Secret Trusts Essay On Equity And Trusts University Of Birmingham Essay

3866 words - 16 pages

Abstract
The doctrines of secret trusts do not accede to the requirements of the Wills Act 1837, yet they succeed in the eyes of the law. Their enforcement is complex to justify; their developments have notoriously stemmed from the customs of judiciary and academics. This article presents arguments for both enforcement and non-enforcement of them as well as addressing the broader theoretical questions. This article also delivers a series of divisive views of secret trusts, taking in consideration whether their justification are reasonable, whether the purpose they serve in current society today is of any relevance as well as whether an exhaustive review of them is needed.
Introduction
Secret trust are equitable devices that effectuates a testators express intentions to an intended trustee[footnoteRef:1], in order to fulfil an arrangement, arising whenever the testator establishes an intention to create a trust which is not expressed in the will itself. Secret trusts consequently would not have complied with the formalities outlined in s9 of the Wills Act 1837[footnoteRef:2], thus can be seen as controversial as the Will is portrayed as the conventional instrument to vest the legal interest of the trust property to the intended trustee. Moreover, any other method of disposition not complying with s.9 of the Wills Act would be void[footnoteRef:3], yet secret trust clearly contravenes this rule and succeeds. The very existence of secret trust becomes the subject of dispute discussed in this article, contemplating judicial enforcement of secret trusts when plainly they are in defiance of clear statutory provisions. Secret trusts emerge in two forms[footnoteRef:4]; a fully secret trust and half-secret trust, concerning fully secret- trust they do not appear on the will at all and no evidence of its existence can be discovered on the face of the will hence its name. The latter alludes to the actual existence of the secret trust, however omits the terms[footnoteRef:5]. This short article seeks to address an investigation of the controversial elements surrounding the notion of secret trusts and nonetheless examining Emma Challinor` s assertions. [1: John McGhee, Snells Equity 32nd edn, Sweet & Maxwell [2010] ] [2: Wills Act 1837] [3: Ho Siu, ”Keeping secrets: a critical analysis of the justifications for the docrine of secret trusts”] [4: Gary Watt, Cases & Materials on Equity & Trusts 10th edn, Oxford [2016]] [5: Stephen James Alan Swann, ”From Law to Faith: Letting Go of Secret Trusts” [1999]]
Fraud Prevention
Emma Challinor is an individual openly against the concept of secret trust, pinpointing one of her claims, that “fraud is better prevented upon compliance of the s9 Wills Act formalities”, implies a contrast made and that is of secret trusts. This statement can be agreed to a large degree; such can be proved via a closer inspection of the formalities required from each. Adhering to s.9 requirements of the Wills Act would mean that courts would strictly construe to ensure that a testament is genuine also requiring a testator to write and sign off their disposition in presence of two witnesses, clearly appreciating that a testator will undergo a series of formality requirements in order to make a testament genuine. It can be valued that such requirements restrict the occurrence of fraud as it is evidentially confirmed, coupled with the signature of the testator themselves, all results to the conclusion that this is what the testator intended. Failure of any requirements that are not complied with will not validate a testamentary document. This is relevant as it can be acknowledged the significance of the Wills requirements leaves, neither loopholes nor gaps for an opportunity for an individual to commit fraud as all formalities have to be completed[footnoteRef:6]. In comparison to how secret trusts open up the realm of fraud, one has to comprehend the operation of secret trusts. Secret trusts are solely left on the responsibility of the trustee, which clearly denotes a leap of faith to fulfil the promise by the trustee, effectively a case of trust. This does not only exemplify the power of secret trusts to concealing the identity of the beneficiary from public domain but also the nature of power vested in its trustees. The extent of power granted to the trustees is the very element, which reveals the opportunity of fraudulent activities (for the secret trustee not fulfilling the obligation or rather taking the trust property themselves). Distinctly it remains a secret to all else apart from the intended trustee, creating the chance to dishonour his end of the agreement. The link between the wills requirements and that of