The True Purpose of Secret Trust

Under the Wills Act 1837 a will, or “any other testamentary disposition”,1 must be in writing and signed

by the testator and two witnesses, who are all present at the same time.2 Thus Parliament has felt it

necessary to provide strict and mandatory rules under which certain formalities have to be observed

when property is disposed upon death. Therefore, it may seem puzzling that English courts charged,

as they purportedly are, with giving effect to the intentions of Parliament have at times upheld certain

trustswhich attempt to leave property after death, butwhich have not complied with the required

formalities. If a testator leaves his property by his will3 to someone absolutely and beneficially but,

while alive, has informed this other party4 that the property is to be held on specified trusts then,

provided this party accepts the trust,5 it is enforceable.6 Alternatively the testator may leave *CONVPL

493 property to another party with a direction in the will that it is to be held on trust, and details of the

trusts are not contained in the will but have been communicated to this party before or at the time of

the will,7 and here the trust will also be enforceable.8 Aware that in upholding these “secret” and

“half-secret” trusts the courts could be accused of subverting the policy of the Wills Act, as the above,

introductory contention maintains, the judiciary and commentators have sought to provide

justifications for the existence of these trusts. However, i will argue that neither of the two

principal arguments which have emerged effectively refute the contention made above. My

submission is that the doctrine of secret trusts was first applied as a valid use of the courts equitable

jurisdiction, but its continued existence, divorced from its original function and context, can no longer

be justified.

Many modern commentators refute the contention that the courts, in upholding secret trusts, are

deviating from this policy, by arguing that secret trusts operate outside of this act. The Wills

*CONVPL 494 Act, as we have seen, applies to testamentary dispositions, and some have argued

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that it does not apply to secret trusts, for these are in fact inter vivos trusts. The theory postulates two

distinct stages in the creation of a valid secret trust; with the trust being created by the communication

of the trust to the proposed trustee and his acceptance of it, but the trust remains incompletely

constituted until the property is vested in the trustee upon the death of the testator.10 The trust is

enforced not under the will, but because of the previous agreement.11

Judicial support for this modern theory that secret trusts operate en dehors of the will can be, and has

been, found. In Blackwell v Blackwell, Viscount Sumner said “I do not see how the statute-law relating

to the form of a valid will is concerned at all”,12 and so these trusts are governed not by the rules of

probate but by the rules of the law of trusts. This notion had already been referred to in Cullen v

Attorney-General for Ireland, 13 and later in Snowden, Re per Megarry V.C.:

“the whole basis of secret trusts, as I understand it, is that they operate outside the will, changing

nothing that is written in it, and allowing it to operate according to its tenor, but then fastening a trust

on to the property in the hands of the recipient.”14

Decisions following Blackwell v Blackwell do seem to have taken this analysis as being the true

nature of secret trusts. The decision in Young, Re, 15 for example, that a beneficial interest under a

secret trust could be upheld even though the beneficiary was a witness to that will, was upheld on the

ground that gifts under secret trusts were not taken under wills. Otherwise the normal rule that a

witness to a will forfeits any beneficial interest arising under it would have applied.16

However I submit that a closer analysis of this temptingly neat theory reveals it to be flawed. The

theory claims that secret trusts are governed by the law of trusts and not that of probate, and yet

these trusts involve a departure from the usual rules pertaining to trusts. For in upholding secret

trusts, the courts are allowing *CONVPL 495 trusts to bind after-acquired property, and under the

normal rules of trusts it is impossible to declare an immediate trust of future property,17 or a trust

which binds such property as and when it is received.18 Critchley has refuted this argument on the

basis of what she sees as a much bigger problem; that, in asserting that secret trusts are inter vivos

rather than testamentary dispositions, the dehors theory is using the terms without fully recognising

their correct legal meanings, and has confused “outside the will” with “outside the Wills Act”.19 She

points out that Cullen v Attorney-General for Northern Ireland 20 was a decision relating to tax

statutes, and claims that it was a mistake to apply the reasoning of this case to the different legal

context of the formal requirements of the Wills Act.21 Furthermore, as Pearce and Stevens have

pointed out, the decision in Maddock, Re 22 is inconsistent with this view, whereby a gift by way of a

secret trusts was treated as if it had been made by will.23 It is also worth pointing out that later cases

often rely on the reasoning of Lord Sumner in Blackwell v Blackwell, but on a close analysis of his

speech, his argument is often inconsistent.24

If we cannot agree with the idea of secret trusts as being accounted for under the rules of inter vivos

trusts, we must then accept that their existence does mark a departure from the Wills Act, as the

following quotation suggests. Lord Hatherley L.C. admits that the doctrine “involves a wide departure

from the policy which induced the Legislature to pass the Statute of Frauds”25 , but finds this

departure justified by equity’s jurisdiction as the “court of conscience”. The earliest judicial explanation

for the existence of secret trust doctrine is that it exists to prevent fraud by the secret trustee26 ; and

this idea is explained most fully by the House of Lords in McCormick v Grogan :

