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Secret Trusts (NSW)

A testator will sometimes leave a very simple will, bequeathing most or all of their estate to one person on the understanding that the beneficiary will “take care” of other family members after their death. Sometimes a testator leaves an asset to someone on the understanding that the recipient will pass on the gift to someone without it becoming public knowledge in the will.  This article explains the legal implications of this type of situation through an examination of recent Supreme Court of NSW case law on secret trusts.

What Are Secret Trusts?

When a testator’s will is probated it becomes a public document and anyone can know the contents. Sometimes a testator wants to keep certain gifts private, and one way to do this is through a secret trust. A secret trust is an arrangement between a testator and a trustee, designed to come into force upon the testator’s death, for the benefit of a person who is not mentioned in the will. The asset is given to the trustee in the will but the trustee is expected to hand over the gift to the real beneficiary. For such a secret trust to be valid, there are three requirements. There must be evidence that the testator intended to form the trust, that they communicated this intention to the trustee, and that the trustee agreed to accept this duty.

There are two types of secret trust: half secret and fully secret. A fully secret trust is not mentioned anywhere in the will, while in a half secret trust, the will names the trustee as such, but does not mention the terms of the trust nor the name of the true beneficiary. One important difference between the two is how the trust is communicated to the trustee. With a half secret trust, the trustee must be informed of the terms of the trust before the testator signs the will. The terms of a fully secret trust may be communicated to the trustee any time after the signing of the will and prior to the testator’s death.

Fully Secret Trusts

A fully secret trust is not mentioned at all in the will. For example, a testator may leave $50,000 as an absolute gift in his will to his son, but he privately asks his son to give the money to his brother, who is estranged from the family. Making a secret trust in this way avoids possible acrimony if the family knew that he was inheriting from the estate. The secret trust is valid as long as the testator had the intention to make the secret gift, asked his son to act as trustee and the son accepted the request.

There are risks with a fully secret trust, not least that the trustee may choose to disavow any knowledge of the testator’s request and keep the gift themselves. These situations can also lead to unwanted litigation, such as in Duggan v White [2018] when a court was asked to interpret whether an ambiguous request amounted to a secret trust. A fully secret trust will also fail if the trustee dies before the testator.

Half Secret Trusts

A half-secret trust is mentioned in a will, but there is no way of knowing the identity of the true beneficiary from the terms of the will. For example, a testator might write a clause in his will leaving $50,000 to his daughter, for her to act as trustee for the purpose previously communicated to her. There is less danger that the trustee will keep the gift for herself because it is clear that the gift was intended for another purpose. If the gift fails, the trustee must hold the asset in trust for the residuary beneficiary of the deceased estate.

Case Study

Secret trusts will often hinge on the reliability of witnesses, as there is, by the nature of the trust, usually no document to support the contentions of either side.

In Misek v McBride [2017] the deceased had one surviving daughter and several grandchildren from a deceased child. In her will, the deceased left everything to her daughter, stating that she had given her grandchildren considerable support over the years and this was the reason why she left them no provision. The granddaughter brought a Family Provision Claim but also alleged that part of the estate was held in secret trust for her benefit.

The details of this secret trust were allegedly communicated to both the plaintiff and the deceased’s daughter at several family meetings, where the testator supposedly informed her granddaughter that 20% of the estate would be held for her. The daughter who was the sole beneficiary contended that she had a conversation with her father where he told her that she would inherit everything and she should do with it what she thought appropriate and fair. She claimed that her father told her to “use what you need first and the kids can have what is left”.

The court noted that the standard of proof for a secret trust is “demanding”, that only clear and indisputable evidence proves that an absolute gift was not intended for the nominated recipient.  As the deceased is not able to give evidence, the onus is on the plaintiff to establish the required elements. The court found the daughter’s recounting of events to be more credible and in keeping with the character of the testators. The court noted that the daughter made frank concessions and conducted herself calmly, with the assuredness of someone who was convinced that she faithfully fulfilled her parents’ expectations. The court found the granddaughter’s account, on the other hand, to be inconsistent with the personalities of the deceased and her husband. In this case, the court determined that the plaintiff’s claim of a secret trust was not proven.

As this case shows, a secret trust can be a risky proposition. While a secret trust might seem an attractive option to a testator who wants to keep a bequest from outside scrutiny, there is both complication and risk, and the testator should seek expert advice from the contested wills team at Armstrong Legal. Please telephone the team on 1300 038 223 or contact the office to make an appointment as soon as possible.

Dr Nicola Bowes

This article was written by Dr Nicola Bowes

Dr Nicola Bowes holds a Bachelor of Arts with first class honours from the University of Tasmania, a Bachelor of Laws with first class honours from the Queensland University of Technology, and a PhD from The University of Queensland. After a decade working in higher education, Nicola joined Armstrong Legal in 2020.

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