Are Secret Trusts valid Testamentary dispositions?

Exploring the theroretical justifications for the enforcement of secret trusts

The Wills Act 1837, s.9 requires that all testatmentary dispositions be in writing and signed by the Testator, in the presence of two or more attesting witnesses present at the same time.

Despite the existence of such statutory formalities, Testators who wish to create a fully secret trust have been known to leave legacies in their will to someone they can trust, having previously instructed them that the legacy concerned is to be held on trusts for a specific individual or individuals;

The existence of a half-secret trust, however, may be objectively inferred from the Testatrix’s words in her will stating, for instance, that a legacy given to a legatee is ‘‘to be held upon such trusts as I have declared to him.” (Glister 2015, p. 147).

How does one justify the enforcement of such trusts which are either not disclosed ( full secret trusts) or not fully disclosed (half-secret trusts) in a valid will?

The terms and the objects of such trusts would not have been declared in a Will. Further, the actual instrument specifying the names of intended legatees of a secret trust may be nothing more than a document that would not have been indentifed in a will, and thereore not incorporated into the final testament of the testarix or testator.

Consider the following possibilities:

The Fraud Theory (Mc Cromick v Grogan 1869)

An attempt to conceive Fully Secret Trusts as a means to prevent a possible fraud committed by a legatee who keeps the legacy for himself was posited by Lord Westbury in Mc Cromick v Grogan (1869) L.R. 4 H.L.82. His Lordship stated:

“My lord, the jurdisdiction which is invoked here by the Appellant is founded altogether on personal fraud. It is a jurisdiction by which a Court of Equity, proceeding on the ground of fraud, converts the party who has committed it into a trustee for a party who is injured by that fraud …..

the Court of Equity ….does not aside the Act of Parlaiment , but fastens on the individual who gets a title under that Act, imposes upon him a personal obligation, because he applies the Act as an instrument of Fraud for accomplishing a fraud. In this way , the Court of Equity has dealt with the Statute of Frauds , and in this manner, also, it deals with the Statute of Wills.” (1869) L.R. 4 H.L.82

In McCormick , the testator left all his property to his friend Grogan. On his deathbed, he told Grogan that he had left all his property to him in his will, to which Grogan replied: “Is that right?”

The testator also told him where to find the will and a letter with it. There was no further communication between the testator and Grogan.

The letter to Grogan detailed a large number of gifts in pursuit of which he desired Grogan to apply the money, although he left much to Grogan’s discretion. Grogan did not make all of the detailed gifts, and one non- recipient, McCormick, sought to have Grogan’s legacy declared a secret trust.

The HL refused to do so, but their Lordship’s conception of the fraud in response to which equity will make the legatee a trustee is arguably ambiguous;

Why would a fraudulent retention of a legacy by a legatee under a will evoke a trust of the property in favor of the intended beneficiary?

As Prof. Glister argues, ‘it was difficult to see how the prevention of fraud would justify the projection forward of the beneficial interest to the intended beneficary.” (Glister 2015, p. 158).

All that would be needed to prevent an unjust enrichment of the legatee would be for the return of the legacy to the Testratrix’s estate. (Glister 2015, p. 158).

One might argue, however, that such fradulent dealings by a legatee asserting title over property, knowing such property is intended for the benefit of another, exemplify unconscionable behavior; Could a legatee’s unconscionable conduct, therefore, be the juridical basis for recognizing a trust arising in equity?

A secret trust arising on the grounds of the legatee’s unconsionable conduct? A fraud on the secret beneficiaries (Blackwell v Blackwell 1929)

Could a secret trust arise on the basis of unconconsionable conduct evinced by a legatee, asserting title over a legacy intended by a testarix to be held on trust for another?

Prof. Graham Virgo notes that such a trust could be deemed to prevent the legatee from behaving unconscionably. (Virgo, 2020, p.129).

Denying that one was holding a legacy for a secret beneficary so as to claim the legacy for oneself would contradict evidence on the face of the will that one was a half-secret trustee.

Yet, as Prof. Penner notes, the House of Lords in Blackwell v Blackwell ‘removed this impediment by adopting a new variation on fraud’, a fraud on the secret beneficiaries rather than one against the Testator.( Penner, pp. 179, 180).

