All About Estates

Secret and Semi-Secret Trusts: An Unusual Approach to Testamentary Dispositions – Part II

Guest written by Giancarlo Mignardi, Student-at-Law at Fasken Martineau DuMoulin LLP

Last week, I provided an overview of secret and semi-secret trusts, as well as the legal framework that allows for their existence. Today, I will discuss some of the practical uses of such trusts in modern estate-planning, as well as some of the difficulties that arise in proving these trusts. As will be noted, while these unique arrangements can offer great utility, they often come with some notable risks.

Some Reasons for Using Secret and Semi-Secret Trusts

Secret and semi-secret trusts have often been viewed as historical anachronisms from early England. It has been noted that they likely arose initially because wealthy testators wanted to avoid the embarrassment of revealing the existence of, say, a mistress or an illegitimate child by means of expressly listing such beneficiaries as legatees in a Will. In such cases, a testator could consider devising the property to a trusted person who would thereby be able to distribute the same to such parties. (These trusts were most definitely put to other uses, but, again, the above examples are frequently cited as very early uses to which these arrangements were put.)

The reasons for such arrangements today, though, are likely more varied and, as such, these trusts need not be viewed as things of the past. Oosterhoff, in this regard, has opined: “I suspect that the reasons for using a secret trust are as diverse as the testators who employ the device.”[1] Whatever the reason, the use of these arrangements is often motivated by a testator’s desire to keep the arrangement secret. Recall that the Will of a deceased person is a public document once it is probated, and so family members and others will often be able to find out who has received what under the Will. There are conceivably many reasons why testators would want to avoid this eventuality, even though they have already passed. For example:

  • A testator may have distributed property and money in an unequal manner among family and friends in a way that might frustrate some of these parties if they were to become aware. Say, for instance, that the face of the Will devises the testator’s property to all of his children equally, but a secret trust is set up, such that certain children ultimately end up receiving more than their siblings. In such cases, these trusts may be employed in an effort to maintain goodwill and harmonious relations while concurrently distributing one’s property in accordance with one’s true testamentary wishes.[2]
  • A testator may want to donate a large portion of his estate to a charitable purpose, but does not wish to frustrate family or friends who might have preferred (or expected) that the money be transferred to them.
  • A testator may desire to donate a large portion of his estate to a controversial cause (e.g. an obscure political party, or a widely frowned-upon cause), and prefers that such an act remain unknown so as not to colour his or his family’s legacy.

Problems with Proving these Trusts

Either written or oral evidence (i.e. parol evidence) may be used to prove the existence of these trusts and thereby supplement or, indeed, contradict the express terms of the Will. But, as is well known, parol evidence is often not the most ironclad of evidentiary supports. It is often very difficult to discern of the intentions of the deceased, especially in the context of a dispute in which multiple parties are proffering multiple versions of these purported intentions. This is perhaps the greatest risk that arises in using secret trusts, particularly when the trust arises as a result of oral correspondences (which is a very frequent occurrence).

Indeed, given the secret nature of these trusts, it is not uncommon for several difficulties to arise. Some notable ones, inter alia, include:

  • The lack of written terms included in the Will opens the secret trust up to risk that a trustee will abuse the secret terms by treating the trust property as they choose; that is, by attempting to treat it as an absolute gift. In other words, the testator runs the risk that the trustee may fail to carry out the trust. This is particularly acute in the context of a secret trust (because the very existence of the trust is kept hidden), but risks may still arise in cases where there is a semi-secret trust and the trustee intends to distribute the property devised to him in a manner different than that set out in the trust’s terms.
  • With respect to proving the intentions of the testator, there may arise cases in which courts are simply unwilling or unequipped to find that those intentions led to the creation of a trust. In other words, the testator’s wishes may be interpreted as being merely precatory ones[3] which were not intended to fasten trust obligations upon the conscience of the legatee.
  • Even if the court ultimately finds that a secret or semi-secret trust exists, the abovementioned difficulties and others may lead to costly legal bills on the part of the parties involved (including the estate!) which would have otherwise been wholly or partly avoidable.

Concluding Remarks

The above should demonstrate that, ideally, testators considering using these arrangements when drafting a Will should consult with counsel to discuss the range of options available for carrying out their intentions discreetly. Estate planners, when advising clients, should advise of the following in order to minimize difficulties:

  • Find ways to put the trust’s terms in writing and communicate its existence to people other than the trustee (perhaps, for instance, the beneficiary). The testator can consider informing others of the existence of the secret trust and provide some concrete evidence of it. Of course, this partially erodes the secrecy of the arrangements, but will nevertheless enhance the likelihood that the testator’s intentions are carried out.[4]
  • Consider the use of a half-secret trust, so that at the very least, the existence of the trust is on the face of the Will. As noted last week, even if the semi-secret trust fails, the property would revert back to the testator’s estate (rather than going to the trustee-legatee absolutely, as would be the case if the trust were “fully” secret).
  • Consider minimizing the likelihood of a trustee attempting to ignore the existence of the secret trust and his associated trustee obligations by appointing several trustees in the Will (that is, by naming several legatees who are to jointly take legal title to the property at issue).[5]

Finally, if executors become aware of circumstances that suggest the existence of a secret or semi-secret trust in connection with a testator’s will, it is recommended that they consult counsel. Counsel could thereafter consider applying to a court for directions as to whether such a trust has arisen, and what the resulting consequences of this are.

 

[1]       Albert H Oosterhoff, “Secret and Half-Secret Trusts” (2007) 26:2 ETPJ 173 at 175 [Oosterhoff].

[2]       Albert H Oosterhoff, Robert Chambers & Mitchell McInnes, Oosterhoff on Trusts, 9th ed (Toronto: Thomson Reuters, 2019) at 830 [Oosterhoff on Trusts].

[3]       For example, this was the case in Hayman v Nicoll, [1944] SCR 253, where Rand J declined to find that a secret trust had been created, given that there was no way, even with the submitted parol evidence, to ascertain what the wishes of the testator had been. The wishes were taken as merely precatory ones––hopeful words and wishes that did not amount to fastening a binding trust upon the legatee named in the will.

[4]       Oosterhoff, supra note 1 at 177.

[5]       Ibid.

About Emily Hubling
Emily Hubling is an associate in the Trusts, Wills, Estates and Charities group at Fasken. Emily has experience in advising estate trustees in administering a range of complex estate matters, including intestacies, cross-border matters, and contested estates. Working closely with clients’ advisors, Emily prepares Wills, Powers of Attorney, and Trusts to assist clients in fulfilling their unique estate-planning objectives.

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