Flashcards
Issues with secret trusts
Cards in this deck (15)
- 1Secret trusts and the Wills Act 1837Under s.9 WA 1837, wills must b signed in the presence of two witnesses who might sign in each other's presence and the testators.
However, a secret trust can be formed without adhering to these formalities. - 2Fraud theoryThis theory holds that secrets trusts are enforce on the basis that equity will not permit a statute to be used as an instrument of fraud. The prevention of fraud is in allowing the secret trustee to keep the disposition because of their failure to comply with the Act.
- 3McCormick v GroganReaffirmed the equity maxim 'equity will not allow a statute to be used as an instrument of fraud'.
- 4Rouchfoucauld v BousteadThe fraud theory gained support.
- 5Fraud theory - criticismHODGE -
The theory does not explain why half-secret trusts are permitted. The trustee is identified as a trustee on the face of the will and therefore, cannot claim funds beneficially. How can there be fraud in a half-secret trust?
Theory goes against the testator, not beneficiary. The failure of the trust should lead to the property resulting to the estate, not going to the beneficairy. - 6De Hors theoryModern theory originates from Blackwell. This theory argues that the trust operates outside the will and does not need to comply with the WA. The communication and acceptance creates an 'inter vivos trust' whilst the will merely constitutes the trust after testator's death.
- 7Re YoungThe trust was declared inter vivos and the provisions of the Wills Act were not engaged.
'The interests of the secret beneficiary does not arise under the will, but by virtue of the trust imposed on the secret trust outside the will'. - 8Re Garderner (No.2)The court held that the estate of the beneficiary could claim the gift using this theory.
- 9De Hors theory - CriticismBARNETT - Re Blackwell
Trust is not legally binding until constitution but this may only take place on the testator's death. Until then, the testator can change the will including removing the purported trustee. There could not be any valid trust until after the testator died. - 10De Hors theory - CriticismBARNETT -
Where the trustee predeceases the testator, this voids the gift and there is nothing for the trust to connect to. What about half-secret trusts? Trustee is identified as a trustee - will this hold that the trust will not fail? - 11De Hors theory - CriticismCRITCHLEY -
1. If the trust is outside the will, why does it matter that a half secret trust must be communication and accepted before execution of the will?
2. How can it be dependent on the will's validity?
3. How can a secret trust be inter vivos where it is not constituted until after death?
4. Fails to justify the enforcement of secret trusts of land despite their non-compliance with s.53(1)(b) LPA 1925
5. Agrees with CHALLINOR and argues that there is no rational basis for this argument. - 12Judicial basis of secret trustsIf secret trusts are an express trust, they must comply with s.53(1)(b) LPA which they do not.
If they were constructive trusts, a secret trust of land would be excused from the formalities of s.53(1)(b) by s.53(2) due to its constructive nature.
Which is the current interpretation? - 13Kasperbauer v GriffinThe court held that, as secret trusts were based on the fraud theory, they were constructive.
- 14InterpretationFully secret trusts - constructive
Half secret trusts - express - 15The future of secret trust
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- Equity and Trusts (Block 2 - Secret trusts) Flashcards on Issues with secret trusts, created by Chantal Briancon on 18/04/2018.
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- Chantal Briancon
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