Trusts and the Secret Trust

A trust is one of the ways that people use to financially settle
and provide for their families. It can be a very useful tool.
Essentially, a trust puts property on trust in the hands of a third
party, to deal with on behalf of the beneficiary of the trust.

In trusts, there is the settlor who owns the property, the
trustee who receives control of the settlor’s property and holds it
in trust for the benefit of the beneficiary, for a specified
purpose (e.g., education and welfare of the beneficiary).  The
settlor and trustee can be one and the same person.

The formalities for setting up a trust are not as simple as a
will, so a person interested in setting up a trust will do well to
consult with a professional. A poorly constructed trust instrument
would fail because the wording used leaves the trustees (or the
courts where the trustees fail) with uncertainties.  There is
a ‘hallowed’ or ‘cardinal’ principle that a trust must be defined
with sufficient certainty to enable the trustees (or the court) to
execute the trust according to the settlor’s (your) intention.

The issue of certainty has four prongs: conceptual certainty,
evidential certainty, ascertainability and administrative
workability.

Conceptual certainty: When the
beneficiaries of your trust are named individuals, e.g., my son
Andrew, my first grandchild, etc., there will usually be no problem
with conceptual certainty and therefore no arguments arise. 
However, to give a gift to a class of beneficiaries such as your
‘friends’ or ‘relatives’, or ‘all good citizens’ of Lagos State,
there must be sufficient context, to enable the trustee to
ascertain with certainty how the categories ‘friends’ or
‘relatives’ or ‘all good citizens’ are to be defined.

Evidential certainty: This is the extent
to which the evidence available enables the trustee to identify a
person as being a member of the class of beneficiaries. If the
trust is set up for relations or descendants of a person, the
relations trying to benefit from the trust must have some evidence
to show that they are indeed beneficiaries. Evidence could be in
the form of birth certificates, oral evidence of family history,
etc.

Ascertainability: This is simply the
extent to which the whereabouts or continued existence of
identified or potential beneficiaries can be ascertained. Keeping
with the example of a trust for relations of the settlor, depending
on how the trust is set up, would we be looking for all relations
or would 50 qualifying relations be sufficient number to distribute
the trust?  What about the relation who existed at some point,
but his whereabouts and whether he left any descendants is
unknown?

Administrative workability: This is the
extent to which it is practicable for trustees to discharge their
duties towards the beneficiaries.  Suppose we agree that “all
good citizens” of Lagos State referred to all residents of Lagos
State who had paid their taxes every year for five years.  It
would be possible to identify all such persons, but the question
would be whether the settlor has set up a mission impossible for
the trustees because the trust is administratively unworkable.

The above is generally how express trusts work. A secret trust
on the other hand is a device that was traditionally used by a
testator (a person making a will) to provide for their mistresses
and children born out of wedlock. Essentially, a secret trust is
set up in the will, and the trustee appears as a beneficiary in the
will. While the trustee is named as a beneficiary in the will, the
gift is not for the trustee’s benefit. The trustee holds the gift
for the true, secret beneficiary, as already discussed between the
testator and the trustee. So, in the will, all anybody knows on
face value is that the testator has given his house at Fox Lane to
Mr. Friend. The testator must have had a prior discussion with Mr.
Friend, that the house at Fox Lane is to be transferred to Lady
Lover and her son. And Mr. Friend must have agreed to carry out the
testator’s wishes as to the property on Fox Lane.

As you can imagine, there can be problems with secret trusts.
Where the secret beneficiary is unaware of the arrangement, the
trustee may take the gift and never transfer it to the secret
beneficiary. The arrangement of a secret trust takes effect outside
of the will. It means that whoever is being appointed as the
trustee must be a person of integrity who will not scheme the
secret beneficiaries out of their gift. Because, as already
explained, the gift is given to the trustee. The will only
recognises the trustee who is a beneficiary in the will.

A secret trust can be a half secret trust or a full secret
trust. In a half secret trust, the gift will make reference to the
fact that it is given to the beneficiary for a purpose already
discussed and agreed upon (of course, the purpose is not revealed
in the will). A full secret trust does not make any such
reference.  The gifting to the trustee looks no different than
any other gift in the will. A half secret trust is probably the
safer option to protect the interest of the secret beneficiary, but
whether a testator chooses a half or full secret trust will depend
on the circumstances that necessitate the secret trust in the first
place.

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