Secret Trusts
Gold v Hill [1999]
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Margulies v Margulies (1999-2000)
A father's ambiguous statements about the claimant's older brother 'knowing his wishes' and 'giving what's appropriate' were held not create a binding legal obligation. A further argument was that the father left these statements deliberately vague for tax reasons was also rejected by the court.
Moss v Cooper (1861)
Acceptance of the trust is necessary in order to bind the secret trustee. It can be express or inferred and silent may count as acquiescence. Wood V-C: Acquiescence either by words of consent or by silence What is vital is that the testator must reasonably believe that the trust has been accepted. Here a gift was left unrevoked.
Re Stead [1900]
Farwell J reviewed the earlier authorities and found the state of the law to be the following if communication is not made to all trustees, although he (like many others) felt it difficult to justify: a) General rule: only those to whom communication is made are bound by the trust (since only their consciences are affected) b) Exception: if the gift is to joint tenants, as opposed to tenants in common, all are bound if communication took place before the execution of the will (but not if it took place after). This concerned a fully secret trust of personal property. It does not apply to half-secret trusts if the will permits communication to be made to only one of the intended half-secret trustees when such communication is effective if made to only one of the intended half-secret trustees when such communication is effective if made before or at the time of executing the will (Re Gardom).
Re Young [1951]
If the secret beneficiary under either type of secret trusat witnessed the will one would expect that they would not be allowed to obtain any benefit (s 15 Wills Act 1837). However, Danckwerts J held that the beneficiary under a half-secret trust could benefit on the basis that the beneficiary takes by virtue of arrangements made outside the terms of the will and so which should be unaffected by the Wills Act. But this is a liberal decision, ignoring the function of s 15 being to ensure that there is an impartial witness with nothing to gain or lose. The beneficiary does take by virtue of a testamentary disposition since the testator is free to change their mind up to their death and the property forms part of the estate available for payment of debts and taxes, etc. The secret trust benefited the testator's chauffeur, who had witnessed the will. The court held he was entitled under an oral trust declared inter vivos and therefore entitled to benefit.
Ottaway v Norman [1972]
In most cases, the obligation is to make some inter vivos transfer of property, but here the doctrine was held to apply equally to make a will in favour of the secret beneficiary. The testator left his freehold bungalow to his housekeeper. It was agreed between them that she would devise the bungalow by her will to the testator's son, which she failed to do. The court held that the son was entitled to the bungalow on the basis that the obligation was imposed and accepted and the means of carrying out the obligation was immaterial. Brightman J: I am informed that there is no recent reporte case where the obligation imposed on the primary donee is an obligation to make a will in favour of the secondary donee as distinct from some inter vivos transfer. But it does not seem to be that that can really be a distinction which can validly be drawn on behalf of the defendant in the present case. The basis of the doctrine of a secret trust is the obligation imposed on the conscience of the primary donee and it does not seem to me that there is any materiality in the machinery by which the donor intends that obligation shall be carried out. This concerned a fully secret trust of a bungalow, which the court enforced although it was oral, but the issue of s 53(1)(b) was not pleaded and was not considered by the court.
McCormick v Grogan (1869)
It is clearly possible for an intended trustee fraudulently to keep the property, where there is nothing in the will to indicate that they hold on trust. Equity, however, will not permit them to use the requirements of the Wills Act to keep the property, but will ensure that they hold it on trust.
Re Keen [1937]
It was considered that there could be sufficient communication if the terms were given to the intended trustee during the testator's lifetime, enclosed in a sealed envelope, to be opened after the testator died. The intended trustee must be aware that the envelope contains the terms of the trust and must accept it on that basis. Lord Wright MR: A ship which sails under sealed orders, is sailing under orders though the exact terms are not ascertained by the captain until later. Property was left to two people to dispose of 'as may be notified by me to them' or either of them 'during my lifetime'. The trust failed because: a) The will referred to a future communication which was inconsistent with a communication already made, so the trust would fail for inconsistency with the will b) There was a reference to future communication, which was not permissible. The court referred to obiter comments in Blackwell and held that in half-secret trusts, communication cannot take place after the will. Lord Wright MR said that this 'would involve a power to change a testamentary disposition by an unexecuted codicil and would violate s 9 of the Wills Act'. The CoA
Re Maddock [1902]
It was said (obiter) that the trust will fail if the secret trustee predeceases the testator or disclaims the gift. (In the case of an ordinary gift by will to a person who predeceases the testator, the gift normally lapses, i.e. fails.) This was a fully secret trust. However, see Blackwell.
Davies v HMRC [2009]
On the death of Mrs Goodman, her estate was assessed by HMRC as chargeable to inheritance tax. Her daughters argued that part of the estate was not chargeable as it had been given to Mrs Goodman on their father's death on fully secret trust, and thus did not form part of her estate. The judge acknowledged that in principle a secret trust could be imposed in such circumstances, but found that in this particular case, no duties of trusteeship had been imposed on Mrs Goodman. She may have wanted to benefit her daughters, but this did not arise from any legally enforceable secret trust arrangement.
Re Boyes (1884)
Property was left to the testator's solicitor, who had agreed to hold the property on the terms he would receive. The testator did not, as promised, give instructions to the solicitor on how the property was to be held. Details of the intended trust were found after the testator's death in two unattested documents. The CoA held that there was a resulting trust to the testator's estate as the trust had not been properly communicated. Kay J: The essence of all these decisions is that the devisee or legatee accepts a particular trust which thereupon becomes binding upon him, and which it would be a fraud in him not to carry into effect.
