Law of Equity and Trusts Full Exam Revision Notes
Below, you will find law of equity and trust full exam revision notes that were prepared by a Russell Group university student who went to achieve a first-class degree in law. Please feel free to use these notes to aid your own revision.
Express Trusts: Complete Constitution and Formalities, Law of Property Act
Constitution is important because beneficiaries of an incompletely constituted trust have no rights in the trust property and therefore have no standing to enforce the trust in court. They are mere ‘volunteers’ and equity will not assist them.
A volunteer is a donee or promise who does not give any ‘legal consideration’ in return for a disposition or promise made in his favour. All is well for the volunteer if an effective disposition is actually made, but what if the attempted disposition fails, or if a promise to make a disposition is not fulfilled.
For a gift to be ‘perfect’, the donor must actually complete the disposition of the subject matter in favour of the intended donee or execute a formal ‘deed of gift’.
If I purport or promise to create a trust of $10, 000 in favour of a volunteer, the trust will not be enforceable (not properly constituted) until I make an effective transfer of the $10, 000 to the intended trustee or declare myself to be trustee of the $10,000. If I transfer the $10,000 to the trustees or actually declare myself to be the trustee, the trust will then be completely constituted and the volunteer will become a beneficiary of the trust. The moment that a volunteer becomes a beneficiary of a completely constituted trust, the volunteer no longer requires the assistance of equity; the beneficiary is from that moment entitled to enforce her beneficial interest against the trustee.
Reasons for constitution:
Why must a trust be completely constituted?
Provides an important test of the seriousness of a donor’s or settlor’s intent. A person who makes a perfect gift, or a completely constituted trust, thereby makes an irrevocable disposition of his beneficial interest in the subject matter of the gift or trust (Bowden).
For a trust, there must be an actual transfer of the subject matter to the trustee, or an express declaration by owner that he will henceforth hold the subject matter on trust for the beneficiaries. In the absence of such clear evidence of the donor’s intention to dispose of his beneficial interest, neither law nor equity has any business enforcing voluntary dispositions.
Second reason, they prevent the casual imposition of obligations on trustees, they will be under no obligation to fulfil the terms of the trust. Until the legal title is formally transferred to them, they have no legal power to deal with the trust property in any way- whether by way of sale, or mortgage, or lease- and crucially, they will have no power to invest the trust property or, ultimately, to distribute it to the beneficiaries.
Third reason, voluntary gifts and trusts are economically inefficient and inherently unfair, because the beneficiary of the gift or trust is getting something for nothing. The economic cost and unfairness cannot be justified on the basis of the donor’s intention alone, because intention can be mistakenly inferred. Intention must be joined by action. If the donor intends to transfer his assets by gift or on trust, then the disposition ought not to be binding until he has done all that he can to carry out the transfer,
Modes of constitution:
A valid will automatically constitutes any trust incorporated within it and the trust takes effect upon the death of the testator.
Inter vivos trusts, on the other hand must comply with one of the two modes of constitution.
1 is the declaration by the owner of property that he henceforth holds the property on trust for someone else: ‘declaration of self as trustee’.
2 is where an absolute owner transfers the trust assets to a trustee or trustees, for the benefit of designated beneficiaries: ‘trust by transfer to trustees’.
Two modes are mutually exclusive. If an intended transfer to trustees is ineffective for any reason , the court will not ‘rescue’ the trust by pretending that the unsuccessful settler had, all along, intended to declare himself to be the trustee (Milroy v Lord 1862).
Declaration of ‘self as trustee’:
Simplest mode of constituting a trust is for the absolute owner of certain property orally to declare himself to be the trustee of that property for a certain beneficiary. Such a declaration has the effect of transferring the beneficial interest in the property to the beneficiary, while the legal title remains with the original owner as trustee.
