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Secret Trust Specific Problems (Problem Set)

By Rodney Mills,2014-07-10 19:59
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Secret Trust Specific Problems (Problem Set) ...

Secret Trust: Specific Problems (Problem Set)

Short Introduction of Secret Trusts

This is the question of secret trusts a device to make testamentary gifts without the need to disclose the wishes

    on the face of the will itself. The house is clearly held under FST where the trust relationship is not mentioned on the face of will, and the shares are clearly held under HST only the identity of trustee is revealed but not beneficiary. Generally speaking, testamentary disposition must be effected by signed witnessed writing will: s.9

    WA, whereas secret trust is recognised by the court as one of the exceptions of the formality rule and thus

    informal evidence is admissible. Two mainstreams of justification are: fraud theory and ‘Dehor’ the will theory.

    Fraud Theory Since statutory provisions were designed to prevent fraud, and legatee who took on this basis

    that he was a trustee but who later relied on the statute to take absolutely, would be using the statute as an

    engine of fraud: Rochefoucauld v Boustead; Thynn v Thynn. However, it is problematic as it allows for the admission of unreliable evidence, and also it is both circular and struggles to explain the enforcement of HST.

    Dehors the Will Theory Since the secret trust is declared inter vivos, the will merely perfect the trust. Thus the trust arises outside the will and should not be governed by WA. This is also problematic: it fails to address the

    fundamental objection that the evidence that the court admits is inherently unreliable; it falsely assumes a

    dichotomy between the law of trusts and the law of wills; it fails to explain why the acceptance of the trust by

    the trustee should be important; and it is founded on an unduly narrow interpretation of what is a will: Critchley

Secret trust of land: e.g. A orally informed B to hold the house on secret trust for C

Since s53(1)(b) requires that declaration of trust respecting land must be manifested and proved by signed

    writing, question arises as to whether secret trust is express trust or constructive trust

    ? If the secret trust is constructive, then it is exempted under s53(2). This view was expressly endorsed

    Millett LJ in Paragon Finance and North J in Re Cleaver.

    ? However, given that there must be a declaration of trust in both FST and HST, and the admission of

    evidence to prove the declaration of trust under s.9 can be justified by either the FT or DWT, there is no

    reason why the trust should not be an express trust: see e.g. Rochefoucauld. Also, the formality requirements of s9 are far more onerous than those of s53(1)(b), there is no logical reason

    why A can first surmount the hurdle of s9 but later fatler under s53(1)(b). Following this line of argument, it

    seems that C may be entitled to the beneficial ownership of the house.

Witnesses

Witnessing by secret beneficiary: e.g. A orally informed B to hold the house on fully secret trust for C; C was

    one of the witnesses to the will / e.g. A orally informed D to hold the shares on half-secret trust for E; C was

    one of the witnesses to the will and C was E’s mother.

A gift to a witness or witness’s spouse in a will is void and it will come to residuary legatee under resulting trust:

    s.15. By logical inference, there should be no difference under secret trust. Thus the house to C will be struck

    down by s15 but the shares to E are perfectly fine, even though C was E’s mother. However, in Re Young, it

    was held that since the trust took effect outside the will, the WA rules did not apply. In light of this argument,

    the beneficial title of C to the house may well be upheld even though she was one of the witness the will.

Witnessing by secret trustee or spouse

HST Since the trustee is being identified on the face of the will, s15 WA will not apply as he cannot be

    benefited.

FST Since the trustee is not even being identified on the face of the will, the operation of s15 will mean that

    the rights will not reach the trustee and so the trust will never be constituted: Re Maddock; Oakley. In other

    words, the gift would fall into residuary estate. Note that Lord Buckmaster in Blackwell and Professor Swadling argues this is simply a question of admissibility of evidence. Since FT and DHT can justify the admission of

    informal evidence the identity of the trustee, there is no reason why the doctrine of lapse should apply in the

    case where the trustee is not going to be benefited

Pre-deceases

Predecease or Renunciation of Secret Trustee

HST Trust is valid. Since ‘equity will not allow a trust to fail for want of a trustee’, the court will appoint a

    substitute trustee and doctrine of lapse will not apply herein: Lord Buckmaster in Blackwell. FST Since the trustee is not even being identified on the face of the will, the operation of s15 will mean that

    the rights will not reach the trustee and so the trust will never be constituted: Re Maddock; Oakley. In other

    words, the gift would fall into residuary estate. Note that Lord Buckmaster in Blackwell and Professor Swadling argues this is simply a question of admissibility of evidence. Since FT and DHT can justify the admission of

    informal evidence the identity of the trustee, there is no reason why the doctrine of lapse should apply in the

    case where the trustee is not going to be benefited.

Predecease of Beneficiary

If a gift is made in a will and beneficiary predeceases the testator, doctrine of lapse would apply and the gift

    would fall into residuary legatee: s25 WA. There is no logical reason why this should not be applied in secret

    trust. However, Re Gardener (No 2) suggests that since the trust arises outside the will, beneficiary had an

    interest at the date of declaration. This is clearly wrong because intended beneficiary does not get any interest

    until the trust is perfectly constituted. Thus whether Re Gardner (No 2) will be followed is a question of doubt.

Timing of Communications

FST The general rule is the communication must precede the death of testator: Wallgrave v Tebbs. Since F

    had communicated his intention to create the trust in 1991 and died only earlier this year, the communication is

    effective.

HST In Re Keen, it was held that the communication must precede the will is executed under HST. The CA

    justified their verdict by reasoning that if the communication can be made after the execution of will, then the

    testator is virtually being allowed to amend his will without using codicil. It is universally recognised as wrong

    on the basis that: (see e.g. Re Prandiville [Ireland case]; Ledgerwood [Australia case])

    i) It draws an inexplicable between FST and HST. Why it is not a problem for FST?

    ii) By applying the DWT, the trust simply arises ‘outside the will’ and amendment of will is merely

    changing the terms of the trust. It is not governed by WA and thus no codicil has to be used.

Consistency There must be consistency towards what the will says and the adduced evidence: Re Keen. Since

    the will made in 1988 mentioned about the testator had made the prior communication, evidence of after

    communication (1991), which contradicts to the will, is inadmissible: Re Rees. This is justified as the evidence is possibly unreliable, and the will shall prevail in such case. As a result, the gift may be struck down on this

    point anyway.

Multiple Trustees

Where there are intended to be two or more trustees but communication is not made to all

    FST rules contained in Re Stead must be entertained:

    ? Where the trustees take as tenants in common, only those who know of the trust are bound.

    ? Where the trustees take as joint tenants,

    o communication was made before the execution of the will, then all are bound.

    o communication was made after the execution of the will, only those who were told are bound.

    HST even though there is no case-law on the same point, since the trustees must be legal joint tenants and the

    communication will anyway have to precede the execution of the will: Re Keen, it can be logically concluded that all are bound.

Others

Secret trustee claims to be beneficiary

The key question is whether the particular trustee is a professional trustee (i.e. solicitor) or not.

    ? If he is, the court will consider such arrangement should be contained in the will if this is really the

    intention of the settlor: Re Rees. Thus the claim would be failed.

    ? If he is not, the court will then allow the admission of the evidence to prove such claim: Re Tyler.

Communication of further property

If the settlor has not communicated about the further property to the secret trustee, the gift would fall into

    residue as the trustee had never agreed to hold that extended amount on trust for the secret beneficiary: Re Colin

    Cooper.

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