This idea known as the fraud principle was recognized by Lord Buckmaster in Blackwell v Blackwell in the following terms:

This principle is easily understood and may also be stated by saying that he [the legatee] cannot defraud beneficairies for whom he has consented to act by keeping the money for himself.”

Apart, however, from the personal benefit accruing to the trustee, the real beneficairies are equally defrauded in both cases and the faith on which the testator relied is equally betrayed.’‘ (Blackwell v Blackwell [1929] UKHL 1).

On the facts of Blackwell v Blackwell, which involved a half-secret trust, the codicil to the Will of John Duncan Blackwell specified that 5 legatees under the Will were to pay Eight thousand pounds to ‘such persons indicated by me as they think fit’;

These 5 legatees had, prior to the creation of the Will, been informed orally by the Testator that the funds were to be paid to the Testator’s mistress and his illegitimate son.

Lord Buckmaster was unperturbed by the fact the names of the Testator’s intended beneficiairies were not mentioned in the Will;

Rather, his Lordship opined that a trust that imposed itself on a Will ”does not contradict the terms of the Will but merely adds to them.”

Lord Buckmaster allowed the admissibility of verbal evidence supporting the existence of the half-secret trust, justifying it on the basis that:

a testator having been induced to make a gift on trust in his will in reliance on the clear promise by the trustee that such trust will be executed in favor of certain named persons, the trustee is not at liberty to suppress the evidence of the trust and thus destroy the whole object of its creation, in fraud of the beneficiaries.’‘(Blackwell v Blackwell [1929] UKHL 1).

The conditions for recognizing a half-secret Trust

Lord Buckmaster’s dictum in Blackwell presents us with the crucial conditions for recognizing a half-secret trust; they include–

evidence of the Testator’s communication of such a trust to the legatee, —

who then proceeds to acquiesce or promise to carry out the Testator’s wishes; (Virgo 2020, p.128).

Additionally, the Testator’s reliance on the legatee’s promise to carry out the purposes of the secret trust that Lord Buckmaster alludes to is evinced in his execution of his will —

when he bequeaths the legacy concerned to the legatee trustee. (Virgo 2020, p.128).

Interestingly, Lord Wright M.R. citing Lord Sumner in the later case of Re Keen [1937] affirms these prerequisites for the equitable jurisdication to be invoked:

It is communication of the purpose to the 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, as applied in this instance to trustees, who happen also to be legatees.”

”The conclusion thus was that ……the conscience of the legatee was affected;

it made no difference whether according to its terms the will left the property to the legatee absolutely or on a trust which the will did not specify

The essential conditions were that the trust had been disclosed to the legatee as the testator’s object in leaving the property and had been accepted by him.”[1937] Ch 236In re KEEN. EVERSHED v. GRIFFITHS. [1935. K. 865.], [1937] Ch. 236

The facts of Re Keen had to do with a half-secret trust of 10,000 Sterling pounds indicated in the Testator’s will that was deemed to be invalid, since its existence was inconsistent with the terms of the Will.

Might a half-secret trust arise on the basis that the conscience of the legatee was affected by his knowledge of a promise made to the Testator?;

Could such a promise to apply a legacy for the purposes communicated to the legatee operate as a form of estoppel since it bears the characteristics of such an equitable remedy: ”communication, acceptance and reliance?” (Virgo 2020, p.128).

If that were the underlying rationale for the recognition of half- secret trust, the legatee could not be deemed to have committed a fraud by being personally enriched, since on the face of the Will the legatee would be expressed to take the legacy as trustee.( Glister 105, p.158).

One might,however, adopt a narrower interpretation of fraud as applied by the House of Lords in Blackwell v Blackwell, premised on the notion of the defendant acting unconscionably in refusing to be bound by the promise he made to the Testator to act as a trustee for the intended beneficary. (Virgo 2020, p.128).

Are Secret Trusts constructive or express trusts?

A further question arises in this analysis:

if a trust arises as a result of a fraud perpretrated by the legatee, should such trusts be conceived as contructive arising by law rather than express trusts created by a declared intention of a settlor to do so?