Because it is so simple to dispose of a beneficial interest in this way, the court will require very clear evidence that an owner had intended to constitute himself a trustee of his own property. Jones v Lock (1865: Lord Cranworth LC rejected counsel’s argument that the father had constituted himself a trustee of the £900. His Lordship held that a failed gift cannot be construed to be a valid declaration of trust. The crucial principle is that an owner must not be deprived of his property unless, by making a valid gift or trust, he has demonstrated the seriousness of his intention to dispose of the benefit of his property. Despite the relaxed theoretical position that an oral ‘declaration of trust of personalty may be perfectly valid even where voluntary’. The practical implication of the decision in Jones v Lock is that a trust is unlikely to be enforced against a person in Mr Jones’s position unless he actually says something equivalent to ‘I am trustee’ or confirms the declaration by signed writing. (trust of Land, law of Property Act 1925, a. 53(1), (6).
Property is a legal interest- requirement LPA 1925 s 53(1)(b) land or any interest in land.
Property is Equitable interest: LPA 1925 s 53(1)(b) may apply, s 53(1)(c)- disposition rather than a sub-trust.
Transfer to trustees:
1 Inter vivos (during settlors lifetime)
2 Testamentary (on the death of settlor)
SEPARATE CONSIDERATION REQUIRED
Wills Act 1837, s. 9
LPA 1925 s 53(1)(b)
LPA 1925 s 53(1)(c) disposition of equitable interest.
1 Inter vivos Formalities:
Disposition of Equitable Interest: direction to trustees to hold property on trust for a 3rd party. Grey v IRC: Oral direction for disposition of equitable interest failed because it did not comply with s 53(1)(c).
Declaration by equitable owner of herself as trustee (sub-trust): T1 and T2 hold property on trust for A absolutely. A declares herself as trustee of her equitable interest to hold for B for life. Can be oral if property is personalty. Must be evidenced in writing under s 53(1)(b) if property is subject to the interest in land. Not s 53 (1)(c) since A still retains her equitable interest- but now devoid of beneficial interest- which has shifted to the equitable interests of B and C.
Contract for valuable consideration to assign an equitable interest: T1 and T2 hold property on trust for A absolutely. A contracts with B to transfer A’s equitable interest to B. Contract does not amount to disposition. So, T1 and T2 hold on trust for A who now holds on constructive trust for B? How A’s equitable interest is transferred. Can the imposition of a constructive trust be viewed as bringing about an assignment? Is writing required under s 53(1)(c) or does 53(2) apply ‘does not affect the creation or operation of resulting, implied or constructive trusts’. Oughtred v IRC 1960s: T shares in trust for O (oughtred) for life and then to P (peter) absolutely. O had ownership of 70k shares in the company. O and P orally agreed that O would transfer to P 70k shares in exchange for Ps reversionary interest in 200000k shares. Whether under oral agreement P became a constructive trustee of his reversionary interest in favour of O, and if so, whether constructive trusteeship was exempt form a 53(1)(c) by virtue of s 53(2). Lord Denning: ‘I do not think the oral agreement was effective to transfer Peter’s reversionary interest to his mother. I should have thought that the wording of s 53(1)(c) of the LPA 1925 clearly made writing necessary to effect a transfer; and s 53(2) does not do way with that necessity’.
The transferor is required to establish that he has ‘done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property’. ‘Bright Line’ rule (Milroy v Lord 1862). The transferor must have done everything within his power (Re Rose 1952) to transfer the property by the method generally employed for transferring legal title to property of that type (Mascall v Mascall).
