The problem of secret trusts

September 22, 2017 Education

InBlackwellV.Blackwell[ 1 ] , Viscount Sumner stated that ‘for the bar of fraud, equity fastens on the scruples of the legatee a trust which would otherwise be inoperative’ . [ 2 ] In order to see this position it is necessary to see the nature of fully-secret and half-secret trusts thereby lighting the possible jobs that result and the nature of the fraud in inquiry and enabling a treatment as to whether the fraud theory adequately justifies the being of fully-secret and half-secret trusts.

Secret trusts are a device whereby the inside informations of a gift can be kept out of the public sphere, since the ultimate receiver is kept off the face of the will. In relation to a fully-secret trust, there are three chief elements: [ 3 ] foremost, the testate must mean to enforce a trust on the secret legal guardian ; the duty must be communicated to the secret legal guardian before the testator’s decease, [ 4 ] and ; the secret legal guardian must accept the duty. However, the fact that the secret legal guardian is to keep on trust is non revealed in the will and neither is the individuality of the ultimate donee. This is in agreement with Viscount Sumner’s position: in a secret trust, the legatee ( i.e. the secret legal guardian ) is made to ‘do what the will has nil to make with’ , since the he is made to keep a gift under a trust duty which is non revealed on the face of the will. Furthermore, this is done in order ‘to give consequence to the wants of the testate which would otherwise non be effectual’ , since the wants of the testate are that the secret legal guardian must dispose of the gift in favor of the ultimate donee and that, on the face of the will, this would non be effective, as the secret legal guardian would look to be the ultimate donee.

However, this gives rise to a practical job. In the instance of a fully-secret trust, there is no indicant at all in the will that the secret legal guardian is anything other than an perfectly entitled beneficiary. There is an obvious danger that the secret legal guardian will deny the being of the secret trust agreement. Although it is non a legal demand, the testate should therefore take practical safeguards, such as inquiring the secret legal guardian to corroborate credence of the trust in authorship, and providing the secret donee with a transcript. Furthermore, canvassers taking instructions for a will maintain notes of their treatments. In the event of a difference as to the being of a secret trust, where there is no inquiry of fraud on the portion of the secret legal guardian, the needed criterion of cogent evidence is the ordinary civil criterion: that on the balance of chances, the testate intended to enforce a trust on the secret legal guardian. [ 5 ]

Furthermore, the being of secret trusts presents a legal job. In order for a testamentary temperament to be valid, it must be contained in a valid will, fulfilling subdivision 9 of theWills Act 1837: it must be in authorship, signed by the testate and signed and witnessed by two or more informants present at the same clip. Furthermore, any subsequent alterations to a will must besides conform to the demands of subdivision 9. However, to the full secret trusts appear to belie theWills Act 1837in two respects. First there is a gift which takes consequence on the testator’s decease in favor of the secret donee which is non in composing or witnessed ; usually, this would be invalid. Furthermore, the fact that a testate can change the footings of the secret trust after executing of the will appears to allow a testate to do temperaments of belongings which differ from those in the will without detecting subdivision 9. The ground that secret trusts were originally permitted was the application of the just axiom that ‘equity will non let a legislative act to be used as an instrument of fraud’ : hence if the secret legal guardian was able to plead that the deficiency of authorship invalidated the in agreement duty to keep the gift on trust for the secret donee ( and therefore became perfectly entitled against the testator’s wants ) so this would use theWills Act 1837to foster a deceitful claim and, as such, would non be permitted in equity.

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However, the bar of fraud theory does non wholly explicate the workings of secret trusts. First, although it was said inMccormickV.Grogan[ 6 ] that it would be deceitful of the intended secret legal guardian to be allowed to profit by renegue oning on the promise given to the testate to cover with the bequest in a peculiar manner, this does non explicate why the secret donee should finally profit. Deceitful activity on the portion of the secret legal guardian could besides be prevented by doing the secret legal guardian hold the belongings on ensuing trust for the estate or next-of-kin. The theory besides appears to interrupt down when faced with explicating the footing of half-secret trusts. In a half-secret trust, the fact that the legatee in the will is to keep the capable affair of the bequest on trust for the secret donee is revealed, but the individuality of the donee is non. Unlike to the full secret trusts, communicating and credence of the duty must take topographic point before or at the clip that the will is signed. [ 7 ] Therefore, the fact that the secret legal guardian holds the belongings on trust is instantly evident on the face of the will, and there is no possibility of personal fraud by the legal guardian. As a consequence, the just axiom that ‘equity will non let a legislative act to be used as an instrument of fraud’ has no application. Therefore, Viscount Sumner’s proposition appears deficient justification for half secret trusts.

