Is a Fully Secret Trust Testamentary or Inter-vivos?

Secret trusts are scrutinized in every trust law text-book. Numerous scholarly articles have debated their theoretical basis. Yet they remain a conceptual conundrum. Is a fully secret trust testamentary or inter-vivos? Is it express or constructive? Should its apparent failure to comply with the requirements of the Wills Act be disregarded to prevent fraud or because it is dehors (outside the scope of) the will?

Fully Secret Trust Sample Paper

Introduction

Trust refers to a situation where an individual offers land to another person o that they can look after the affairs of the land on their behalf. Secret trust, on its part, is where one person wants another person, who cannot be named in the will, to benefit so he therefore enters into an arrangement with a trusted confidant (the trustee) to receive the gift under the will, apparently for the trustees benefit. In truth, however, the trustee is actually holding it in trust for the real beneficiary who cannot be named in the will. The concept of secret trust has long been an area of contention within UK Law. Despite having been analyzed in almost every secret trust book that has been published, there has been very little consensus on the premise and tenets of secret trust.

Secret trusts are either classified as being fully secret or half-secret trusts. Under fully secret trusts, the existence of the trust and the terms/conditions are not revealed. Oral evidence of the agreement is considered sufficient and the settlors has to have intended to create the trust, and communicated the same to the trustee who has to explicitly, or impliedly, accept the role and terms. The existence of the trust, and the beneficiary’s identity, are not disclosed in the will. A half-secret trust, however, requires for the fact of the trust and the terms therein to be revealed to the trustee prior to the execution of the will.

Stewart Manley, in his article ‘Reconceptualising the fully-secret trust,’ makes the case for the need to have the fully-secret trust concept reconceptualised due to issues such as its non-compliance with the Wills Act 1937 among others. He takes issue with conventional thought concerning secret trust, arguing that contrary to popular belief, “the fully-secret trust is constituted not upon the testator’s death but later, at the time that the secret trustee receives the trust property from the executor of the testator’s estate, and that the settlor of a fully-secret trust is not the testator, but the secret trustee.” The following discussion shall therefore set out to shed light on some of these contentious areas. In the process, the paper shall seek to determine whether a fully secret trust is testamentary or inter-vivos, if it is express or constructive, and whether its apparent failure to comply with the requirements of the Wills Act should be disregarded so as to prevent fraud or because it is outside scope of the will. 

Discussion

There are a number of reasons as to why secret trusts are scrutinized in every trust law textbook. Secret trust relates to wills, and this an emotive subject because it not only deals with property, but the property of a deceased person and who the beneficiaries are. Secret trusts are a conceptual conundrum due to the fact that, for one, it is unclear as to whether secret trust is express or constructive. An express trust is one that is pronounced by the settlor while a constructive trust is as a result of a court decision. A majority of writers who have contributed to the subject are of the opinion that they are express because of the intentions that were pronounced by the testator and conveyed to the trustee while the testator was still alive.This view is problematic, though, because an express trust of land should be proven in writing as per the provisions of the Land Property Act.

In Ottaway v Norman, for instance, a secret trust existed but no written proof was available. Interestingly, and to the chagrin of several legal minds, the court upheld the trust and failed to discuss the writing requirement. As such, the court possibly deemed the trust to be constructive and therefore not requiring writing as per the provisions of the Law of Property Act 1925. However, the law is quite clear— if a secret trust of land is to be considered an express trust; it should be proven in writing, in adherence to Section 53 (1) b of the LPA.

Secret trusts undoubtedly raise several questions concerning the relationship between express trusts and implied trusts. The reason why equity law created the doctrine of secret trusts to begin with was to prevent any attempts by the trustee to fraudulently lay claim to the property left for the beneficiary. While this was a noble aim, it is impossible to escape the conceptual quagmire that has resulted from this doctrine with respect to deciding on how to classify the secret trust yet so many likelihoods exist— the trust can be express or constructive trust and even a one-time rule premised on the equitable principles of preventing fraud.

Furthermore, the secret trust is a direct infringement of the provisions of the Wills Act 1837 as well as Sections 52 and 53 of the Law of Property Act which provides that transfers of land must be by deed for them to be considered valid). Section 53 (1) of the Law of Property Act 1925, for instance, provides that trusts have to be created expressly and in adherence to Section 53 (1) (b) of the Act. In addition, all related pronouncements have to be done in writing and signed by the trustor or stated in his/her will. The legality of this written intention or pronouncement can only be disputed in court if it is found that fraud has taken place.

Therefore, whereas secret trust shows the laudable commitment that equity has towards preventing the law from being used to perpetuate fraud, the fact that it itself contravenes the very law it seeks to protect is disturbing. The area of secret trusts therefore raises important questions concerning the function of equity in the law of trust to ensure that justice is served with respect to the parameters of the law. The fact is that, at its very core, a secret trust is a covert arrangement that operates outside the terms of the will and this should be a cause for concern for lawmakers. Therefore, while Equity carries out the testator’s true wishes of benefitting the third party, the means by which his wishes are realized breaches the provisions of the Wills Act.

The implications of the provisions of the Wills Act, however, are much wider than just that. A major implication is that, if the testator wants to change or amend the terms of the will or even draft an entirely new one, the change has to be in alignment with the provisions of the Act, otherwise it shall be considered invalid. In the same vein, if the testator wants to make an arrangement that is not part of the terms contained in the will, that arrangement should likewise be invalid since it is not in adherence to the terms of the will. Therefore, a secret trust is, from a legal standpoint, strictly invalid according to the provisions of the Wills Act 1837.

