Secret trusts and mutual wills

  • Created by: Hbrandxx
  • Created on: 01-01-19 15:38

Succession

Succession 

  • Testamentary transfers of property can arise in 2 ways: where a person dies without having made a will, property devolves to others via statue in the form of intestacy rules OR where a person dies having made a will inter vivos then devolution of property is governed by the will

Inestate succession 

  • Inestate= person who dies without making a will. Can be total/partial intestacy.
  • Total intestacy= person dies wihtout making a will/made a will but the will is invalid due to improper execution of the will.
  • Partial intestacy= person dies having made a will but fails to effectively deal with all their property in the will.
  • Modern rules of inestate succession are in 'Inheritance and Trustee's Powers Act 2014'

Testate succession

  • Will provides evidence of testator's intentions and transfer of property occurs through the vesting of property in personal representatives. A will is a declaration of their intentions.
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Succession

Succession 

  • Testamentary transfers of property can arise in 2 ways: where a person dies without having made a will, property devolves to others via statue in the form of intestacy rules OR where a person dies having made a will inter vivos then devolution of property is governed by the will

Inestate succession 

  • Inestate= person who dies without making a will. Can be total/partial intestacy.
  • Total intestacy= person dies wihtout making a will/made a will but the will is invalid due to improper execution of the will.
  • Partial intestacy= person dies having made a will but fails to effectively deal with all their property in the will.
  • Modern rules of inestate succession are in 'Inheritance and Trustee's Powers Act 2014'

Testate succession

  • Will provides evidence of testator's intentions and transfer of property occurs through the vesting of property in personal representatives. A will is a declaration of their intentions.
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Testate succession

  • Legates acquire no interest in the property, only when the personal representatives distribute the property to the intended beneficiaries do they acquire proprietary rights in the estate. 
  • s.15 Wills Act 1837: a person witnessing a will cannot derive any benefit thereunder. Any gift would become null and void. Witness should be impartial/neutral.
  • s.25 Wills Act 1837: subject to certain exceptions, a gift will lapse if the legatee should pre-decease the testator. If A leaves property to B & B dies before A, B's gift is said to lapse and there's nothing which B's personal representatives can claim from A's personal reps when A dies

Vesting the deceased's property in the personal represenatives 

  • Property vests in personal reps, who are obliged to transfer that part of the estate which is left after payment of debts/expenses to intended beneficiaries.
  • All the property of the deceased is held upon a statutory trust for sale= land can be sold to meet liabilities of the deceased.
  • Where property is left which isn't required for liabilities, personal reps can transfer to beneficiaries.
  • Land= no need for a deed to transfer that land to the beneficiaries, just need written assent.
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Definition of a secret trust

  • Normally operates in conjunction w/a will; difference is it's not a public document.
  • A fully secret trust arises where a testator makes a will and leaves property in a will absloutely to a legatee e.g. £60,000 to my solicitor absloutely (gift on face of the will, goes to beneficiary)
  • Half-secret trust arises where a testator makes a will and leaves property in will to a named trustee e.g. £60,000 to my solicitor on trust. (no evidence of beneficiaries identity)
  • In a fully secret trust the trustee can keep the property absloutely if no one contests the existence of a trust but in a half-secret trust if no one contested it, it would be returned to the estate of the testator
  • Used when a testator wants to make a will but is undecided as to direction of his estate after his decease; secret trusts allow him to make future unwitnessed dispositions of his property by naming a trustee and supplying the objects of the trust closer to his death.
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Theoretical justification of secret trusts

  • Bypass the formal requirements of the Wills Act 1837.
  • in a half-secret trust, a testator identifies the trustee but not the beneficiary; Orthodox rule is that the intended trust property should result back to the testator's estate for lack of certainty of objects.
  • Two justifications for enforcement of secret trusts; fraud and 'dehor' theory.

Fraud justification for secret trusts 

  • Where a legatee received property in a will on the understanding that he'd hold it for the benefit of another, allowing him to retain the property absloutely on the face of the will would allow him to benefit from his own fraud; fraud to use provisions of Wills Act 1837 to say its his absloutely
  • Equity will not allow a statute to be used as an instrument of fraud 
  • Fraud alone can't provide a justification for enforcement; in half-secret trusts, where it's clear property goes absloutely to a trustee, there's no question of them taking the trust property absloutely in fraud of the secret beneficiary (half-secret is enforced in equity but not for fear of fraud by secret trustee)
  • Also, if fraud is the basis upon which a secret trust is enforced, surely the court should just impose a resulting trust in favour of the testator's estate?
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Theoretical justification of secret trusts 2

Secret trusts dehor the will

  • Dehor= operate outside of something, secret trust operates outside the will so isn't in conflict with the Wills Act 1837. First stated by Lord Sumner in Blackwell v Blackwell.
  • 1st stage:testator does inter vivos declaration of trust, communicating his intention to create the trust and purpose of the trust to the secret trustee; the intended trust is incompletely consituted.
  • 2nd stage:devise of the trust property to secret trustee in the will, all the will does is consistutes an inter vivos trust by vesting the trust property in the trustee (argued that the secret trust dehors the will, it's simply a trust which has been declared in the settlor's lifetime)
  • Case showing secret trust dehors the will: Re Young- told his wife the chauffeur was to receive 2000 but he witnessed this. Court said his entitlement arose not under a will but under an inter vivos trust during settlor's lifetime.
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Requirements for a fully secret trust

  • Explained in Ottoway v Norman: Ottaway (cohabiting w/housekeeper) left his bungalow in his will to her. Before he died he said he would do so, so she could leave it to his son. Despite this she left it in her will to Mr and Mrs Norman so his son said a fully secre trust of his father's bungalow had been created in his favour and she has breached the trust.
  • Bungalow didn't form any part of Hodges estate, Brightman J held that a valid secret trust had been created in favour of Ottaway's son. She was under duty to give it to him, requirements were: 

