Formalities and secret trusts

Formalities are the law’s answer to a recurrent problem in trusts: when should equity give effect to an alleged intention which has not been expressed in the ordinary legal form? After Week 2, you should be comfortable with the proposition that a trust requires certainty of intention, subject matter, and objects. Week 3 adds a separate inquiry. Even where the three certainties are present, the trust or disposition may fail unless the relevant statutory or equitable formality is satisfied.

The topic divides into two principal fields. The first is statutory formalities. The Law of Property Act 1925, section 53, distinguishes between declarations of trust of land, dispositions of existing equitable interests, and trusts arising by operation of law. The distinction is not ornamental. A declaration of trust of land must be manifested and proved by signed writing, but the writing need not create the trust: it may evidence a trust already declared. By contrast, a disposition of a subsisting equitable interest must itself be in writing signed by the disponor or authorised agent. That difference explains much of the case law from Rochefoucauld to Grey and Vandervell.

The second field is secret trusts. These arise where a will gives property absolutely, or apparently on a limited trust, to a person who has undertaken to hold it on different terms communicated outside the will. Fully secret trusts do not appear on the face of the will. Half-secret trusts appear to be trusts, but the beneficial terms are not disclosed. They are doctrinally awkward because the Wills Act 1837 insists upon written, witnessed testamentary dispositions, while secret trusts permit orally communicated obligations to control property received under a will.

The organising idea is conscience. Equity is reluctant to allow a statutory formality to be used as an instrument of fraud. But that slogan must not be used as a substitute for doctrine. Sometimes the statute is strictly applied: Grey v IRC is the paradigm. Sometimes an oral arrangement is enforced because the statute itself preserves resulting, implied and constructive trusts: Rochefoucauld v Boustead and later common-intention constructive trust cases belong here. Sometimes secret trusts are said to operate outside the will, though they depend practically on the will for the transfer of property. Cambridge exam answers must keep these categories separate.

The best answers do three things. First, they state the statutory requirement precisely. Secondly, they characterise the transaction before applying authority: declaration, disposition, transfer of legal title, contract, constructive trust, or testamentary arrangement. Thirdly, they explain why equity’s anti-fraud jurisdiction is both powerful and limited. A supervision essay which merely says ‘equity will not allow a statute to be used as a cloak for fraud’ will not score highly unless it identifies whose conscience is affected, what representation or undertaking was made, and why enforcing it does not contradict the statute.

The modern law of trust formalities is the product of a long tension between two legal instincts. One instinct is equitable: informal conscience-based obligations should not be defeated by technicality where a person has induced another to act on faith of an undertaking. The other is statutory: certain transactions are so important, and so vulnerable to fabrication, that they should be evidenced by writing and sometimes by solemn execution.

The Statute of Frauds 1677 supplied the early framework. It required certain dealings with land and declarations of trust to be evidenced in writing. Its policy was evidential and cautionary: land was economically central, and alleged oral trusts were easy to invent after death or insolvency. The 1925 property legislation modernised the law, but did not abandon this concern. Section 53 of the Law of Property Act 1925 is the present focal point. Its language separates the creation or disposition of interests in land, declarations of trust respecting land, and dispositions of existing equitable interests. That separation was sharpened by twentieth-century tax cases, where taxpayers sought to move equitable interests without incurring fiscal consequences.

Equity’s anti-fraud jurisdiction developed alongside the statutory insistence on writing. Rochefoucauld v Boustead remains the classic case. Land was conveyed to the defendant, allegedly on an oral understanding that he would hold it for the claimant. The defendant relied on the statutory requirement that trusts of land be proved in writing. The Court of Appeal refused to permit the statute to be used to defeat the very trust on which the conveyance had been made. The case is often stated as an exception to formalities, but that description can mislead. It is better understood as equity imposing or recognising a constructive trust because denial of the undertaking would be unconscionable. Section 53(2) later confirms that section 53 does not affect resulting, implied or constructive trusts.

Secret trusts have a different but related history. Their classic setting is testamentary. A testator wants to benefit someone without revealing the gift publicly: a mistress, an illegitimate child, a political cause, or another person whose identity the testator wishes to conceal. The testator leaves property by will to a confidant, who has been told orally how to apply it. The formal will complies with the Wills Act, but the trust terms do not. The courts nevertheless enforced such trusts, commonly invoking fraud: a legatee who has accepted the office of secret trustee cannot keep the property beneficially. McCormick v Grogan set limits, and Blackwell v Blackwell gave the orthodox statement for half-secret trusts.

