explicitly or impliedly.

-Testator would have communicated terms of arrangement to intended secret trustee.

-Property is to pass to beneficiary of arrangement to intended secret trustee without any mention
made in will as to reason why property was left to secret trustee. So in the will. Settlor of secret trust
MUST intend legal titleholder under will to be trustee of property for another  Ottoway v Norman

-Practical reality  Hard to prove existence of fully secret trust unless testator had mentioned detail
of arrangement to somebody else. Difficult to prove content of secret arrangement between 1 person
now dead and another person with vested interest in denying arrangement ever existed.

-When a Secret Trust fails, (1) If testator’s intention is to benefit named legatee absolutely beneficially
then absence of secret trust means legatee will take gift absolutely OR (2) If testator’s intention is to
take on property as a fiduciary, fiduciary will hold property on RT for testator’s residuary estate and
not enjoy BI of property/ take property absolutely (Vandervell I)

-Leading Case: Ottoway v Norman

Facts: O devised bungalow, half of residuary estate and some $ to Miss Hodge for her to use during
her lifetime provided that she later bequeath property to C after Miss Hodge herself died. However,
instead of leaving them to C, she willed them to the neighbours - Normans. C sued Miss Hodge’s
executors. C is a family member of O.

HELD: Bungalow and Residuary Estate to go to C. However, sum of money couldn't. Court wouldn't
know if that sum of money had already been mixed with Miss Hodge’s $$  Cannot tell.

*** 3 stage test laid down by Ottoway v Norman for Secret Trust

 Intention to benefit claimant-beneficiary in Secret Trust

 Communication of that intention to secret trustee
 Acceptance of Office of Trustee by Secret Trustee

NOTES:

 When there is SILENCE or EXPRESS PROMISE = Secret trustee accepting office of trustee
(Wallgrave v Tebbs)

 Regarding Intention, Intention to create secret trust is NOT Moral Obligation - Re Snowden
 Elderly woman did not know how to deal with her property. “[My elder brother] shall
know what to do” => Elder brother died before Ms Snowden and that phrase in grey just
shows moral obligation not intention to create secret trust for her nieces and nephew. =>
property passed beneficially on brother’s will….

 McCormick v Grogan  Testator executed very short will that all of his estate to go to Mr
Grogan and he told Grogan in desk drawer there was a letter instructing Grogan to certain
intended bequests and act accordingly “but rather leave it entirely to your own good
judgment to do as you think I would do if I was still living and parties are deserving” .. The C
felt he was overlooked by Mr Grogan so he sued him. HELD (HOL): Testator had not intended
to impose trust obligation on Grogan, esp with sentence in green. = grogan subjected to
moral obligation just to provide for people mentioned in letter. No secret trust under which C
could claim benefit under any trust obligation...

 Intention & Terms of Secret Trust MUST be communicated to secret trustee.

 What is to be communicated depends on CONTENT of secret trust  NATURE OF PROPERTY

in question… (1) If bare trustee situation it’s very easy, no need to communicate testor’s
intention that property be held on bare trust! (2) > 1 beneficiary, obviously testator must
mention how property is to be distributed! Or, (3) an Ottoway v Norman situation =>
conditions Mr O imposed on Miss Hodges
  Re Boyes  An example of when terms of trust not communicated. Cannot just have testor
telling trustee that he intends to form secret trust and explicitly communicate terms of trust
to trustee. 2 unattested documents DO NOT SHOW intention to create secret trust, doubt as
to whether they can form sufficient intention or not!