So a transfer of registered land is binding if the deed of transfer is completed in the proper form and delivered to the transferee, together with the transferor’s land certificate. The transferor could have done more, by personally registering the transferee as the new proprietor of the legal title (Land Registration Act 1925, s.19) but the transfer is effective because it is general practice for the transferee to apply for registration (Land Registration Act 2002, s. 6(1), (3), (4). As long as the transferor has transferred everything that the transferee needs to perfect his title, the transfer is effective. Re Rose  is the leading authority for this point. The case concerned an absolute gift to transferees, but the principle in the case applies equally where the transfer is made on trust. Mr Rose executed formal transfers of company shares in 1943 and delivered the transfers to the company with his share certificates, but the company did not register them until 30 June. Mr Rose died 4 years later after the execution of transfers, whereupon the Inland Revenue claimed estate duty on the ground that the transfers had not been completed before April 1943. The Court of Appeal held that the deceased had done everything in his power to transfer his legal and beneficial interest to the transferees in March. The actual registration of the transfers was outside of his control. The necessary consequence of Mr Rose having passed the beneficial interest whilst retaining legal title was that he became a trustee during the period between the date of transfer and the date of registration. The CA in now way decided that Mr Rose had constituted himself a trustee by choice and so cannot be accused of having improperly rescued a failed trust by transfer by finding a valid declaration ‘of self as trustee’. Mr Rose’s temporary trusteeship between the date of transfer and the date of registration was an entirely accidental and unforeseen incident of the company’s failure to register the transferees as owners of the shares. The temporary ‘trusteeship’ was also entirely passive. Mr Rose had no powers: not even a bare trustee’s usual power to transfer the trust property to the beneficiaries. Since legal title to the shares in Re Rose did not pass to the transferees until registration, it must therefore have been in equity that the court recognized the beneficial interest to have changed hands at the moment of transfer. This appears to offend the maxims that ‘equity does not assist a volunteer’ and ‘equity does not perfect an imperfect gift’, but, in Re Rose, the assistance given by the court was not of the active sort contemplated by the maxims. If a volunteer donee ‘needs to get an order from a court of equity in order to complete his title, he will not get it’ (Mascall v Mascall)- but not situation in Rose. In March, the donee received everything he needed to perfect his legal title without the assistance from the court. This case illustrates that the courts will try to give effect to an intended transfer whenever they can do so without actually making an order to assist the volunteer transferee.
Privy Council in T. Choithram International SA v Pagarani  illustrates just how generous the courts can be when there is a judicial desire that the transfer should succeed. Mr Pagarani executed a trust deed at his bedside in order to establish a foundation to be an umbrella organisation for a number of charities that he had established during his life. Immediately after signing the deed, he stated that all of his wealth would henceforth belong to the foundation. Mr Pagarani was a trustee of the foundation and the other trustees signed the deed on the same day, or soon after. Not long afterwards, the directors of the four companies controlled by Mr Pagarani passed resolutions confirming that the trustees of the foundation would henceforth be holders of the companies’ shares and assets, and, after Mr Pagarani’s death, the companies registered the trustees of the foundation as shareholders. Members of Mr Pagarani’s family claimed that the transfer was ineffective because Mr Pagarani had failed to transfer the shares before his death. The Privy Council stated that ‘although equity will not aid a volunteer, it will not strive officiously to defeat a gift’. Lordships held that the context of the case, ‘I give to the trustees of the foundation- because the foundation had not identity apart from its trustees’. From the moment of Mr Pagarani’s declaration, it would have been unconscionable for him to assert continuing beneficial ownership in the property and to deny that the subject matter of the donation belonged beneficially to the foundation. This was not a case in which an intention to create a trust had been spelled out of a failed gift; rather this was a case in which a constructive trust had been imposed on the donor to prevent him asserting an ongoing interest in the property in denial of the transfer. (so the TCP, firm, had not executed any transfer of shares to the Foundation nor had he declared himself to be a trustee of property. Was TCP’s gift to foundation completed or did assets remain a part of his personal estate?). ‘I give to the Foundation’- Mr P one of the trustees for done. ‘his conscience is affected and it would be unconscionable and contrary to the principles of equity to allow such a donor to resile from the gift...In their Lordship’s view it is impossible to believe that he could validly deny that he was a trustee for the purposes of the foundation in the light of all the steps that he had taken to assert that position and to assert his trusteeship...he is bound by the trust and must give effect to it by transferring the trust property into the name of all the trustees’.
