What Is A Secret Trust?

Secret trusts have been around as long as there has been intrigue and patronization in human society.

In a secret trust, the trust is born with all appropriate pomp and circumstances as if it were a gift to Johnny ... but unbeknownst to the spectators, Johnny receives the property not as his outright, but in trust for a beneficiary known only to him, or even with the name of the beneficiary sealed in an envelope.

Professor Pettit describes it thus:

"A typical case of a fully-secret trust would be where a testator had left property by his will to X absolutely, on the face of the will for his own benefit, but where in fact during his lifetime the testator had informed X that the property left to him by will was not for his own benefit but for certain persons or charitable purposes, and where X had promised to carry the testator's intention into effect."

See, also, the Legal Definition of Secret Trust.

The law has never been terribly fond of secret trusts because the lack of transparency hinders the judicial supervision the courts are often asked to impose on testamentary trusts in general. But recognize them they do, albeit grudgingly and with a raised eyebrow.

Further, many wills statutes require that a testamentary disposition be made in writing. This requirement could benefit those who were holding property in a secret trust because they could rely on this statutory requirement to defeat a secret trust, and force the property back into the testamentary pot.

To The Rescue: Equity.

In Re Snowdon, Justice Megarry wrote:

"... the whole basis of secret trusts ... 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."

Equity extinguisherThe law's willingness to entertain secret trusts has even given rise to the half-secret trust where the fact of a trust is made known but not the beneficiaries nor the object(s) of the trust.

Secret trusts are often thought of as testamentary tools but there is no rule in law that they ought to be confined to the affairs of the dead. There is no rule of law against an inter vivos secret trust.

Secrecy is the intent of the secret trust. Sometimes, the deception bites back as in a will which seems to give the property outright to the trustee with no reference to a secret trust.

How to prove such a thing; how does one contradict the terms of a formal document like a will?

For this, there is a fire extinguisher on the wall, marked equity, that litigants may reach for. The secret trust may be proven by use of verbal evidence (parol evidence) even to contradict the face of a valid will.

In a 1929 English case, Blackwell, Justice Sumner wrote:

"In itself the doctrine of equity, by which parol evidence is admissible to prove what is called fraud in connection with secret trusts, and effect is given to such trusts when established, would not seem to conflict with any of the Acts under which from time to time the Legislature has regulated the right of testamentary disposition."

In that same case, another judge (Justice Warrington) added:

"It has long been settled that if a gift be made to a person or persons in terms absolutely but in fact upon a trust communicated to the legatee and accepted by him, the legatee would be bound to give effect to the trust, on the principle that the gift may be presumed to have been made on the faith of his acceptance of the trust, and a refusal after the death of the testator to give effect to it would be a fraud on the part of the legatee.

"Of course in these cases the trust is proved by parol evidence, and such evidence is clearly admissible. It is also settled that in such cases it is immaterial whether the trust is communicated and accepted before or after the execution of the will, inasmuch as in the latter case the testator, if it had not been accepted, might have revoked the will....

"I think the principle on which this doctrine is founded is that the parol evidence is not adduced for the purpose of altering or affecting the will itself, the legatee still takes under the will, but is under a personal obligation the breach of which would be a fraud on the testator…"

But parol evidence is almost by definition weak as with money whirling around in the judicial air, it is hard to find good, verbal evidence of the intentions of a person deceased. Hence, the greatest weakness of a verbal secret trust.

Examples of Failed Secret Trusts

In Hayman v Nicoll, Mrs. Lydia Nicoll gave property to her daughter Ina Sutherland adding the mysterious words:

"... in full confidence that she will dispose of the same in accordance with the wishes which I have expressed to her."

The daughter then died and all hell broke loose over the alleged secret trust versus the actual words in the will.

Much ado was made by the lawyers arguing the case before the Supreme Court of Canada, especially that even if a trust was created, that it had failed for want of specificity and so the legacy fell back into the estate pool.

The Court, Justice Rand writing the opinion, declined to find a secret trust and how could he? There was no way, even with suggestive parol evidence, to ascertain what the "wishes" apparently expressed by Mrs. Nicholl were. The words were taken as precatory only; suggestive but not mandatory upon Mrs. Sutherland.

In Champoise, Justice Saunders rejected an allegation of a secret trust because "evidence falls short of that required to establish a secret trust over the property".

The judge added:

"A secret trust arises where a person gives property to another, communicating to that person an intention that the property be dealt with in a specific way upon the happening of an event, and the donee accepts the obligation. The essential elements are the intention of the donor, a communication of the intention to the donee and acceptance of the obligation by the donee.

"In addition to these requirements for an enforceable secret trust, the three certainties necessary for any express trust must be exhibited: the words making the trust must be imperative, the subject of the secret trust must be certain, and the object or person intended to take the benefit of the trust must be certain. Further, those certainties must be exhibited at the time the trust is created."

Careless WordsIn Milsom v Holien, Madam Justice Ross also had before her an allegation of a secret trust, which she, too, dismissed, concluding that the words allegedly expressed by the deceased were precatory and not constitutive of a secret trust:

"The crux of the matter is the intention of the donor. The question is whether Mr. Canas-Prats intended by his words to bind Ms. Holien by a legally enforceable trust or, rather, to create a moral obligation to serve as a guide to her conscience. In discerning the intention, I am to look to all the circumstances including, but not limited to, the words used. I find in all of the circumstances that Mr. Canas-Prats did not intend to create a legally enforceable trust. He intended his words to be suggestive of his wishes, to provide guidance to Ms. Holien's conscience, but not to create an obligation enforceable in the courts."

A similar result and an example of the difficulty secret trusts can give a ill-informed court, can be found in the judgment of Canadian judge Sherman Hood in Bellinger v Nuytten Estate. In a long, wordy decision rife with irrelevant minutia of fact, Justice Hood rejected the allegation of a secret trust and also managed to misread the law reports, as he suggested a novel standard of proof:

"... given the very circumstances of these (secret trust) cases, particularly where the only evidence of the binding agreement or trust asserted is that of interested parties, the onus of proof must be a heavy one .... a heavy onus of proof to be compatible with proof on a balance of probabilities."

This is not good law.

As stated by professor Petitt:

"... the ordinary civil standard of proof is always appropriate."

Successful Secret Trusts

In Glasspool, Justice Satanove build on some decent parol evidence to uphold a secret trust even though the only available independent witness described the deceased communication of the secret trust as saying that she:

"... wanted as opposed to requested or demanded or some other word suggestive of an requirement imposed by the (testator)."

In Chinn v Hanrieder, Justice Loo found the evidence to be conclusive of a secret trust. She added:

"Secret trusts arise from the Court’s equitable jurisdiction and operate independently of the terms of a will."

Conclusions

Secret trusts are wonderful intellectual challenges for the court .. but expensive to prove for litigants. A long court case over an alleged secret trust can suck an estate dry of all funds.

The basic time-honoured rule of thumb of good lawyering never sounded so good: put it in writing stupid. If it ain't in writing, the secret trust may not be worth the precatory words it is left in.

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