Laura Abbott, Principal Associate in the Disputed Wills and Trusts team at Shoosmiths, explains secret trusts; their advantages, requirements, and what happens if one fails.

What is a secret trust?

A secret trust arises where a person who has made a will (the testator) leaves a gift to someone in their will but intends that the recipient (the secret trustee) holds it to make a gift on to another person (the beneficiary).

There are fully secret trusts and half secret trusts:

• Fully secret trusts are where the trust is not apparent from the face of the will. The gift would look like any ordinary outright gift with the will simply saying, ‘I leave £X to Y’. However, the testator would have told Y that they wanted them to pass this on secretly to Z. Y would have to agree to this and the agreement would have been made outside of the will.  
• Half secret trusts show that the recipient is receiving the gift as a trustee in the will but the terms of it and the identity of the beneficiary are kept a secret. For example, ‘I leave £X to Y for them to act as a trustee for the purposes that have already been communicated to them.’

What are the advantages of a secret trust?

The main reason for using a secret trust is to provide a way for keeping the identity of the intended beneficiary a secret. For example, they might be used where the testator has had an extra-marital relationship or has illegitimate children which they do not want their family to know about but do want to make provision for.

As wills become public documents once probate has been granted in an estate, testators also may not want the details of the gift to be a matter of public knowledge or record.

What are the requirements of a secret trust?

The requirements to create a secret trust are:

1. intention by the testator to create a secret trust
2. communication to the secret trustee that the gift is intended to be held on trust for a secret beneficiary
3. acceptance of that role by the secret trustee

It is important to note that case law has held there is a difference between having an intention to create a trust and just informally expressing wishes in the hope that they will be followed.

What happens if a secret trust fails?

If a fully secret trust fails for any reason, the trustee will take the gift for themselves. If a half-secret trust fails, the trustee will not take the gift for themselves because it will be clear that this was not the intention of the testator. Instead, they will hold the gift on trust for the residuary beneficiaries. 

If the trustee of a fully secret trust dies in the lifetime of the testator, the trust will fail. However, with a half-secret trust, equity will not allow a trust to fail for the lack of a trustee. In this case the personal representatives of the trustee will hold the property on the same terms as the deceased trustee or on such trusts as can be ascertained.

It should be noted that if a trust is found to exist, it will not be enforced if it is designed to evade a provision of the law.

Summary

Secret trusts are by their very nature confidential and can therefore be difficult to prove. Disputes can arise if a person thinks they are a beneficiary of a secret trust, but the trustee denies it. There may well be very limited, if any, written evidence available. 

If a testator wishes to use a secret trust, whilst this has the advantage of allowing secret redistribution of assets, they are not without risk, and it is important for a testator to choose their trustee very wisely. 

Whilst the trustee has the same obligations as any trustee in respect of the trust, the secrecy of it means it would be much easier for the trustee to deny the existence of the trust and difficult for the ultimate beneficiary to pursue their rights, as the court will need to be confident (on the balance of probabilities) that the trust exists.

About the author

Laura Abbott is a Principal Associate in the in the Disputed Wills and Trusts team at Shoosmiths and is a member of the Society of Trust and Estate Practitioners (STEP).

See also

What are resulting and constructive trusts?

What you need to know about discretionary trusts in wills

All you need to know about the UK Trust Registration Service

Images

Getty Images

Publication date: 29 November 2022

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.