English CA approved the decision in Choithram in Pennington v Waine . Mr Pennington was a partner in a firm of auditors that acted for a private limited company in which Mrs Ada Crampton held shares. She told Mr Pennington that she wished to transfer 400 of her shares to her nephew, Harold, and later signed a share transfer form to that effect, which she gave to Mr Pennington. He placed the form on file and took no further action prior to Ada’s death, except to write to Harold to sign his consent to become director of the company. The letter also informed Harold that Mr Pennington’s firm had been instructed to arrange for the transfer of 400 shares and that Harold need take no further action. Ada also informed Harold directly of her intention to transfer shares to him and of her desire that he should become a director of the company. When Ada died, her will made no disposition of the shares in favour of Harold, so the question arose as to whether she had made an effective disposition during her life. The court could have held the gift to be ineffective, but instead it held that the gift had been effective immediately the share transfer forms had been executed, even though the forms were never delivered to Harold or to the company.
The CA upheld the judgment and demonstrated a greater generosity than that which the courts had shown in Re Rose and Choithram. The decision in Pennington was more generous than that of Re Rose, because in Re Rose there had actually been a transfer to the donee and all that remained to be done was to register the donee at the company, a step over which donor had no control. The decision in Pennington was more generous than that in Choithram because in Choithram it was at least arguable that there had been a transfer from Mr Pagrani in his capacity as donor to Mr Pagrani in his capacity as trustee for the donee foundation: in Pennington the donor had merely passed the share transfer form to her own agent. It is hard to see how she could be said to have disposed outright of her beneficial interest in the shares when it remained open to her to revoke her instructions to the agent.
On what basis did the Court hold that Ada had divested herself entirely of her interest in the 400 shares before her death?
2 main answers:
One, Clarke LJ the execution of the stock transfer form could take effect as a valid equitable assignment without the need for actual delivery of the stock transfer forms or the share certificates, provided that the execution of the stock transfer forms were intended to take immediate effect. If his Lordship is right then from the moment at which the forms were transferred, Ada had actually done everything within her power that was required in order to divest herself of her beneficial interest in the shares.
Two, Arden LJ: it would be unconscionable for Ada to resile from the transfer that she had embarked upon. Arden LJ described ‘unconscionability’ as a ‘policy consideration’ that operates in favour of holding that a transfer has been perfected. Whilst it may be broadly accurate to say that unconscionability promotes fundamental policy concerns, such as the prevention of the abuse of legal rights and powers, unconscionability should not be resorted to as if it were itself a policy consideration. It is an equitable doctrine that operates in personam to restrain particular instances of abuse of legal rights and powers. Even if ‘unconscionability’ were a policy consideration, it should not lead inexorably to the conclusion that an intended disposition should be binding on the conscience of the donor or settler. The policy, if it were a policy consideration, it should not lead inexorably to the conclusion that an intended disposition should be binding on the conscience of the donor or settler. This policy ought to be generally outweighed by the ‘policy’ that the court will not take active steps to remove assets from an owner when that owner has omitted to carry out the actions normally required to transfer assets of that type.
Schiemann LJ agreed with Arden LJ, ‘if unconscionability is the test...it would have been unconscionable of Ada, as at the time of her death, to assert that the beneficial interest in the 400 shares had not passed to Harold’ (2002). But Courts have not always felt such generosity as demonstrated in above cases.
Re Fry, deceased : involved a wartime transfer of shares in an English company, the transferor (mr Fry) was resident outside the ‘sterling’ jurisdiction (USA). As a result of wartime restrictions, the English company was prohibited from registering the transfer without Treasury consent. The forms necessary to obtain consent were sent to the transferor to sign, which he duly did, and he returned them to the company. The transferor died before consent was obtained from the Treasury and the transfer was therefore held to have been ineffective. Although the transferor had done everything within his power to dispose of the shares, the transferee was in no position to complete the transfer; he still required the consent of the Treasury. In coming to the conclusion that the transfer was ineffective , the court noted that the transferor could have frustrated the transfer , even after sending the forms to the Treasury, by simply refusing to respond to questions that the Treasury might have raised between receipt of the forms and granting its consent.
