secret trustSecret Trusts.ppt

LAW OF TRUSTSSECRET TRUSTS

SECRET TRUSTSTrust may be created by any one of the following means, namely trust instruments, intervivos arrangements or through will.Secret Trusts given effect by will, this means that they arise from the disposition or bequest of the testator and the secret trust comes into operation only upon the testators death.

SECRET TRUSTSTo be valid at law, every will must comply with the provisions under Section 5 of Wills Act 1959.However, the testator of a secret trust fails to comply with the required formalities in respect of the disposal specifically in the Wills Act. Nevertheless English cases have held that there is no conflict between the [English] Wills Act and secret trusts as secret trusts operates outside the will or dehors the will.

PROBLEMS WITH SECRET TRUSTSSection 9 Wills Act 1959Re Young [1951] Ch 344:A beneficiary under a secret trust who witnessed the will under which the trust was created, he would not be deprived of his benefit.

Section 9Gifts to an attesting witness or to wife or husband of attesting witness to be void

If any person attests the execution of any will to whom or to whose wife or husband any beneficial devise, legacy, estate, interest, gift or appointment of or affecting any property, other than and except charges and directions for the payment of any debt or debts, shall be thereby given or made, such device, legacy, estate, interest, gift or appointment shall, so far only as concernssuch person attesting the execution of such will, or the wife or husband of such person, or any person claiming under such person or wife or husband, be utterly null and void, and such person so attesting shall be admitted as a witness to prove the execution or to prove the validity or invalidity thereof, notwithstanding such devise, legacy, interest, gift of appointment mentioned in such will.

Wallgrave v. Tebbs (1855)

On the face of a fully secret trust, where A leaves a legacy to B without mentioning anything in the will of a trust, B takes beneficially. If formalities of the Wills Act is to be complied with in this situation, then to allow B to take beneficially would be to allow a statute to be used as an instrument of fraud by B.

PROBLEMS WITH SECRET TRUSTSSection 19 Wills Act 1959:Residuary devises or bequests shall include estates comprised in lapsed and void devises or bequests by reason of the death of the devisee or legatee in the lifetime of the testator.Re Gardner[1920] 2 Ch 523: (half-secret trust) A beneficiary under a secret trust who predeceased the testator, his interest under the will would not lapse but would be held for the benefit of his estate. Such property does not pass into residuary estate as envisaged by section 19.

Section 19Residuary devises or bequests shall include estates comprised in lapsed and void devises or bequests

Unless a contrary intention appears by the will, such property as is comprised or intended to be comprised in any devise or bequest in such will contained, which fails or is void by reason of the death of the devisee or legatee in the lifetime of the testator or by reason of such devise or bequest being contrary to law or otherwise incapable of taking effect, shall be included in the residuary devise or bequest respectively, if any, contained in the will.

SECRET TRUST V. WILLS ACT? How to reconcile the conflictsUnder Wills Act only named B takes the estate; previously enforcement of secret trust based on fraud theory;Now secret trusts operate dehors the will and are not trust created by will. (Re Snowden)

SECRET TRUSTS

FULLY-SECRET TRUSTExample:X, wishing to keep secret his liason with Y, but intending to assist her financially after his death, bequeaths a legacy to his friend, Z, who promises, in Xs lifetime, that he will hold it on trust for Y. No reference to Y or to Zs promise appears in Xs will.

FULLY-SECRET TRUST

A testator, A, left property by his will to X absolutely, on the face of the will for his own benefit, but where in fact during his lifetime A had informed X that the property left to him by will was not for his own but for certain person,Y, and X had promised to carry out As intentions.

HALF SECRET TRUSTExample:X, in his will, directs that property is to pass to Z on the trust I have discussed with him. No detailed terms of that trust are stated in the will; no beneficiaries are named. In fact, Z promised X that he will hold on trust for Y.

HALF SECRET TRUSTA half-secret trust differs from a fully-secret trust in that the will declares that the property is given to Z on trust, though the details of the trust is not expressed in the will, but likewise been communicated to Z by the testator during his lifetime.

ESSENCE OF A SECRET TRUSTOTTAWAY V. NORMAN (1972) Ch 698Brightman J held that the essential elements which must be proved in order to establish the existence of a secret trust are:The intention of the testator;Communication of that intention;The acceptance of the obligation by the donee.

ESSENCE OF A FULLY-SECRET TRUSTINTENTION:To subject the donee (trustee) to an obligation in favour of the secondary donee (beneficiary);A mere moral obligation will not suffice;Re Snowden [1979] 2 All ER 172.

ESSENCE OF A FULLY-SECRET TRUSTCOMMUNICATION:All the terms of the trust must be communicated nature of TP, names of B & portion of beneficial interest;Communication during testators life (before or after the execution of the will);No communication Trustee take absolutely;Sealed envelope sufficient;

ESSENCE OF A FULLY-SECRET TRUSTACCEPTANCE:Express or Implied;No acceptance holds for residuary beneficiary;Silence constitute acceptance;

ESSENCE OF HALF-SECRET TRUSTINTENTION;Not merely a duty but a firm obligation;

ESSENCE OF A HALF-SECRET TRUSTCOMMUNICATION:Before or contemporaneously with the making of the will;No communication Trustee hold for resulting trust;Terms must be communicated (as in fully-secret trust);Communication after date of will but before testators death no trust.

ESSENCE OF A HALF-SECRET TRUSTACCEPTANCE:Express or implied acceptance before or on the date of the will;Re Cooper (1939) Ch 811.

FAILURE OF A FULLY-SECRET TRUSTGeneral rule: Failure to create the intended secret trust - trustee takes absolutely;Death of trustee before death of testator trust fail;Trustee dies after testator trust in existence but if not possible to identify possible B then resulting trust in favour of next-of kin of testator;Trustee disclaims legacy after Ts death T not fail (for want of trustee);B predeceases T Trust not fail, B receives interest at the time the trust is created.

FAILURE OF A HALF-SECRET TRUSTIntended B predeceases the testator B interest created at the time the trust is created;Trustee dies before the testator equity will enforce the trust (provided purpose of trust known/ can be discovered);Disclaimer by trustee after death of testator personal rep of testator act in the capacity of a trustee.

Ultimately, the enforcement of secret trust is a matter of policy relating to testamentary dispositions. It is possible to take the view that secret trusts should not be enforced beyond preventing the unjust enrichment of the fraudulent legatee; or, on the other hand, to hold that the testators intentions should be upheld in every case is really a matter for the legislation, and it is submitted that it would be more satisfactory to review the whole matter and to incorporate into the statutory scheme as much of the secret trust doctrine as it is desired to retain.(Hanbury)

CULLEN V. AG FOR IRELAND (1866) LR 1 HL 190 If something was given to X, X was allowed to take the gift in accordance with Wills Act. After he had taken the gift, equity imposed a trust on the gift.