1. An intention to create a trust in favour of a beneficiary

2. Communication of that intention to the trustee and 

3. Acceptance by the trustee thereof

Intention to create a trust 

  • Testator must show in substance that he intended to confer a benefit on the secret beneficiary and to impose an imperative obligation on the secret trustee.
  • If he used precatory words such as 'fully confident that the intended trustee will do as he wishes', he won't create a trust.
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Requirements for a fully secret trust 2

  • Re Snowden: a sister left his entire estate to her brother in her will using the words 'he will know what to do'. Brother died shortly after his sister and the niece/nephew of the sister contended that a secret trust of her property had been created in their favour. In the HC Megarry VC: no legal obligation had been imposed on the brother, at most a moral obligation, and therefore the property had been given to the brother absloutely and passed under terms of the will.

Communication of the trust

  • Testator must communicate the existence of the trust to intended trustee, who on the face of the will is receiving as a legatee.
  • Communication must be before the tesator's death: if intended trustee finds out after death, there can be no trust.
  • Communication can be before/after the execution of the will.
  • Testator must communicate both the existence of the trust and the fact of the trust: the intended secret trustee must be aware he is a trustee and know who the objects of the trust are (intended trustee may reject the trust once he's aware of the nature and terms of the trust)
  • Re Keen: open envelope after death is sufficient communication.
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Requirements for a fully secret trust 3

  • There must be communication of the extent of the trust: thus, if testator communicates to trustee that he's to receive 10,000 in his will for a beneficiary but later changes it to 20,000, he must communicate this or trustee will only be a trustee for 10,000 and will be entitled to keep remaining 10,000 absloutely.
  • Communication where there's more than one trustee: not bound by a trust if testator doesn't communicate it to them in their lifetime.
  • Acceptance of the secret trust: this prevents the trustee from claiming what appears to be an absloute gift to him in the will. Can be accepted by express agreement that the trustee will act in accordance with the trust o by implication from silence.
  • Re Cooper: testator left property to 3 people in his will and communicated to them that it was to be used for certain charitable purposes. 2 expressly accepted the obligation; other was silent. Page-Wood VC held that as soon as the legatee learned of the fact that he was to be a trustee of property left in the will to him he was bound to elect whether to undertake the trust or not.
  • If it's revoked in a fully-secret trust and testator doesn't change will legatee keeps property absloutely.
  • If it's revoked in a half-secret trust the property on trust reverts back to testator's estate under resulting trust.
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Requirements for a half-secret trust

  • Requirements are same as for a fully-secret trust except that the rule of communication is different; in a fully-secret trust communication can be anytime before testator's death and before/after execution of the will BUT for half-secret communication must be made before or at same time as execution of the will.
  • Communication after execution of the will is ineffective and trustee will have to hold the property on resulting trust for the testator's estate: est. by Lord Sumner in Blackwell v Blackwell.
  • Justification for this stems from doctrine of 'incorporation by reference': allows a document to be incorporated into a will if it was in existence before the will was made.
  • If the will makes reference to a half-secret trust then all manifestations of the trust, including the objects, must be known to the trustee.

Predecease of the secret beneficiary

  • A gift in a will to an individual will lapse if the individual preceases the testator; gift never vests in them and so they cannot leave whatever he was to receive under the testator's will in his own will.
  • Hasn't been followed: Re Gardner (No.2)- testatrix made a will in which she left property to her husband for his life and then subject to a secret trust for her two nieces and nephew. A niece predeceased her and Romer J said as soon as the secret trust was accepted by the secret trustee the secret beneficiary acquired an interest so she can leave it to her next-of-kin.
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Secret trusts

  • BUT general view is that Re Gardner is wrongly decided.

Predecease of the secret trustee

  • Effect of this depends on whether it's a fully-secret or half-secret trust.
  • Fully-secret trust: trust fails altogether, if legatee dies the gift lapses which means it's not constituted
  • Half-secret trust: nothing stopping another trustee being appointed. Maxim here is that 'equity will not allow a trust to fail for want of a trustee'. Provided the secret beneficiary has the necessary evidence to show existence of the trust, personal reps will act as trustees.

Can a secret trustee derive a benefit from the secret trust?

  • The secret trustee may be one of the beneficiaries of the trust and the testator may indeed allow the secret trustee to retain any surplus property left once the purpose of the secret trust has been carried out.
  • Re Rees Wills Trusts: Court of Appeal held that a half-secret trustee cannot be a beneficiary as it's not consistent with the terms of the will (NOT ALWAYS THE CASE) 
  • For a fully-secret trust it's held that a secret trustee is entitled to retain the surplus of the trust property once the trust has been carried out.
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Secret trusts 2

How are secret trusts classified?

  • One suggestion is that secret trust are express trusts; a testator expressly declares an inter vivos trust by appointing a trustee and communicating the terms of the trust to him. Effect of the will is to simply constitute that trust by vesting trust property in the trustee. On this basis secret trusts must comply with all formal requirements for express trusts.
  • Thus, if secret trusts relates to land, the testator must inter vivos evidence trust in writing (s.53 1 B Law of Property Act 1925).
  • Fully Secret trusts: many argue that they're constructive trusts not express trusts. Professor Hayton said it would be unconscionable for the secret trustee to go back on his agreement and keep the property for himself. Element of unconscionability justifies the imposition of a constructive trust on the secret beneficiary.
  • Question of whether fully-secret is enforced as a constructive trust and half-secret is enforced as an express trust remains unanswered. If they're both said to operate outside the Wills Act, it favours them being express trusts.
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