Lord Westbury’s reference to a party’s reliance on an Act of Parliament as an ‘instrument of Fraud‘ evokes consideration of the Rochefoucauld doctrine cited in Rochefoucauld v Boustead [1897] 1 Ch 196;

a case involving an oral declaration of a trust of land that was not evidenced in writing as required by the then Statute of Frauds, or today, the LPA 1925, S53(1)(b). Recall Lord Westbury’s dictum in McCromick v Grogan:

the Court of Equity ….does not aside the Act of Parlaiment , but fastens on the individual who gets a title under that Act, imposes upon him a personal obligation, because he applies the Act as an instrument of Fraud for accomplishing a fraud. In this way , the Court of Equity has dealt with the Statute of Frauds , and in this manner, also, it deals with the Statute of Wills.” ( per Lord Westbury , Mc Cromick v Grogan 1869 )

Does his Lordship’s opinion suggest that secret trusts are analogous to orally declared trusts of land in that they rely on the principle that ‘equity will not allow a Statute to be used as an instrument of fraud‘, with the legatee not being allowed to invoke the formality rules in the Wills Act 1837? ( Hayton and Mitchell 2015, p, 115).

If such an analogy could be drawn, secret trusts, argue professors Hayton and Mitchell, would essentially be express trusts, ‘arising as a result of the testator’s successful exercise of her power to set up a trust.” ( Hayton and Mitchell 2015, p. 115) . This apporach is known as the ‘dehors – or outside the will’ – theory which is considered below.

The ‘dehors – or outside the will’ theory

Viscount Sumner, speaking in Blackwell v Blackwell, presents us with a very different perspective for why secret trusts arise; Invoking the law of trusts as a ground for recognising the existence of half- secret trusts, his Lorship argued: that ‘removes the matter from the provision of the Wills Act and brings it within the law of trusts.”.

This juridical approach to explaining and enforcing half-secret trust has come to be known as the ‘dehors the will’ ( outside the will) theory.

A testator cannot reserve to himself a power of making future unwitnessed dispositions by merely naming a trustee and
leaving the purposes of the trust to be supplied afterwards, nor can a legatee give testamentary validity to an unexecuted
codicil by accepting an indefinite trust, never communicated to him in the testator’s lifetime”:

Johnson v Ball (7); Re Boyes, Boyes v Carritt (16); Riordan v Banon (17); Re Hetley, Hetley v Hetley (18).

To hold otherwise would be to enable the testator to “give the go-by” to the requirements of the Wills Act, because he did not choose to comply with them. It is communication of the purpose to the 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, as applied in this instance to trustees, who happen also to be legatees

(Blackwell and another v Blackwell and others House of Lords [1929] All ER Rep 71).

The idea that secret trusts operate outside the rules governed by the Wills Act suggest that they are inter vivos trusts and not testatmentary dispositions forming part of a will. ( Penner 2016, p.180). Yet as Penner argues: ”secret trusts are testamentary dispositions.”

Unlike express trusts that can not be unravelled upon being constituted , secret trusts may be revoked or modified by testators before their death through private communications with their secret trustees or by writing a new will as a final testament of the testator’s. (Penner 2016, p.181).

Prof. Penner argues a further persuasive point on why secret trusts cannot be conceived as inter vivos trusts; such a trust would essentially be a declaration of a trust of future property, and be, therefore, void. Promising to leave my home to someone in my will does not create an immediate inter vivos trust over my home for the promisee as Penner points out. (Penner 2016, p.181).

Intead such a promise is merely a hope or spes that the promisee has that may or may not actualized in the future. Possible contingencies such as the need for me or my executors to sell a home that I promised on a secret trust during my lifetime may mean that the property concerned is never subjected to a trust obligation in favor of a secret beneficiary. (see Penner 2016, p.181)

Patrick J.

References:

Jamie Glister & James Lee, Hanbury and Martin, Modern Equity, Sweet and Maxwell, 20th ed. 2015.

J E Penner, The Law of Trusts. Oxford Univeristy Press, 2016.

Graham and Virgo, The Principles of Equity and Trusts, Oxford Univeristy Press.

Hayton annd Mitchell, Text, Cases and Materials on the law of Trusts and Equitable Remedies, Sweet and Maxwell, 2015.

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