Gillet v Holt [2000]
Robert Walker LJ: Equity intervenes to prevent the unconscionable conduct of the secret trustee resiling from his agreement.
Re Snowden [1979]
Standard of proof: the onus is on the person claiming that a trust exists. The standard of proof for establishing the trust is the normal civil standard, namely proof on a balance of probabilities.
Re Gardner (No. 2) [1923]
Surprisingly, a gift to a secret predeceasing beneficiary was held not to lapse. Romer J erroneously assumed that B acquired a proprietary interest as if the secret trustee, T, on accepting the testator's directions, had declared a trust for B of whatever the testator was bequeathing to T for B. Such a trust of hope is, however, ineffective as it is not a trust of existing property. This decision ought not to be followed. The court supported the view in Blackwell that secret trusts operate dehors the will and are created inter vivos. It held that the beneficiary's interest arose as soon as the trusts were communicated and accepted, as the interest was created by agreement, not by the will.
Re Colin Cooper [1939]
The deceased must have communicated details of the property subject to the trust. The testator left £5,000 to two people and communicated the terms of the trust to them. By a later codicil, he increased the sum to £10,000. The addition was not communicated to the intended trustees. It was held that the first £5,000 was subject to the trusts. The other £5,000 was held on resulting trust. This was a half-secret trust case, the fact (but not the terms) of the trust appearing on the face of the will, but the principle applies equally to fully secret trusts.
Stickland v Aldridge (1804)
The deceased refrained from making a will in reliance on the strength of an undertaking of the deceased's next of kin (intended trustee).
Kasperbauer v Griffith [2000]
The requirements for the trust to be enforced are: 1. An intention by the testator, or a person prepared to die intestate, to create a trust binding an inheritor of their property 2. Communication of the trust to the intended trustee 3. Acceptance of the trust by the trustee The testator or intestate then relies on that acceptance by making a will, leaving a will unrevoked or not making a will at all. It must be clear that the person setting up the trust intended to impose a binding legal obligation on the trustee, not merely a moral or family obligation. The testator's statement that his wife 'knows what she has to do' with the house was held to be too vague to create an enforceable legal obligation on the wife to hold the house on a secret trust. The CoA took the view (agreeing with Nourse J in Re Cleaver [1981]) that a constructive trust would be imposed to compel a secret trustee (who was fraudulent or unconscionable) to hold trust property as had been agreed with the testator. However, as no trust was found, this is only obiter.
Re Gardom [1914]
The rule in Re Stead does not apply to half-secret trusts if the will permits communication to be made to only one of the intended half-secret trustees when such communication is effective if made to only one of the intended half-secret trustees when such communication is effective if made before or at the time of executing the will.
Re Bateman's Will Trusts [1970]
The testator's will stated that income was to be paid 'to such persons and in such proportions as shall be stated by me in a sealed letter addressed to my trustees'. The requirement that communication should occur no later than the execution of the will has been much criticised but Re Keen has been followed. The court held that the trust was invalid. Pennycuick V-C: the words import that testator may, in the future, after the date of the will, give a sealed envelope to his trustees. It is impossible to confine the words to a sealed letter already so given. If that is the true construction of the wording, it is not in dispute that the direction is invalid as an attempt to dispose of the estate by a non-testamentary instrument.
Blackwell v Blackwell [1929]
The validity of half-secret trusts was not firmly established until this case. By codicil, £12,000 was left to five people to be applied 'for the purposes indicated by me to them'. The terms of the trust were communicated before the codicil was executed. The HoL held that the trust was enforceable. They seemed to take a wider view of fraud, namely, failing to give effect to the testator's wishes, which the secret trustee had promised to carry out. After all, if the intended trustee had told the testator he would not carry out the trust, the testator would have bequeathed the property to someone else. This would apply equally to full and half-secret trusts. The HoL also took the view that the trust was outside (dehors) the will and thus outside the ambit of the Wills Act. Communication and acceptance appear to create the trust inter vivos. The will does not create the trust, it is merely the device for constituting it by transferring the property to the trustees. Viscount Sumner: It is communication of the purpose tot he legatee, coupled with acquiescence or promise on his part, that removes the matter from the provision of the Wills Act and brings it within the law of trusts. He also said that equity makes him do what the will in itself has nothing to do with. However, he also made reference, obiter, to limits, namely that a testator should not be able to give the go-by to the requirements of the Wills Act because they did not choose to comply with them. A testator cannot reserve to himself a power of making future unwitnessed dispositions merely by naming a trustee and leaving the purposes of the trust to be supplied afterwards. These obiter comments have since been used to support the view that, in the case of half-secret trusts, communication of the trust and its terms must take place contemporaneously with the execution of the will. It was said, obiter, that the trustee of a fully secret trust will not be allowed to defeat the testator's purpose by renouncing the legacy. This seems right in principle (unlike Re Maddock).
Re Baillie (1886)
This suggested that a half-secret trust of land (so that the devisee could not retain the land for himself) was not enforceable without written evidence (though this was decided before the validity of half-secret trusts was firmly established in Blackwell).
Wallgrave v Tebbs (1855)
With a fully secret trust, communication must take place before death, whether before or after the signing of the will (if any). Instructions to hold on charitable trusts were not communicated to legatees, who took absolutely on the face of the will, but the instructions were found amongst the testator's papers after his death. It was held there was no valid trust: the legatees had not been informed of the testator's intentions during his lifetime, so they could take free of the trust. If a trust is to be enforced against an apparent absolute legatee, then there must be communication of the fact of the trust (its existence). If the fact of the trust is communicated inter vivos, the legatee cannot take beneficially as his conscience is bound.