 Re Boyes  Shows you policy consideration of old era 1880s. Testator apparently wanted to
care for unknown mistress and illegitimate child…
Re Boyes Re Keen
Type Involved Full Secret Trust Half Secret Trust – that was disclosed in a
will
Stance Strict. When trustee doesn't know precise detail
of his fiduciary obligations, the MEANS by
which he can ascertain terms of trust are
clearly known to him.
Effect An example of when terms of trust not Existence of the trust was more apparent
communicated. Cannot just have testor to outside observes than in Boyes.
telling trustee that he intends to form
secret trust and explicitly communicate Envelope containing terms of trust was
terms of trust to trustee. 2 unattested good enough(?)
documents DO NOT SHOW intention to
create secret trust, doubt as to whether
they can form sufficient intention or
not!
Comparison Boyes – Distinguishing factor from Keen was trustee knew NOTHING of terms of trust
before settlor’s death beyond testator’s general intention to create such trust.
Distinguishing
Factors Court’s approach on facts of case in Re Boyes seemed motivated by 2 unattested
documents => Reservations over motives of documents and saying there was a trust
= depriving Person of chance to refuse to accept trustee office!!
Overall Communication of intention AND terms require trustee MIST KNOW WITH
Conclusion SUFFICIENT CERTAINTY THE TERMS OF TRUST BEFORE DEATH OF THE TESTATOR 
APPROVED IN MOSS V COOPER AND RE BATEMAN’S WT.

Acceptance of Office of Trustee by Secret Trustee:

Rationales 

(1) Fraud Prevention,

(2) Opportunity for person to decline trustee office very importance  a kind of justice. Trustee office
fiduciary duties are very serious!

How do you know if person accepted? – Expressly Promises OR Silence Implies. Effect of these =
Property left by testator to him upon faith of that promise OR undertaking  Wallgrave v Tebbs : 2
men had no knowledge of intention to create secret trust on terms alleged, meaning gift on the face
of the will took effect in their favour!

Half Secret Trusts

-Settor MUST have intended to create trust, existence and terms of trust must be communicated to
intended trustee before execution of will.

-Intended trustee MUST have accepted office of trustee and acquiesce to terms of trust – Blackwell
v Blackwell
** Note, requirements of Full and Half Secret Trusts are SIMILAR. BUT key difference is for Full
Secret Trust, timing doesn't matter for telling secret trustee. However, for Half Secret trust, the
secret trustee MUST be told of Half Secret Trust BEFORE or AT EXECUTION OF WILL. If for half secret
trust the communication occurs after will, the trust WILL FAIL and legatee will hold inetrest on RT
for residuary estate.

-So the trust is mentioned in will – only its EXISTENCE, not its TERMS.
-Examples of how Half Secret trusts will be disclosed:

(1) “ I leave sum of GBP 1K to Fred, whom I am grateful for”  vague. Can be just moral
indication of testator’s gratefulness
(2) “I leave sum of GBP 1K to Fred to carry out my particular wishes as set out in my letter on 15
Dec 98”  Shows you more likely to incidate half secret trust  so what half secret trustee
will know will ALL be based on surrounding circumstances.

*Pg 266 AH TB  Example of Full and Half Secret Trusts

-*** 3 stage test laid down by Blackwell v Blackwell for valid Half Secret Trust

 Intention to benefit claimant-beneficiary in Half Secret Trust (no need to show actual fraud
on D – secret trustee)

 Communication of that intention to secret trustee before or at time of execution of will.

Again, person must be able to know trust’s terms to have chance to reject or accept trustee
office. NOTE  testator not allowed to use secret trust as means of delaying point in time at
which he finally decides on terms on which he wishes estate to be left.

 Acquiescence between settlor and trustee  By EXPRESS PROMISE or BY THE TACIT

PROMISE, which is satisfied by acquiesce in terms of trust… For testor would be bequeathing
money on faith that his intentions will be carried out.

Complexities may arise form such Secret Trusts

Rawstrom v. Freud [2014] EWHC 2577 (Ch). Which involved the multi-million pounds estate of the
celebrated artist Lucian Freud. The testator’s will trust left the residue of his estate to his daughter
and solicitor (hereafter ‘Y’) in the simple form ‘to Y’. There is undoubtedly a fully secret trust where
the will says ‘to Y absolutely’, but if it simply says ‘to Y’ that might imply ‘to Y on trust’ and might be
considered a half-secret trust. This was the argument brought by one of the artist’s illegitimate sons.