Secret trust is therefore a conceptual conundrum since it functions ‘dehors the will’ i.e. beyond the terms of the actual will. Section 9 of the Wills Act requires that a will be signed by the testator and his/her signature appended. This section clearly sets out the means by which a will is to be created if it is to be valid upon death and the aim of this was to prevent fraudsters from trying to lay claim to the property. The question as to whether the apparent failure of secret trusts to comply with the requirements of the Wills Act, be disregarded to prevent fraud, or because it is dehors the will is therefore critical.

There are, however, several justifications that have been posited for this strange aspect of secret trust for a long time, namely the fraud theory and dehors the will theory. The fraud theory is founded on the idea that equity should never allow the law to be a facilitator of fraud. The theory is premised on Rouchefoucauld v Boustead 1897. In this case, land had been transferred to the defendant on the understanding that it would be held on trust for the Comtesse. The agreement was never put in writing. The defendant mortgaged the property and Comtesse sought a declaration that the property was held on trust. The defendant argued that the trust was not enforceable because it was not in writing. The court held that Equity would not allow a statute to be an instrument of fraud, and the trust could be proven using oral evidence. Proponents of the fraud theory use this case to argue that secret trust helps prevent fraud. They fail to recognize that the oral evidence brought about by the claimant is hard to prove.

The ‘dehors the will’ theory argues that secret trust is outside the framework of the will because it is an inter vivos trust (a trust made by the settlor when they are still alive) that is proclaimed upon communication by the settler to the trustee and constituted following the death of the settlor. The theory does not consider secret trust to be testamentary and therefore it is not to be considered within the regulations of the Wills Act 1837 which applies to all testamentary trusts.

Various cases are in apparent acceptance of this theory, for instance Blackwell v Blackwell where the decision by the judge was thus: “I do not see how the statute-law relating to the form of a valid will is concerned at all.” Other cases thereafter also appear to support the theory as a valid justification for secret trust especially the Re Young case. In this case, a beneficial interest in a secret trust was sustained by the court despite the fact that the beneficiary was a witness to the will, a breach of the Wills Act 1837 which does not allow the beneficiary to be a witness. This is problematic from a legal perspective because it is a contravention of existing law.

This theory is additionally problematic because it allows for a testamentary disposition without satisfaction of the requisite formalities. Testamentary gifts have to fulfill the provisions of the Wills Act. Moreover if a secret trust is inter vivos and not testamentary then it has to be completely constituted for it to be valid. The argument that the proponents of the ‘dehors the will’ theory use is that secret trusts are inter vivos and not testamentary thereby causing secret trusts to be outside the restrictions of the Wills Act. This argument lacks merit because, while it is true that secret trusts are not part of the will, this is irrelevant with respect to the application of the Wills Act since all informal testamentary trusts are outside wills anyway. If it were a formally valid testamentary disposition it would be a will or part of one. And, in any case, secret trusts are indeed testamentary trusts since they are revocable by the testator— he can revoke the agreement or revise it thereby causing the ‘inter vivos‘ trust that he declared not to be instituted. In addition, and most importantly, secret trusts cannot be inter vivos since, the testator would be declaring a trust of ‘future’ property so as to be effective and this type of declaration is not valid and creates no trust.

Conclusion

In sum, it is evident that secret trust is a conceptual conundrum that has been a source of contention in UK law for a very long time and is likely to continue this way. No real consensus exists concerning some very fundamental tenets and considerations of secret trust. For one, there is no consensus regarding whether secret trust is express or constructive. On the one hand, it is argued that secret trust is express because of the declaration made to the trustee by the testator and this has been upheld in court in cases such as Ottaway v Norman, a case where the declaration was no written. The law, however, requires the declaration to be written down for it to be considered an express trust.

Secondly, no consensus exists with regard to whether a fully secret trust is testamentary or inter-vivos. Some argue that secret trust is inter vivos and use this to excuse away the fact that secret trusts contravenes the Wills act and the Land Property Act. Others, however, point out that secret trusts are testamentary trusts because the testator declares a trust of ‘future’ property for it to be effective and this type of declaration is not valid and creates no trust and as such, it is testamentary. The jury is still out on this contentious area.

Finally, several theories have been put forward to justify that secret trust is outside of the will and that it is in contravention on the Wills Act 1837 as well as related law such as the Land Property Act. The first theory is referred to as the ‘fraud theory’ and her, the proponents point out that the duty of trust law should be to protect the testator and beneficiary from fraud because it does away with requirement for the declaration to be in writing. This is however a dangerous train of through since oral evidence is hard to prove and should not be considered as valid evidence in a court of law unless sufficiently backed by other proofs.  

The second theory is the ‘dehors the will’ theory that argues that secret trusts are inter vivos and not testamentary thereby causing secret trusts to be outside the restrictions of the Wills Act. This argument likewise does not hold weight because there is no basis to state that secret trusts are not testamentary. Secret trusts are indeed testamentary because they are revocable by the testator. Additionally, they are testamentary because the testator declares a trust of ‘future’ property so as to be effective and this type of declaration is not valid and creates no trust.

Evidently, the concept of secret trust is very contentious but seems likely to remain a fixture in UK law for many years to come. Irrespective of the fact that secret trust flouts the Wills Act 1837 and the Land Property Act 1927, secret trust is still operational with courts still making decisions that uphold it. Yet, the fact that it is clandestine and a contravention of existing law need not be ignored. Instead, there is a compelling need to reconceptualise the concept of secret trust and discussions like this help to keep the debate alive.

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