Secret Trusts: Everything You Need to Know

Secret Trusts: Everything You Need to Know
Photo by Alexandru Zdrobău / Unsplash

A secret trust is a type of trust in which the testator leaves a gift to someone in their will but intends that the recipient holds it to make a gift to another person.

There are two types of secret trusts:

1) fully secret trusts

2) half-secret trusts

A fully secret trust is where the trust isn't apparent from the face of the will.

For example, the will might say "I leave £10,000 to John" but the testator has told John that he wants him to give the money to Jane. John would have to agree to this and the agreement would have been made outside of the will.

A half-secret trust is where 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, the will might say "I leave £10,000 to John for him to act as a trustee for the purposes that have already been communicated to him."

The main advantage of a secret trust is that it provides 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.

To create a secret trust, the testator must have an intention to create a secret trust, communicate to the secret trustee that the gift is intended to be held on trust for a secret beneficiary, and the secret trustee must accept that role!

You can't just informally express your wishes in the hope that they will be followed, as it's not enough to create a trust.

If a fully secret trust fails for any reason, the trustee will take the gift for themselves.

For example, if John in the above example refuses to give the £10,000 to Jane, he can keep the money for himself.

If a half-secret trust fails, the trustee won't pocket the gift for themselves because it'll be clear that this was not the intention of the testator. Instead, they'll hold the gift on trust for the residuary beneficiaries.

For example, let's say that a testator leaves a half-secret trust to John to hold on trust for Jane. If John dies before the testator, the trust will fail. However, equity will not allow a trust to fail for the lack of a trustee.

In this case, the personal representatives of John will hold the property on the same terms as John or on such trusts as can be ascertained.

If a trust is found to exist, it won't be enforced if it's designed to evade a provision of the law.

Secret trusts can be a useful tool for keeping the identity of the intended beneficiary a secret, but they come with risks.

Disputes can arise if a person thinks they are a beneficiary of a secret trust, but the trustee denies it. It's important for a testator to choose their trustee very wisely, as the secrecy of the trust makes it much easier for the trustee to deny its existence and difficult for the ultimate beneficiary to pursue their rights.