Secret trusts

Creating a trust via a Will is common practice and there can be a variety of reasons why an individual wants to set up a trust in their Will. Common reasons include protecting assets for beneficiaries whilst they are minors, providing flexibility for assets to be distributed amongst a large class of beneficiaries according to their needs and for tax planning purposes. What all of these trusts will have in common is that the terms of the trust will be clear from the wording in the Will, and so on reading the Will (presuming it's been drafted properly!) one should be able to understand the terms of the trust and, in most cases, who the beneficiaries are. There is however an exception to this in the form of a secret trust.

Put simply, a secret trust is one where the terms of the trust, or the very existence of a trust, are kept out of the Will. There can be two types of secret trusts – a fully secret trust and a half secret trust. A fully secret trust is one where there is no indication within the Will of there being a trust arrangement. Often the Will appears to provide for the estate, or specific assets, to be left to individuals outright. For example "I leave my residuary estate to Bob Smith absolutely." However, that outright gift will in fact be a gift to the (secret) trustee(s) and separately the individual will communicate the terms of the trust to the trustee(s). A half secret trust is one where the existence of the Will is clear on the face of the will (for example, "I leave my residuary estate to Bob Smith to hold on trust") but the terms of the trust are kept hidden and again communicated to the trustee(s) separately.

Why have a secret trust? As the name suggests, if they are valid then they can be an effective way to allow executors to distribute assets to beneficiaries whose identity can remain secret and upon terms which can also remain secret. This is unlike an ordinary trust within a Will where both the terms and beneficiaries are often clear on the face of the Will. Once probate is granted Wills become public documents and so the terms of the trust are then available for all to see, hence why those seeking discretion may favour a secret trust.

Perhaps the most famous example of the use of a secret trust is artist Lucian Freud who left his estate to his solicitor and one of his daughters to be distributed according to the terms of a secret trust. On the face of it his Will left his estate to these two individuals directly and so it appeared as though they inherited his estate outright. In fact, they did so on the basis that they would then distribute the estate in accordance with the terms of the secret trust that he had communicated to them.

But given the nature of secret and half secret trusts they are not without their problems. The fact that the terms do not have to be written down, and the fact that the trustees have no obligation to reveal the terms, means that they can often give rise to disputes about their validity or their very existence. As a result there can be litigation over the secret trust (as in Lucian Freud's case) which ironically brings the matter into the public eye. Nonetheless, in the Freud case the secret trust was held to be valid and so although its existence is now a matter of public record the terms are not.