Secret Beneficiaries and their Rights (Part 1)

There are multiple reasons as to why one may wish to financially provide for an individual in secret. This article aims to address the ways in which one may legally do so, without addressing the many moral or ethical motivations behind such intentions.

One may first conclude that such individuals could become benefactors within a will. This approach, however, may cause unwanted consequences. A will is a document which only becomes effective after the death of the maker. Upon the testator’s death, the will is filed with the probate court in order to initiate proceedings, causing the document to be searchable by the public. This method would not therefore, provide the desired security of confidentiality or privacy.

Alternatives to a will:

• Opening a joint bank account with a survivorship clause
  
  It is important to note that due to the general laws on joint accounts, a survivingjoint account holder may only receive 50% of the total sum. Absolute gifts may be applicable too.
   
• Utilisation of a trust fund
  
  A trust fund is an estate planning tool whereby a legal entity holds assets or property for a person or organisation. The trustee manages the assets placed within, be it money, property, stocks or any other asset for the benefit of the benefactor. Within a trust fund, the grantor is the individual who sets up the fund and populates it with assets. There are various types of trust funds available, therefore it is imperative that the chosen type is one which emphasises privacy. Furthermore, as any person or corporation capable at law or in equity of taking and holding any property or an interest in property, is capable of being a beneficiary, provisions for a secret beneficiary here would be a viable option.

A more comprehensive but complicated option can be found in secret trusts. A secret trust enables a testator to direct the disposition of his or her property upon his or her death without specifying the actual beneficiary in the will. The property in question is bequeathed to a ‘legatee’ who holds it as a trustee for the secret beneficiary. There are 2 types of secret trusts:

• A full secret trust which fully conceals the trust on the face of the will. The obligation is separate, and the will transfers the property to the legatee without the mention of the trust.
• A half secret trust on the other hand is where the will acknowledges the existence of the trust, but the terms are hidden.

All in all, both trusts involve property being allocated in the will, without naming the benefactor. Moreover, for a valid fully secret trust, the testator’s intention must be communicated to the donee during the testator’s lifetime (Re Boyes [1884] 26 Ch. D. 531), whereas in the case of a half secret trust, the communication must be madeprior to, or contemporaneous with, the will (Re Keen [1937] Ch 236). In regards toacceptance, a person may accept a secret trust either expressly or by silently acquiescing to it when communicated to him or her.

The basis of this rule is somewhat unclear. For instance, this principle may have initially originated as a response to the worries of men, wishing to make provisions for a mistress or illegitimate child (Watt G, Trusts and Equity (4th Edn, Oxford University Press, 2010, p 180)), and in doing so, a testator provides what appears to be an outright gift in his or her will (Stewart Manley, ‘Reconceptualizing the fully-secret trust’, Trusts & Trustees (2015)). Yet, G.W Allan has accounted that out of 60 secret trust cases that have been identified, only six to eight clearly contain secret trusts in favour of mistresses or illegitimate children (G.W Allan, ‘The Secret Is Out There: Searching For The Legal Justification For The Doctrine Of Secret Trusts Through Analysis Of Case Law’, (2011) CLRW 40, 311). Nevertheless, its use throughout history is undoubtable, with cases even being seen in the 1800’s (Re Boyes [1884] 26 Ch. D. 531).

A more modern example of its use is found in Ottaway and Another v Norman [1968 O. NO 5895] [1972] Ch. 698. In this case, the plaintiffs contended that a bungalow, called the “Ashcroft” and certain other properties, belonged to the plaintiffs under a secret trust accepted by Miss Eva Hodges, the beneficiary under Mr. Harry Ottaway's (the testator’s) will. The Judge subsequently held that, to establish the existence of a secret trust imposed on a primary donee in favour of a secondary donee, it was essential to show that:

1. the testator intended to impose an obligation on the primary donee,
2. which had been communicated, and
3. had been accepted by the primary donee, either expressly or by acquiescence.

