secret trusts

What is a secret trust

o   Trusts that are in wills must be in writing

§  Secret trusts do not comply with these procedures/requirements of wills

o   Primarily created to be applied to mistresses/children born out of wedlock

o   Wills are public document, they're open to the public upon death.

o   Secret trusts are valid under equity, not law.

o   Risk is extremely high in a fully secret trust

Requirements for a valid fully secret trust

§  Intention to create a trust,

§  Terms communicated to the legatee (here, the secret trustee), and

§  Accepted by legatee during testator’s lifetime

Example of a valid fully secret trust

‘€50,000 as a gift to my good friend Nina’

§  Gift, no intention to create trust

In JJ’s will: ‘€50,000 as a gift to my good friend Nina’

§  In secret: ‘Nina, I want you to hold your €50,000 gift in my will for YoYo.’

®   Fully-secret trust

®   ‘secret’ does not mean in the will, it is discussed prior

Half secret trust

In JJ’s will: ‘€50,000 for my good friend Nina, to be held as I have explained to her.’

§  In secret: ‘Nina, I want you to hold the €50,000 that you will receive in my will for YoYo.’

®   Half-secret trust

Problem with half secret trust

·      Half secret trusts reduce the risk of fraud

·      Terms of half-secret trust must be communicated to and accepted by legatee (here, the secret trustee) prior to the testator’s death (same as fully secret trust)

Ottoway v Norman 1972

• Mr Ottoway made a will leaving his bungalow to his housekeeper, Mrs Norman.

• Outside the will, Ottoway told Norman that she was not to keep the bungalow outright, but instead:
  

  • after his death, she was to leave it by will to his son.

• Mrs Norman agreed to do this.

• When Ottoway died, Norman inherited the bungalow under the will.

• But instead of honouring the agreement, she left it to someone else.

The son sued, arguing that Mrs Norman held the bungalow on a secret trust for him.

Court held that A valid secret trust existed

Mrs Norman was bound by the trust and could not keep or dispose of the property contrary to Ottoway’s instruction

Riordan v banon 1876

• The testator made a will leaving property to certain individuals absolutely.

• Outside the will, he communicated that they were not to take beneficially, but were to hold the property on trust for another person.

• The legatees accepted these instructions.

• After the testator’s death, the legatees sought to deny the trust and claim the property for themselves.

The intended beneficiary brought an action to enforce the trust.

The Irish court enforced the secret trust

Case law

Riordan v banon

Ottoway v norman