In this article, I discuss secret trusts – what are they, what are their advantages and requirements and what happens if one fails?
What is a secret trust?
A secret trust arises when a testator of a will leaves a gift to someone (“the secret trustee”) with the intention that he or she holds it to make a gift to another person (“the beneficiary”).
Secret trusts can be full or half in nature.
Fully secret trusts are where the trust is not apparent from the face of the will. The gift would look like any ordinary gift with the will simply providing for the secret trustee to be left a specified sum of money. However, in these cases, the testator will have spoken to the secret trustee and asked that the benefit of the gift be passed on secretly to the beneficiary upon the testator’s death. In order for the secret trust to be effective, the secret trustee would have had to agree to this.
With half secret trusts the will makes it clear that the secret trustee is receiving the gift on behalf of a third party but the identity of the beneficiary and the terms of the trust remain secret.
What are the advantages of a secret trust?
The only real advantage of a secret trust is to keep the identity of the beneficiary a secret. There may be any number of reasons why the testator would want to do this. For example, he or she may have had an extra marital relationship and/or illegitimate children and want to make provision for them but not reveal their existence or the relationship to their immediate family.
What are the requirements for a secret trust?
In order for a secret trust to be effective, it is necessary for there:
To be an intention on the part of the testator to create a secret trust;
To be communication between the testator and secret trustee confirming that the gift is to be held on trust for a secret beneficiary; and
To be acceptance of that role by the secret trustee.
There must be an intention to create a trust on the part of the testator; informally expressing a wish in the hope that they will be followed will not be sufficient.
What about the consequences if a secret trust fails?
If a fully secret trust fails for any reason, then the secret trustee will take the gift for themselves. If the secret trustee were, however, to die during the lifetime of the testator then the trust with fail.
If a half secret trust fails for any reason, then the secret trustee will hold the gift on trust for the residuary beneficiaries. The secret trustee cannot take the gift for himself as it would be clear that this was not the testator’s intention. Likewise, if the secret trustee were to die during the lifetime of the testator, then the testator’s personal representatives will hold the gift on the same terms as the deceased secret trustee on such terms as can be ascertained.
It should also be noted that even if a trust is found to exist, it will not be enforceable if it designed to avoid any provision of the law.
Secret trusts are by their very nature confidential and can therefore often be difficult to prove. Disputes can often arise between persons who believe they are a secret beneficiary and the alleged secret trustee who denies the existence of the secret trust. In these circumstances, it is likely there will be little, if any, documentary evidence to confirm the existence of the secret trust. Whilst the secret trustee has the same obligations as regards any other trustee of a trust, given the secrecy of the trust it is much easier for the secret trustee to simply deny the existence of the secret trust and thus, difficult for the secret beneficiary to pursue their rights as the court will need to be satisfied, on the balance of probabilities, that a secret trust existed.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.