Equity: Formalities and Secret Trusts

Formalities & Secret Trusts

Express Trusts and Formalities

Ordinarily, an express trust can be created without any formalities. There are two exceptions:

Trusts in Land

While an express trust of rights in land can be created without formalities, it can only be enforced in court if it is evidenced in writing: Law of Property Act 1925, s.53(1)(b).

Testamentary Dispositions

To be valid, a will must be in signed writing, made or acknowledged in the presence of two of more witnesses who then attest and sign the document themselves: Wills Act 1837, s.9. A testamentary disposition which does not comply with these formalities is void.

Once a trust has been created, formalities are required to dispose of the equitable interest, unless the legal interest is transfered with it: Vandervell v IRC [1967] 1 All ER 1. The disposition must be in writing, signed by the individual making the disposition (or his agent): Law of Property Act 1925, s.53(1)(c).

Secret Trusts

What are Secret Trusts?

Secret trusts are when a person (‘the settlor’) agrees with another (the ‘secret trustee’) that the secret trustee will inherit a piece of property under the settlor’s will on trust for a third-party (the ‘beneficiary’), but the trust is not set out in the will itself. There are two kinds of secret trust:

Fully Secret Trusts

A fully secret trust is where the will makes no reference to any kind of trust at all: it appears to be an outright gift to the secret trustee.

Half Secret Trusts

A half secret trust is where the will states that the secret trustee will hold the property on trust, but does not name the beneficiary nor the terms of the trust.

The enforcement of these trusts is controversial as they do not comply with the formalities of the Wills Act 1837. They also allow the avoidance of other consequences of the Wills Act, such as the rule that a person who acted as a witness for the will cannot receive a gift under it: Re Young [1951] Ch 344.

When are Fully Secret Trusts Enforceable?

A fully secret trust is enforceable if:

  1. The three certainties are satisfied: Re Boyes (1884) LR 26 Ch D 531.
  2. The settlor communicated their intention to create a trust to the secret trustee during their lifetime.
  3. The trust terms are consistent with the terms of the will: Re Keen [1937] Ch 236.
  4. The secret trustee agreed to the terms of the trust: Ottaway v Norman [1972] 2 WLR 50.

If a fully secret trust fails for any reason, the secret trustee inherits the property absolutely.

When are Half Secret Trusts Enforceable?
  1. The three certainties are satisfied.
  2. The settlor communicated their intention to create a trust to the secret trustee before or contemporaneously with the creation of the will: Re Bateman’s WT [1970] 3 All ER 817.
  3. The trust terms are consistent with the terms of the will: Re Keen [1937] Ch 236.
  4. The secret trustee agreed to the terms of the trust: Blackwell v Blackwell [1929] AC 318.

If a half secret trust fails for any reason, the secret trustee inherits the property on resulting trust for the settlor’s estate: Re Keen [1937] Ch 236.

What Justifies Enforcing Secret Trusts?

There have been several attempts to justify the enforcement of secret trusts despite their lack of compliance with the Wills Act 1837, none of which are entirely satisfactory:

Fraud Theory

Fraud theory posits that secret trusts must be enforced because if they were not, the secret trustee would have commited a fraud on the settlor. However, this cannot explain half secret trusts. If those were not enforced, there is no fraud because the secret trustee would hold the property on resulting trust for the settlor’s estate. The trustee would not receive an absolute gift.

Dehors the Will

Dehors the will theory argues that secret trusts are not testamentary dispositions, so they fall outside of the Wills Act 1837 in principle. This treats secret trust as an immediate, inter vivos declaration of trust in future property. This would make them irrevocable, however, and the courts have stated that secret trusts are revocable just like wills are: Re Cooper [1939] Ch 811.

Incorporation by Reference

This theory explains half secret trusts as an implementation of the rule that a will can incorporate terms by reference to other documents. Those other documents do not need to comply with formalities. The problem with this argument is that the ‘incorporation by reference’ rule does not apply to oral statements, where as a half secret trust can be oral.