secret trust differ in rigidity, although absence of any requirements does not give rise to secret trust nor a valid will, it can be identified the Wills Act is a better anti-fraud device. Firstly, an adherence to the Wills requirements indicates an adherence to the strict letter of the law, in contrast secret trust remains loose and their requirements: intention, communication and acceptance[footnoteRef:7] rely on the notion of faith. They are not viewed as a better anti-fraud device, visibly because secret trusts do not require physical evidence as this is what they purport to be – a secret. Despite a clear binding obligation[footnoteRef:8] and not and unfettered discretion[footnoteRef:9] in regards to intention, this does not secure the action of the trust being carried out rather the formalities to making a trust valid. Similarly, communication and acceptance are also to occur, as the formalities for secret trusts, indicates that the testator had relied on the trustee[footnoteRef:10] to carry out the promise. The formalities of communication of half-secret trusts create the issue of justifying their distinction. Fully secret trusts communication can occur any time before death of the testator comparable to half-secret trust, which has to occur before the execution of the will[footnoteRef:11]; this is what creates the flaw in them[footnoteRef:12]. Half - secret trusts reduce the gap for fraud but still is not sufficient to be classed as a better anti-fraud device. Lastly the requirements that acceptance can occur by words or by silent acquiescence[footnoteRef:13], does not add to the credibility of the trust being carried out, compared to a will which guarantees enforcement. These requirements are problematics and not sufficient enough to prevent fraud as there is too much weight on the trustee to execute the trust. In contrast, the Will requirement adheres to the letter of the law and the law promotes certainty and reduces flexibility. Whereas a secret trust, the testator relies on the secret trustee to fulfil the obligation, which creates opportunities of fraud due to its loose approach. Undoubtedly, the s.9 requirements Wills Act are a better anti-fraud device due to their apparent rigidity and strictness to the letter of the law, as opposed to its counter-part that relies on the concept of faith. [6: Gary Watt, Trust & Equity 5th edn, Oxford ] [7: Ottoway v Norman [1972] Ch 698 ] [8: McCormick v Grogan [1869] LR 4 HL 82] [9: Re Snowden [1970] Ch 700] [10: Wallgrave v Tebbs [1855] 2 K & J 313] [11: Re Keen [1937] Ch 236] [12: Diana Kincaid, ” The tangled web: the relationship between a secret trusts and the will” [2000] Conv.420] [13: Moss v Cooper [1861] 1 J & H 352; Ottoway v Norman [1972] Ch 698 ]
Justificatory theories and justifying the distinction of the two types of secret trust
If it is better to adhere to s.9 Wills Act, then what is the reasoning to enforce secret trust? As it stands, they clearly infringe the policy of the Wills Act 1837[footnoteRef:14], many commentators agree to the enforcement of secret trusts and many oppose. Emma Challinor asserts that the law is confused as well as the “justification for the distinction of the two types of secret trusts are difficult to find”, which can be agreed strongly. There must be a convincing reason as to why courts allow testators to bypass the s.9 requirements. Conversely, in any system devised, it is necessary to deal with the reality of imperfections, therefore justificatory theories have developed – this is the very element, which confuses the law of them[footnoteRef:15]. Currently the two main theories are the fraud and dehors the will theory[footnoteRef:16]. The fraud theory has varied views, it lies on the basis that “Equity will not allow a statute to be used as an engine for fraud” by relying on s.9 of the Wills Act 1837. This was the jurisdiction courts adopted to enable them to enforce secret trusts – to prevent fraud by the secret trustee[footnoteRef:17]. This theory is relevant as it attempts to restrict the trustee to evade such performance set by the testator by relying on the s.9 requirements[footnoteRef:18]. The significance derived from this theory is that it must involve elements of personal gain by the intended trustee[footnoteRef:19]; however absorbing this theory would be incomprehensible, as they do not justify the distinction for the case of half – secret trusts[footnoteRef:20]. Outlined previously half-secret trusts are evidenced on the will, therefore indicates a trustee would not be able to profit from his fraud or act contrary to the testators intentions[footnoteRef:21] due to the exposure of the trust[footnoteRef:22]. This in effect renders this theory insufficient in justifying the enforcement of secret trusts. Another