HELD: There was a Secret Trust. Freud would not benefit at all from the late Freud’s Secret trust and
solicitor cannot tell Freud’s son the purpose of late Feud’s Secret Trust. NOTE  Feud did not die
intestate, he died with a valid will.

Policy: Court was convinced that the late Feud made will with solicitors’ advice. Feud’s earlier will of a
half secret trust no longer valid, replaced with new will that has secret trust.

Categorising Secret trust

 Traditional View

-Prevention of fraud (D claim beneficial rights in property when he knew property beneficial interest
to be held for secret beneficiaries) idea (Rouchefoucauld v Boustead)

-McCormick v Grogan  Same idea

-Secret trust presents some conceptual doubts and uncertainties.

-When testator dies: Obligation on D (Secret trustee) is proprietary  immediately upon testaor’s
death, not an obligation that arises because of fraud.

-This Obligation only binds D when testor dies because testor could have changed his will OR
rescinded secret trust arrangements at any time after death or even after means of sealed
instructions

-Re Keen

 Modern View

-Q: Can we regard secret trust as an express trust?Again, theoretical concerns pop up.

-Secret trust  nature of ST: trust created and declared inter vivos between testor and trustee, with
property vesting upon testator’s death.

-But express truyst couldn't have taken place at time testator communicated his intention because
trustee at that time would not have legal title vested in him until testor’s death.

-Since this is the case, ST just take place as executory trust => a trust that takes effect at some
designated point in future.This designated point in time is testator’s death.

-Alternative analysis: (1) ST as an exception to such formalities altogether (and constitute a one –off
sui generis rule of probate) OR (2) ST be a type of CT

 Split View

-CT? Express Trust? For ST?

-Oakley: Let’s just have 2 kinds of secret trust if that's the case  1. Full secret trust = CT that avoids
fraud OR effects inter vivos disposition. 2. Half Secret Trust = Express Trust where reference made in
will to existence, not terms, of the trust => that will show sufficient evidence of express trust creation!
(Re Baillie)

-Martin: Some STs operate to prevent fraud, others will not. Cat 1 : Mentioned in will – no fraud
fiduciary duty created by mentioning will. Cat 2: Secret trusts not mentioned in will so fraud more
likely…..

-Fully Secret trust permitted as form of CT to prevent fraud and Half Secret Trust less likely to operate
on this basis.

 Secret Trusts and Good Conscience  ST = CTs (?)

-CONSCIENCE, equity idea – Westdeutsche

--Secret trust can be unwound at any time before death by settlor changing his terms of will. Change
of will means CT evaporates so CT ST will be suspensory device that will be contingent on settlor not
changing will.

-Revocable trust AND Fiduciary duty over its trustee which exists in suspense until settlor’s death!

-Regarding ST as CT  No need to talk about formalities.

-How much does wording matter? “I leave this to Bill for reasons I have discussed with him” VS “I
leave this to Bill”  Is the distinction NARROW or WIDE?
 SEMINAR WEEK 5

Trust creation and the ambiguous nature of intention; also Ottoway v Norman, Re Snowden, Gold v
Hill, Paul v Constance together with the ‘unconscionability conundrum’.
Part B.

Come prepared to discuss Ottoway v Norman, Re Snowdon, Paul v Constance and Gold v Hill. Consider
in particular:

a) Was Lord Brightman right to use the standard of proof approach in Ottoway? What is the
‘principled’ approach? Use the reasoning in re Snowden for a comparison.

b) What were the purported historic reasons for permitting the employment of Secret / Half-
Secret Trusts? Should the formalities of the Wills Act be enforced strictly as a matter of
principle today?

c) Why does the law need to pinpoint the precise moment when the relevant intention to part
with property takes place? What is wrong with frequent and fervent expressions of a desire
to gift?