How prerequisites vary according to the type of trust asset
**Transfer of Land**: legal title to land will only pass where it is transferred by deed LPA 1925, s. 52(1). The deed must be signed, witnessed, delivered, and apparent on its face that it is a deed. Richards v Delbridge: gift of a lease to grandson. Sir George Jessel MR held that the transfer had been legally ineffective for lack of a deed and refused to hold, in the alternative, that the tenant had declared himself to be a trustee: ‘it is true he never used the word I declare myself a trustee’ but he must do something which is equivalent to it, and use expressions which have that menaing; for, however anxious the court may be to carry out a man’s intention, it is not at liberty to construe words otherwise than according to their proper meaning’.
**Transfer of Company Shares**: shares in private companies, the transferor must execute a stock transfer form and deliver it to the transferor with the share certificate, at which point the transfer is binding on the transferor and legal title will not vest in the transferee until the company actually registers him as the new shareholder (Stock Transfer Act 1963, s.1). Shares in public companies must be transferred via the stock exchange.
**Transfer of ordinary chattels**: Chattels are moveable items of personal property (jewellery, books, furniture, and cattle). To transfer legal title in a chattel, there must be physical delivery prior to, contemporaneous with, or subsequent to the words of gift. Alternatively, legal title to a chattel can be transferred by a properly executed deed of gift or trust. Re Cole  man bought a house in London and a wife liked a silk carpet and a certain card table- husband announced that the house and its contents were all hers.16 years later, husband bankrupt, wife sold all chattels, trustees in bankruptcy tried to recover from the wife. Held: words of ‘gift’ insufficient to perfect a gift of chattels, the wife would have to prove some act of delivery or change of possession such as would demonstrate unequivocally that the husband intended to transfer title to her. Absence of such an act, legal title to chattels remained with the husband and vested in his trustees in bankruptcy. Harman LJ accepted: if chattels are numerous or bulky, there may be ‘symbolical delivery’. E.g. Church organ ‘where the donor put his hand upon it in the presence of the donee and accompanied his gesture with words of gift’. In Jaffa v Taylor Galleries Ltd a trust of painting declared in document (not deed), trustees had a copy. Trust validly constituted even though painting not physically transferred to the trustees. Judge: physical transfer unnecessary: ‘it would be absurd so to find when one trustee was in Northern Ireland, another in England and when the third owner was the adult...plaintiff’.
**Transfer of legal ‘chose in action’**
A chose ‘thing’ in action is a personal right of one person against another than can be sold, given away, subjected to a trust as if it were property. E.g. patent, copyright and debt. A share in the company can be regarded as a chose in action.
**Legal Assignment of a chose in action**:
Legal title to a debt or other legal chose in action may be assigned in writing, but for the assignment to be effective the law must be ‘absolute’ (LPA 1925, s.136(1)/ the entire chose in action must be assigned (Foster v Baker 1910) and the assignment cannot be by way of a mere security for a loan made by the assignee to the assignor. The assignment is not fully effective until the date on which express notice of the assignment is given to the debtor or other person from whom the assignor would have been entitled to claim such a debt or thing in action. (LPA 1925, s. 136(1).
**Equitable Assignment of a chose in action**:
If either or both of these requirements not met then the assignment will be effective in equity if the assignment is made for legal consideration. Consideration brings equity into play because of burden it places on the conscience of the assignor. Once a legal chose of action has been transferred in equity, it will thereafter be an equitable chose in action, which means that, it can only be assigned in writing (LPA 1925, s.53(1)(c)).
Re McArdle  the courts refused to spell out a valid equitable assignment from a failed contract. The CA held that transfer of the relevant part of the residuary estate would only be effective if Monty could establish that the signed document had been a binding contract or a valid transfer of an equitable interest. The works of improvement had been completed before the execution of the document, so that the consideration for the contract was entirely in the past, thus rendering the contract legally unenforceable. Lord Evershed MR sorry that the children evaded ‘obligation which they imposed on themselves in 1945’ but it is ‘a matter for their conscience and not for this court’. Jenkins LJ added that, in the absence of consideration or a perfected transfer , the donor of an imperfect gift (other children in this case) ‘has a locus poenitentiae and can change his mind at any time’ thus ‘no question of conscience enters into the matter’. Compare the expansive approach to ‘unconscionability’ taken by CA in Pennington v Waine.