relevant perspective to this theory is a view, which goes beyond the core of personal gain or unjust enrichment. Such view is that if the intended trustee fails to perform the secret trust, essentially constitutes a fraud on the testator and the secret beneficiaries[footnoteRef:23]. This is fundamental, as supported by Lord Sterndale[footnoteRef:24]. This signifies it can equally apply to both fully and half secret trusts. Supported by Viscount Sumner[footnoteRef:25]stating: [14: Ho Siu, ”Keeping secrets: a critical analysis of the justifications for the docrine of secret trusts” ] [15: G.W. Allan, ”The Secret Is Out There: Searching for the Legal Justification for the Doctrine of Secret Trusts through Analysis of the Case Law”] [16: Todd & Wilson` s, Textbook on Trusts, 12th edn , Oxford] [17: This theory was enunciated by Lord Westbury] [18: McCormick v Grogan [1869] LR 4 HL 82] [19: L.A. Sheridan, ‘English and Irish Secret Trusts’ [1951] 11 LQR 314;] [20: J.A. Andrews, ‘Creating Secret Trusts’ (1963) 27 Conv 92;] [21: Paul S Davies, Graham Virgo, Equtiy & Trusts; Text, Cases and Materials 2nd edn, Oxford] [22: P. Matthews, ‘The True Basis of the Half-Secret Trust?’ [1979] Conv 360] [23: McFarlane [2004] 120 LQR 66] [24: Re Gardner No.1 [1920] 2 Ch 523] [25: Blackwell v Blackwell [1929] AC 318]
“In substance there is no relevant distinction between the two trusts, for the simple reasons that fraud is to be prevented in regards to both the types of trust”[footnoteRef:26] [26: Gary Watt, Trust & Equity 5th edn, Oxford]
In both circumstances, the testator’s wishes are incompletely expressed in the will[footnoteRef:27]. This is relevant in demonstrating that the fraud theory can extend to both types of trust. This view portrays a better approach, but still does not effectively justify the enforcement of secret trusts. Adherence to this view would make it difficult to justify the distinction between the two types of trust, reiterating Emma Challinor` s statement. The key distinction between fully secret trusts and half-secret trusts, is that for the latter it will be clear on the face of the will that the intended trustee is not the beneficial owner of the property as all they are doing is holding it on trust[footnoteRef:28]. The distinction is fundamental, as surely the risk of fraud is heightened when involving fully secret trusts, as clearly the trustee is entitled to the trust property absolutely[footnoteRef:29]. An in-depth-investigation of the foundation of secret trusts is requisite. Fully secret trust are viewed as a greater departure from the Wills Act[footnoteRef:30], the same cannot be said for half-secret trusts as they effect only at the execution of the will implying incorporation has occurred[footnoteRef:31]. This leads onto the second theoretical justificatory theory; the dehors the will theory. [27: David Wilde, ”Secret and semi-secret trusts: justifying distinctions between the two” [1995]] [28: Lesley King, `Secret and Half secret trusts` The Law Society Gazette (London, 8 September 2014)] [29: David Wilde, ”Secret and semi-secret trusts: justifying distinctions between the two” [1995]] [30: Murali Kandasamy, ”Law of Trusts, Secret Trust: The Underlying Theories Explained” [2012]] [31: Re Keen [1937] Ch 236]
The dehors the will theory is a more generally accepted justification for the doctrine of secret trusts[footnoteRef:32]. [32: Paul S Davies, Graham Virgo, Equtiy & Trusts; Text, Cases and Materials 2nd edn, Oxford]
The significance of this theory is that it identifies that secret trust operates outside of the Wills Act 1837[footnoteRef:33], in addition the formalities vary thus the Wills Act is disregarded entirely[footnoteRef:34]. Danckwerts J puts it: [33: Recognized by Sir Robert Megarry V-C in Re Snowden [1970] Ch 700] [34: Paul S Davies, Graham Virgo, Equtiy & Trusts; Text, Cases and Materials 2nd edn, Oxford]
“The persons do not take by virtue of the gift in the will, but by virtue of the secret trusts imposed upon the beneficiary who does in fact take under the Will” [footnoteRef:35] [35: Danckwerts J in Re Young [1952] Ch 344, 350]