The modern theory of secret trusts is that the trust arises outside (dehors) the will as aninter vivosdeclaration of trust by the testate. As such, it is non a testamentary temperament and hence there is no struggle with theWills Act 1837. The trust is constituted when legal rubric is vested in the legal legal guardian at the clip the bequest under the will is received. Furthermore, there seems no logical ground why the communicating and credence of the duty should be requiredpriorto subscribing the will in the instance of a half secret trust but non a to the full secret trust ; the demands of theWills Act 1837should hold no consequence on either type of secret trust. However, despite thedehorsthe will theory, the tribunal still enforces the duty on the secret legal guardian because the secret legal guardian has promised the testate that he will transport out the duty: although the agreement which gave rise to this promise arosedehorsthe will, it is because the scruples of the secret legal guardian is affected that the tribunal is willing to step in. This is in line with Viscount Sumner’s proposition that equity ‘fastens [ a trust ] on the scruples of the legatee’ and so fraud is still a relevant factor.

Hodge [ 8 ] discusses two senses in which ‘fraud’ is used: foremost in a narrow sense, mentioning to the deliberate error of the legatee who leads the testate to believe that the belongings will be dealt with as agreed, but has no purpose of honoring that promise. In the wider sense, it refers to the fact that the testator’s assurance is betrayed and, as a consequence, his wants are non being carried out ; furthermore, in the fact that the secret donee is being deprived. Therefore, the fraud theorycanexplicate the enforcement of half-secret trusts: the fact that the legatee is clearly keeping on trust and can non personally profit becomes irrelevant, since the fraud remains on the testate and the secret donee.

Viscount Sumner is right in his averment that, in the instance of both to the full secret and half secret trusts, equity ‘fastens on the scruples of the legatee a trust which would otherwise be inoperative’ . However, whether this is done for the bar of fraud is a affair of some argument. Although this was surely the historical ground for back uping such trusts, it can be argued that the fraud theory does non wholly explicate the workings of secret trusts, with peculiar trouble in the instance of half secret trusts. This has led to the moderndehorsthe will theory. However, fraud can still be argued to play a portion in the recognition of secret trusts since the fraud can be said to lie in the fact that the secret legal guardian, in neglecting to transport out the promise, has betrayed the assurance of the testate and deprived the secret donee. Although the regulations for execution of secret trusts are mostly settled, the theoretical footing for their enforcement is well less so. Therefore, Viscount Sumner’s position is merely one potentially valid justification for their recognition, which has tended to hold been superseded by the more moderndehorsthe will theory: nevertheless, despite the deficiency of academic lucidity, secret and half secret trusts remain a valid and enforceable agencies of giving consequence to a testator’s wants.

Word Count: 1,500 words

Case List:

BlackwellV.Blackwell[ 1929 ] AC 318

MccormickV.Grogan( 1876 ) IR 1 Eq 313

OttawayV.Norman[ 1972 ] Ch 698

Re Boyes( 1884 ) 26 Ch D 531

Re Keen[ 1937 ] Ch 236

Re Snowden[ 1979 ] 2 All ER 172

WalgraveV.Tebbs( 1885 ) 25 LJ Ch 241

Bibliography:

Burn, EH and Virgo, GJ ( 2002 )Maudsley & A ; Burn’s Trusts & A ; Trustees Cases & A ; Materials( 6Thursdayedition ) , Oxford: OUP

Edwards, R and Stockwell, N ( 2002 )Trusts and Equity( 5Thursdayedition ) , Harlow: Pearson Education

Hayton, DJ ( 2001 )Hayton and Marshall Commentary and Cases on the Law of Trusts and Equitable Redresss( 11Thursdayedition ) , London: Sweet & A ; Maxwell

Hodge, DR ‘Secret Trusts: The Fraud Theory Revisited’ [ 1980 ] Conv 341

Moffat, G ( 2004 )Trusts Law Text and Materials( 3rdedition ) , Cambridge: Cup

Oakley, AJ ( 2003 )Parker & A ; Mellows – The Modern Law of Trusts( 8Thursdayedition ) , London: Sweet & A ; Maxwell

Pearce R, and Stevens J, ( 2002 )The Law of Trusts and Equitable Duties( 3rdedition ) , London: Butterworths Lexis-Nexis

Watt, G ( 2005 )Todd & A ; Watt’s Cases and Materials on Equity and Trusts( 5Thursdayedition ) , Oxford: OUP

Wilson, S ( 2005 )Todd & A ; Wilson’s Textbook on Trusts( 7Thursdayedition ) , Oxford: OUP

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