** ‘Future’ or ‘after-acquired’ property**
Normally transferor owns the property before purporting to transfer it to another, but is it possible to transfer property that one has not yet acquired. Equity looks to the substance of a purported transfer of property that has not yet been acquired. It sees as done that which ought to be done and will order specific performance of the transfer in favour of any person who has given valuable consideration. (Re Brook’s Settlement Trusts). The transfer will be effective in equity to pass the beneficial interest the moment the transferor acquires the subject matter of the transfer. Future property includes: future income, royalties from books that have not yet been sold (Re Trytel 1952), copyright in songs that have not yet been written (Performing Rights Society v London Theatre of Varieties 1924).
Rationale for equity’s recognition of a purported present assignment for valuable consideration of future property was explained by Buckley J in Re Ellenborough : ‘an assignment for value binds the conscience of the assignor. A court of Equity as against him will compel him to do that which ex hypothesi he has not yet effectually done’.
Rule in Strong v Bird
Illustrates how facts can sometimes combine fortuitously to perfect what would otherwise have been an imperfect gift. To succeed there must be 1 evidence of the donor’s intention to make an immediate inter vivos gift and 2 evidence that the intention to make the gift continued throughout the entire period up until the donor’s death. 2 the donor must not have treated the property as his own during that period.
The rule permits the fortuitous, even accidental, perfection of imperfect gifts.
Re Ralli’s Will Trusts 1964,
Gifts in contemplation of death
Law takes a generous approach. Doctrine of donations mortis causa (gifts made in contemplation of death) is an exception to the maxim ‘equity will not assist a volunteer’ to perfect an imperfect gift. Doctrine is effective in English law by means of an implied or constructive trust (Sen v Headley). 1 gifts or donation must have been in contemplation (not expectation) of death, 2 there must have been a delivery to the donee of the subject matter of the gift and 3 gift must be made under such circumstances as to show that the thing is to revert to the donor in case he should recover (Cain v Moon 1896).
Wilkes v Allington 1931 widow granted a mortgage over her interest in a farm. After her death, the mortgage passed the deeds to the farm.. Mortgagee was dying of an incurable disease, he passed the mortgage deed to his nieces in a sealed envelope. Mortgagee died. Lord Tomlin mortgage could not be enforced. The otherwise imperfect gift of the mortgage to nieces was made perfect by a valid donation mortis causa because it was clear that the gift was only to become binding on the donor’s death.
Mr Vandervell V instructed his bank to transfer to the Royal College of Surgeons 100,000 shares in a company controlled by him. College should keep the shares for a limited period only and should relinquish them after receiving £150,000 in dividends. To ensure college did not keep shares forever, college granted an option in favour of a trustee company set up by V. Terms of option in the event trustee company paying £5,000 the college should transfer the shares to the trustee company. By 1961 college received sum. Trustee company exercised option. Trustee company now held the shares on trust, it was not clear for whose benefit the shares were held. Inland Revenue IR, claimed V retained beneficial ownership of the option between 1958-61 and should be taxed on dividends on the shares in that time. V’s disposition failed as it has not been in writing (LPA 1925, s.53(1)(c).).
HL: in favour of IR, majority held that the option had been held by the trustee company upon unspecified trusts and that, accordingly, V had failed to dispose of the option. Trustee company held the benefit of the option, the shares, under a resulting trust for V, who was liable to pay tax on the dividends declared on shares. Lord Wilberforce, resulting trust had arisen as an automatic consequence of Mr Vandervell’s ineffective attempt to dispose of his beneficial interest in the shares and that there was no need to attribute the creation of the trust to Mr V’s presumed underl. Intention. ‘the equitable, or beneficial interest,cannot remain in the air: the consequence in law must be that it remains in the settler. Mr V...had as the direct result of the option and of the failure to place the beneficial interest in it securely from him, not divested himself absolutely of the shares which it controlled. (1967).