The fact that secret trust do not fall in conflict with the s.9 requirements and therefore alters nothing that is written in the will[footnoteRef:36]. The concept is difficult to grasp as many commentators have different perceptions of it[footnoteRef:37]. The dehors the will theory is relevant is it argues that the secret trust are inter vivo trusts[footnoteRef:38], rather than one of testamentary nature[footnoteRef:39] as it does not appear in its full context on the will. This would indicate that the trust remains constituted until after death of the testator, however this too does not seem sufficient to be a justificatory reasons either and the reasons for such statement are for the following reasons. Commentators such as Critchley correspondingly claimed that the theory could not justify the enforcement of a secret trust, in the notion that they are portrayed as a testamentary disposition and not inter vivo, as the qualities they possess are of ambulatory and revocable characteristics[footnoteRef:40]. Relating back to the claim that `they do not take effect until after the death of the testator`, it would be disingenuous to claim that they do not fall within the framework of the Wills Act 1837, therefore the validity of the justificatory theory is weak as they claim to be inter vivo but have testamentary nature. Supporting this view are critiques Pearce and Stevens[footnoteRef:41] who argue that the trust is incompletely constituted until after the death, therefore as a consequence the dehors the will theory although proposes to be a strong argument, fails to acknowledge the requirement of half - secret trust. No contemplation has been given that half-secret trust have to be communicated and accepted prior to the execution of the will, this therefore lacks consistency to claim that secret trust operate entirely outside of the will. This relates back to Critchley` s point that there has been a diluted image of “what it means to operate outside of the Will and to operate outside of the Wills Act”. Overall neither theory is single handily able to explain the full potential of the principles of secret trust[footnoteRef:42]. The theories appear flawed in their explanation, therefore inadequate as a justificatory theory. Nevertheless, they are still valid in the current law but one can acknowledge that secret trusts are well-recognised anomalies, which do not fit smoothly with any justification theories. [36: Re Snowden [1970] Ch 700] [37: Warner-Reed, Equity and Trusts, Living Law] [38: Gary Watt, Trust & Equity 5th edn, Oxford ] [39: Bryn Perrins, ‘Secret Trusts: the Key to the Dehors?’ [1985] Conv 248, 248] [40: P. Critchley, ‘Instruments of Fraud, Testamentary Dispositions, and the Doctrine of Secret Trusts’ (1999) 115 LQR 631] [41: Robert Pearce, John Stevens & Warren Barr, The law of Trusts and Equitable obligations 6TH edn, Oxford [2014]] [42: Murali Kandasamy, ”Law of Trusts, Secret Trust: The Underlying Theories Explained” [2012]]
Do Secret trusts serve any social purpose?
Having comprehended the debatable issue of secret trusts, it begs the question why they are still enforced. Emma Challinor declares that secret trust have “limited social purposes”, this can be agreed to a small extent. One can argue that Emma Challinor is focusing too heavily on the form of secret trust, rather than recognising as to why individuals may prefer to use secret trust[footnoteRef:43]. Secret trust are stereotypically seen as kindled with secrecy and privacy, in a more subjective approach a testator may just want to keep the identity of the beneficiary to remain a secret, thus the rationale of secret trust[footnoteRef:44]. Moreover, this allows a testators wishes to not avail to public scrutiny, thus provides reasoning as to why one may indulge in such a method[footnoteRef:45], it has not just purported for an illegitimate child or mistress, there are various purposes which case law demonstrates.[footnoteRef:46] A simple explanation can be such, that a person may simply not have had enough time to dispose of their property or had a large number of personal effects, therefore their indecisiveness can give rise to a secret trust[footnoteRef:47]. A testator may desire to modify his will at a late stage thus; an appropriate method would be to engage in a secret trust in order to amend the will[footnoteRef:48]. To wholly state that secret trust have limited social purpose would be a downfall as evidentially they serve a social purpose to society today, it can be agreed their use are limited compared to the past, but that is not to say that they have been deprived of their purpose. [43: Gary Watt, Trust & Equity 5th edn, Oxford ] [44: L.A. Sheridan, ‘English and Irish Secret Trusts’ (1951) 11 LQR 314] [45: Graham Virgo, The principles of Equity & Trusts, Oxford] [46: Charlie Webb & Tim Akkouh, Trusts Law, 4th edn] [47: Proby v Landor [1860] Ch 593; Re Snowden [1970] Ch 700] [48: Reech v Kennegal [1832] 5 Sim 485; Chamberlain v Agar [1813] 2 V & B 259]
The relevancy of Secret trust