It was also held that the standard of proof required to establish a secret trust was “perhaps analogous to the standard of proof which this court requires before it will rectify a written instrument”. This was subsequently altered in Re Snowden v Spowage [1979] CH 528 where it was seen that, where there is no question of fraud, the standard of proof was no more than the ordinary civil standard of proof required for the establishment of an ordinary trust. In any event, the plaintiff within Ottaway had established the existence of a secret trust but had not established any obligation on the part of the donee.

Secret trusts were recently clearly recognised in Malaysia in the case of Chin Jhin Thien & Anor v Chin Huat Yean @ Chin Chun Yean & Anor [2020] 4 MLJ. The appellants were the lawful children of a deceased engineer, from his first marriage in 1976. During his first marriage, the deceased had an affair with (and subsequently married) his wife’s elder sister with whom he had four children, two of whom were still students when he died, while the youngest of the children was a minor at the time. On the 18th of December 2013, six days before his death, the deceased instructed his solicitor to prepare his will leaving all his assets to the respondents. Secretly, he had instructed the respondents to hold his assets on trust for the benefit of his second wife and their children.

Here the Federal Court was asked 3 key questions;

1. whether the concept of secret trusts was applicable in Malaysia as there had been no prior decisions on this. ;
   
   This was answered in the positive. It was seen that secret trusts, being a creation of English Common law, “[37] …is applicable in Malaysia subject to the proviso to s 3(1) of the Civil Law Act 1956 unless there is an explicit abrogation, variation, restriction or modification by written law”. Furthermore, it was apparent to that court that “the Malaysian Wills Act 1959 or other statutes or Acts of Parliament do not explicitly abrogate the application of secret trust. In fact, it’s application is endorsed in the written law.”
    
2. whether secret trusts are applicable where there is a question of capacity, and
   
   This was rather straight forward, in that the burden of proving capacity is on the party putting forth the will.
    
3. whether secret trusts are contradictory to the Malaysian Wills Act 1959 or against public policy.
   
   This answered in the negative. Such was not in contradiction of any public policy for the simple reason that “it would indeed not be in ‘good conscience’ to deny a testator the ability to distribute their estate as they see fit”. The court saw it fit to engage in a lengthy discussion about the general rationale for the existence of the rule, refencing both the “fraud theory” and the “dehors the will” theory.

For a brief explanation, the fraud theory proceeds along the lines that equity will not permit a secret trustee to perpetrate a fraud by relying on section 9 of the Wills Act 1837 (which is in pari materia with the Wills Act 1959) to avoid performance of the secret trust. It will be enforced, notwithstanding the statute. The dehors the will theory by contrast is based on the idea that the Wills Act 1837 is irrelevant to the enforcement of secret trusts. Instead, the secret trust operates outside of the will for it is in fact an inter vivos trust (a living trust created to hold the assets of a trustor).

It is important to note that there is a great academic divide between the rationales. For example, the fraud theory was dismissed by Megarry VC In Re Snowden as merely being “the historical origin of the doctrine”, and the dehors the will theory has found much more academic acceptance. However, the weight of authority contradicting this statement, such as in the case of De Bruyne v De Bruyne [2010] EWCA Civ 519, shows this assertion to be, at least, questionable. In fact, there are 42 cases, spanning 326 years which reference the prevention of fraud as being the underlying justification (G.W. Allan, The Secret is Out There, CLWR 40,4 (311)).

Nevertheless, the court concluded that “any inconsistency or contradiction between the doctrine of secret trust and the Malaysian Wills Act 1959 is a non-starter. In the premise, the third leave question is answered in the negative”.

Whilst this topic is poised with ethical conundrums, with infidelity and secrecy being central, there are legal methods in secretly providing for a beneficiary. As mentioned, the easiest methods would be absolute gifts, joint bank accounts, and trust funds, however, these all have their own limitations and are constrained to monetary provisions. Secret trusts on the other hand provide an alternative to imparting more than just cash yet, are more complex and difficult to create.