1965- as a result of IR’s actions, V executed a deed under which he transferred to the trustee company all or any right, title, or interest that he might have in the option, to be held by it on trust for his children according to the terms of an existing children’s settlement. 1967 V died. Resulting trust in favour of V arisen automatically: ‘was the option held on a resulting trust or other trust for V, or was it held on the trusts of the children’s settlement’.1974 Vandervell’s Trust No.2 His Lordship concluded that resulting trust had arisen automatically in favour of V: ‘Whatever may be the position under a presumed resulting trust, I do not see how the donor’s intention not to have the beneficial interest can prevail where the resulting trust is automatic’.
2 Testamentary Trust (after death)
Trust coming into effect upon the death of the person setting up the trust or making the disposition is said to be ‘testamentary’. Policy of the law is to support ‘testamentary freedom’ of property owners to dispose of their estates as they like when they die.
Testamentary disposition will be invalid unless it complies with the formalities in Wills Act 1837: in writing and signed by the testator,
or by some other person in his presence and by his direction,
and it appears that the testator intended by his signature to give effect to the will,
and the signature is made or acknowledged by the testator in the presence of 2 or more witnesses present at the same time,
and each witness either attests and signs the will, or acknowledges his signature, in the presence of the testator (s. 9).
Mutual wills v secret trusts
Person agree to create mutual wills, testamentary freedom is curtailed
When person creates a secret trust, the trust will take effect when he dies even if deceased failed to comply with the testamentary formalities in the Wills Act.
Secret trusts work despite a lack of testamentary formality, because they operate dehors (outside) the will, ‘the whole theory of the formation of a secret trust is that the Wills Act has nothing to do with the matter’ (Re Young ).
Certain incidental advantages flow from the fact that secret trusts are not subject to the Wills Act, a party may witness the will and still take a benefit under the secret trust.
‘the whole basis of secret trusts...is that they operate outside the will, changing nothing that is written in it, and allowing it to operate according to its tenor, but then fastening a trust onto the property in the hands of the recipient’ (Megarry VC in Re Snowden ).
A will Can be made leaving property to a trusted friend or a co-operative solicitor while retaining the ability to decide subsequently on the ultimate distribution of property, thus avoiding compliance with the formalities required by the Wills Act.
Historical justification for secret trusts, HL 1869- found in the doctrine of fraud: it would be fraud on the part of the legatee to rely on the failure to comply with the statutory formalities necessary to create a testamentary trust and thus retain beneficial ownership of the property.
Why should communication and acceptance, at whatever stage, be deemed essential for a valid secret trust? Legal answer appears to reside in Blackwell Lord Viscount Dumner- notion of reliance on the promise of the trustee. Prevention of fraud or unconscionability- validating mechanism.
Critchley- argues that dehors theory is flawed- Wills Act, s 9, applies to any testamentary dispositions because they exhibit the key indicia of such dispositions, namely they are revocable. Mistake is to confuse ‘outside the will’ with ‘outside the Wills Act’- dehors theory fails to demonstrate the truth of latter and ends up resting on the former.
Textbook opinion- Snell, Parker and Mellows, Pettit, Hanbury and Martin: leans towards treating fully secret and half-secret trusts as express trusts. The conclusion ressts principally on the basis that the trust has been expressly declared by the initial communication to and acceptance by the trustee and hence not imposed by the court.
Re Cleaver 1981: ‘these cases of mutual wills are only one example of a wider category of cases, for example secret trusts, in which the court of equity will intervene to impose a constructive trust...the principle of all these cases is that a court of equity will not permit a person to whom property is transferred by way of gift, but on the faith of the agreement or clear understanding that it is to be dealth with in a particular way for the benefit of a third person, to deal with that property inconsistently with that agreement or understanding. If he attempts to do so after having received the benefit of the gift equity will intervene by imposing a constructive trust on the property which is the subject matter of the agreement or understanding. ..I would emphasise that the agreement or understanding must be such as to impose on the donee a legally binding obligation to deal with the property in the particular way and that the other two certainties, namely those as to the subject matter of the trust and the persons intended to benefit under it, are as essential to this species of trust as they are to any other’.