*CONVPL 496 “it is only in clear cases of fraud that this doctrine has been applied–cases in which

the Court has been persuaded that there has been a fraudulent inducement held out on the part of

the apparent beneficiary in order to lead the testator to confide to him the duty which he so undertook

to perform.”27

Lord Westbury concurred, finding that the court must see that “a fraud, a malus animus, is proved by

the clearest and most indisputable evidence” before applying the doctrine.28 Similar arguments were

advanced in Pit Rivers, Re, where Vaughan Williams L.J. said that the court never “gave the go-by” to

the provisions of the Wills Act by enforcing upon any one testamentary dispositions not expressed in

the shape and form required by the act, except in prevention of fraud.29 In fully-secret trusts, unless

evidence of the trust is admitted contrary to the provisions of the Wills Act, the intended trustee will be

able to take the property beneficially and will profit from his own misconduct, so this justification for

the enforcement of these trusts on this basis does seem valid. Here equity would be acting in a way

with which we are familiar in other areas of the law, such as in Rochefouchauld v Boustead. 30

However, this original and narrow conception of the “fraud theory” does not explain the existence of

half-secret trusts. In such a trust, the intended trustee takes the property as trustee on the face of the

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will, and there is no possibility of him taking beneficially even if the court declined to admit evidence of

the terms of the trust. He would hold the property on resulting trust for residue or next of kin.31

Moreover, even in cases of fully-secret trusts, the case law exhibits examples of where any

justification on the basis of a “malus animus ” is no longer valid. The “fraud theory” has been

extended in an attempt to encompass a justification of half-secret trusts and the modern case law.

Hodge argues that it is not the personal fraud of the purported legatee, but a general fraud committed

upon the testator and the beneficiaries by reason of the failure to observe the intentions of the former

and of the destruction of the beneficial interests of the latter, which secret trusts seek to avoid.32 This

argument emerged as early as 1748 in Reech v Kennegal 33 where evidence *CONVPL 497 was

admitted contrary to the Statute of Frauds “in respect of the promise and of the fraud upon the

testator in not performing it”, and in a passage in Riordan v Banon, 34 an Irish case which was cited

with approval in Fleetwood, Re by Hall V.C.: “it appears that it would also be a fraud though the result

would be to defeat the expressed intention for the benefit of the heir, next of kin, or residuary

donees.”35

In Blackwell v Blackwell, Lord Buckmaster also adopted this wider version of the fraud argument

(Lord Hailsham L.C. concurring), claiming that “the personal benefit of the legatee cannot be the sole

determining factor in considering the admissibility of the evidence” that if a clear promise is made by

the intended trustee, inducing a gift to be made in his will, “the trustee is not at liberty to suppress the

evidence of the trust and thus destroy the whole object of its creation, in fraud on the beneficiaries.”36

While Blackwell v Blackwell was a case concerning a half-secret trust, it is clear that this reasoning

was intended to apply equally to fully-secret trusts.

However, there does exist a huge flaw in extending the theory this far; it amounts to no more than a

bald assertion that a testator’s wishes should be respected even if he has put them into effect in a

manner that is not acceptable (that is, not in compliance with s.9 of the Wills Act). In many cases the

true intention of the testator cannot be put into place, and purported beneficiaries under ineffective

wills are routinely deprived of property which testators or settlors would desire them to have, simply

because trusts and wills have not been put into effect in the proper manner. The tradition equitable

maxim that “equity will not permit a statute to be used as an instrument of fraud” must be adapted to

something more like “equity will not allow a statute to be used so as to renege on a promise” if it is to

fit with the situations envisaged in Blackwell v Blackwell. As Critchley has pointed out, this widening of

the fraud theory focuses “on potential, rather than actual, wrongdoing … the policy aim underlying (it)

is thus proactive (or preventative) rather than reactive (or curative).”37 The very mild form of fraud

which it envisages does not justify equitable intervention in the face of strict statutory provisions in the

same way that a malus animus does.

*CONVPL 498 In order to recap, the two principal arguments which have been advanced in order to

justify and explain the existence of secret trusts do not seem to give the all-embracing and logical

explanations which they purport to provide. It seems that the doctrine developed organically,

changing on a case to case basis in order to suit the particular situations which arose.

I would disagree, arguing that these reasons are not sufficient to demand the continued existence of

secret trusts. There ismuch to *CONVPL 500 be said for an abolition, or at least a fundamental

revision, of the law relating to them, as the law is confused, and justifications for the distinctions

between the two types of secret trusts are difficult to find. They serve a very limited social purpose

and fraud would be better prevented by an insistence upon compliance with the requirements of the

Wills Act.