While there are many reasons why someone may wish to keep details of a gift private, rather than see it published in their will after their death, extra care needs to be taken in the use of a secret trust in estate planning as they can be fraught with difficulty.
Secret trusts are legally recognised, though not lightly. If you do intend to make a secret trust, make sure you obtain expert advice and that you understand the potential pitfalls.’
Earlier this year, a case involving a secret trust went before the High Court. In Titcombe v Ison, Mrs Titcombe’s niece argued that her aunt had left all of her jewellery to her using a secret trust. However, as she was not able to provide sufficient evidence to prove the existence of the secret trust, the court rejected her claim and Mrs Titcombe’s niece did not receive any of the jewellery.
Secret trusts explained
Secret trusts are, by their very nature, secretive. Within a secret trust, assets are left either outright to the trustee or to the trustee to hold on trust. However, behind the scenes the trustee has given explicit instructions to hold the assets for a third party who is unknown to any other person. Whilst this allows for redirection of assets without your wishes becoming public knowledge, it does mean that you are heavily reliant upon the confidence you place in your chosen trustee. If you intend to pass assets into a secret trust, it is imperative that you have full and unquestionable faith in your trustee to carry out your wishes.
A trustee of a secret trust is under the same legal obligations as any other trustee, but from a practical perspective it is far easier for the trustee of a secret trust to deny the trust’s existence. It can also prove extremely difficult for an intended beneficiary to assert their rights without appropriate documentary evidence.
Fully secret and half secret trusts – what is the difference?
There are two types of secret trust, the fully secret trust and the half secret trust.
Under a fully secret trust, the existence of the trust is known only by the testator and the trustee. On face value, the will appears to leave an outright gift to the trustee. For example, a will might state ‘I leave £10,000 to Joe’, whereas the testator has in fact told Joe that he is to hold the £10,000 on trust for the benefit of the local animal shelter.
With a half secret trust, the fact that the assets are to be held on trust is known from the terms of the will, however the beneficiary remains a secret. Here, the will clause might state ‘I give £10,000 to Joe to hold on the trust we have previously discussed’, and only Joe knows that the money is to be held for the benefit of the local animal shelter.
In order to form a valid secret trust, you must communicate your intention to create the secret trust to your trustee and your trustee must accept the role. Therefore, you cannot simply incorporate a secret trust into your will without telling your trustee anything at all but then leave a separate letter addressed to them setting out your wishes. Neither can you incorporate a secret trust that your trustee has refused to accept in the hope that they will change their mind and accept this on your death.
If you do create a valid secret trust, the law states that this can be enforced against a trustee who tries to deny its existence – however, the court will first need to be satisfied that such a trust does exist, which could be difficult to prove.
What if you are a trustee or beneficiary of a secret trust
Agreeing to become a trustee of any trust is not a decision that should be taken lightly. This applies even more so in the case of a secret trust, as a dispute is more likely to lead to costly and time consuming litigation. Before agreeing to become trustee of a secret trust, you should seek advice as to the role and your responsibilities in relation to the trust.
If you believe that you are the beneficiary of a secret trust and that you are being denied your rights under its terms, you should seek advice as to your position and the steps you can take to ensure that the trust is enforced.
Whether you are a trustee or a beneficiary, our solicitors can provide you with the expert advice necessary to navigate this tricky area.
How else can we help?
If you are not a trustee or beneficiary, but you think you may wish to set up a secret trust, we can advise you in relation to this.
Our solicitors can advise you on secret trusts, as well as your more general requirements to help make sure that your wishes are clear and legally binding in your will.
For further information, please contact a member of the Wills and probate team on 01905 721600 or email worcester@parkinsonwright.co.uk
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.