Returning to Emma Challinor` s first point that “there is much to be said for an abolishment or revision of secret trusts”, this is accurate as the nature of them still remain unclear. They appear with cynicism due to their insurmountable complications that can arise on part of the dishonest behaviour of the trustee. However, what has been over-looked is the measure of the legal powers; practitioners have in safeguarding circumstances such as these do not arise[footnoteRef:49]. A revision is necessary, as clearly secret trusts are an insecure and covert device that creates an imperfection in the certainty of the law. Some revisions have been made on secret trusts; certain academics identified the `Insurance concept`. This is where a testator can place evidence with a third party, attesting to its existence; in such manner a secret trust can be enforced without the issue of fraudulent behaviour. This indicates in an event of a dispute the intention of a testator can be evidenced, simply providing the testator with a genuine insurance, that his wishes and testament be complied with. On the other hand, this can defy the whole concept of the secret trust itself. This poses the question to the lengths a testator may go to, to ensure the obligation is fulfilled, but then not conform to the Wills requirements, which guarantees such promise. The doctrine of secret trust, originally construed to facilitate hidden bequests to mistress or illegitimate child, however as society alters, perceptions have changed, in the notion that they are slightly acceptable today as compared to how they once were, thus poses the question whether secret trust are of longer relevance in society today? [49: Rowena Meager, ”Secret trusts – do they have a future” [2003] Conv.203]
Secret trusts; its biggest strength is its biggest weakness; they remain ambiguous and should be discerned. There is also the notion that a balance is required, that of protecting the testators wishes but also preventing fraud. It is hard to draw conclusion on the success of secret trust, as evidentially this is what it purports to be – a secret. This leads to the conclusion that there is no logical rationale for enforcing them; despite their social purposes, which does not overpower its negative points. Secret trust will continue to be of use to individuals[footnoteRef:50], so there is a real need to revise many of the persistent concerns of the justifications for secret trusts. Albeit secret trust may not be of regular occurrence in current society, however they still have an implication and an inordinate deal of significance in equity. [50: Rowena Meager, ”Secret trusts – do they have a future” [2003] Conv.203]
Bibliography
Statutes
Wills Act 1837
Cases
Blackwell v Blackwell [1929] AC 318
Chamberlain v Agar [1813] 2 V & B 259
McCormick v Grogan [1869] LR 4 HL 82
McFarlane [2004] 120 LQR 66
Moss v Cooper [1861] 1 J & H 352
Ottoway v Norman [1972] Ch 698
Proby v Landor [1860] Ch 593
Re Boyes [1884] 26 Ch D 531
Re Gardner No.1 [1920] 2 Ch 523
Reech v Kennegal [1832] 5 Sim 485;
Re Snowden [1970] Ch 700
Re Keen [1937] Ch 236
Re Williams [1933] 1 Ch 244
Re Young [1952] Ch 344
Wallgrave v Tebbs [1855] 2 K & J 313
Books
Charlie Webb & Tim Akkouh, Trusts Law, 4th edn
Gary Watt, Trust & Equity 5th edn, Oxford
Gary Watt, Equity & Trusts Law Directions, 5th edn, Oxford
Gary Watt, Cases & Materials on Equity & Trusts 10th edn, Oxford [2016]
Graham Virgo, The principles of Equity & Trusts, Oxford
John Duddington, Essentials of Equity and Trust Law [2006]
Paul S Davies, Graham Virgo, Equtiy & Trusts; Text, Cases and Materials 2nd edn, Oxford
Robert Pearce, John Stevens & Warren Barr, The law of Trusts and Equitable obligations 6TH edn, Oxford [2014]
Todd & Wilson` s, Textbook on Trusts, 12th edn , Oxford
Warner-Reed, Equity and Trusts, Living Law
John McGhee, Snells Equity (32nd edn, Sweet & Maxwell [2010]
Articles
Bryn Perrins, ‘Secret Trusts: the Key to the Dehors?’ [1985] Conv 248, 248.
Diana Kincaid, ”The tangled web: the relationship between a secret trusts and the will” [2000] Conv.420
David Wilde, ”Secret and semi-secret trusts: justifying distinctions between the two” [1995]
Emma Challinor, ”Debunking the myth of secret trusts” [2005] Convpl. 492
G.W. Allan, ”The Secret Is Out There: Searching for the Legal Justification for the Doctrine of Secret Trusts through Analysis of the Case Law”
Ho Siu, ”Keeping secrets: a critical analysis of the justifications for the docrine of secret trusts”
J.A. Andrews, ‘Creating Secret Trusts’ (1963) 27 Conv 92;
L.A. Sheridan, ‘English and Irish Secret Trusts’ (1951) 11 LQR 314;
Lesley King, `Secret and Half secret trusts` The Law Society Gazette (London, 8 September 2014)
Murali Kandasamy, ”Law of Trusts, Secret Trust: The Underlying Theories Explained” [2012]
P. Critchley, ‘Instruments of Fraud, Testamentary Dispositions, and the Doctrine of Secret Trusts’ (1999) 115 LQR 631
P. Matthews, ‘The True Basis of the Half-Secret Trust?’ [1979] Conv 360;
Rowena Meager, ”Secret trusts – do they have a future” [2003] Conv.203
Stephen James Alan Swann, ” From Law to Faith: Letting Go of Secret Trusts” [1999]

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