The historical importance of secret trusts is not merely antiquarian. They reveal a fundamental question about equity’s relationship with formality. If the Wills Act lays down the exclusive mode for testamentary disposition, how can an orally communicated trust of testamentary property be enforced? One answer is that the trust operates dehors, or outside, the will: the will transfers the property to the trustee, but equity fastens on the trustee’s conscience because of an inter vivos communication and acceptance. Another answer is that the trust is constructive, imposed to prevent fraud. Each answer has difficulties. The dehors theory explains why the Wills Act is not directly violated, but struggles because the trust property is not obtained until death. The fraud theory explains fully secret trusts powerfully, but fits half-secret trusts less easily, because a half-secret trustee could not take beneficially: the will itself shows that he is a trustee.

For Cambridge purposes, the historical point has a practical payoff. Do not treat formality as a dull preliminary issue. It expresses deep choices about proof, publicity, caution, taxation, testamentary freedom, and conscience. Good Part II answers use history to illuminate doctrine rather than to decorate it.

The first principle is classification. Before asking whether a formality has been satisfied, identify the juridical act. Is the settlor declaring himself trustee? Is a beneficiary assigning an existing equitable interest? Is the beneficiary directing trustees to transfer legal title? Is the arrangement a specifically enforceable contract, a constructive trust, or a testamentary trust? Section 53 is not a general writing requirement for all trusts. It is a set of targeted rules.

A declaration of trust of personal property ordinarily requires no writing. If A says, intending to bind herself immediately, ‘I hold these shares on trust for B’, the trust is valid if the three certainties and constitution are satisfied. If the subject matter is land or an interest in land, section 53(1)(b) applies: the declaration must be manifested and proved by signed writing. This is an evidential requirement. The trust may be orally declared first; later signed writing can prove it. The writing need not be addressed to the beneficiary, and it need not use technical language, provided it evidences the trust sufficiently and is signed by someone able to declare it.

A disposition of a subsisting equitable interest is different. Section 53(1)(c) requires signed writing for the disposition itself. The paradigm is Grey v IRC. A beneficiary under existing trusts orally directed trustees to hold the property for his grandchildren. The House of Lords treated this as a disposition of his equitable interest and held that signed writing was required. Subsequent written instruments could not prevent the intermediate disposition from being taxable. The case is strict because the interest disposed of already existed. One cannot avoid section 53(1)(c) by presenting the transaction as a mere direction if its substance is the movement of an equitable interest from one beneficial owner to another.

Vandervell v IRC marks an important limit. A beneficiary who is absolutely entitled may direct trustees to transfer the legal title to a third party. If the legal and equitable interests pass together, there is no separate disposition of a subsisting equitable interest requiring section 53(1)(c) writing. The equitable interest is destroyed or overreached by the transfer of legal title. That analysis is controversial, but it is orthodox. It reflects a practical point: section 53(1)(c) is aimed at hidden dealings in equitable interests, not at transfers of the full legal estate where ordinary transfer formalities supply publicity.

The cases fall into two clusters: statutory formalities and secret trusts. In the first cluster, Rochefoucauld v Boustead supplies the equitable counterweight to statutory writing. The transferee of land could not deny the oral trust on which the land had been transferred. It is best read as a constructive trust case, anticipating the saving now found in section 53(2). Its importance lies in the court’s refusal to allow formalities to become an engine of fraud; its danger lies in overextension. It does not mean that every failed oral trust of land is enforceable.

Grey v IRC is the strict statutory case. The settlor’s oral direction to trustees to hold shares for his grandchildren was a disposition of his subsisting equitable interest. Signed writing was required. The later written deeds did not retrospectively eliminate the prior taxable disposition. The lesson is that substance prevails over verbal form: an oral ‘direction’ may still dispose of an equitable interest.

Vandervell v IRC draws the line differently. Vandervell directed trustees to transfer shares to the Royal College of Surgeons with an option to repurchase granted to a trustee company. The House of Lords held that the transfer of the legal estate to the college did not require separate section 53(1)(c) writing for the equitable interest. The equitable interest did not travel by independent oral assignment; it passed with, or was extinguished by, the legal transfer. The case is essential in problem questions where a beneficiary directs trustees to transfer property outright.

In secret trusts, McCormick v Grogan is the classical warning that not every appeal to conscience creates a trust. A testator’s letter expressing wishes did not necessarily bind the legatee as trustee. The case insists upon obligation, not moral expectation. Re Boyes illustrates failure where the trustee is told that he is to hold on trust but the terms are not communicated before death. The trustee could not take beneficially because he knew he was not intended to do so; the property returned to the estate.

Blackwell v Blackwell is the leading authority for half-secret trusts. The will disclosed that legatees were trustees, but the trusts were communicated outside the will. The House of Lords enforced the arrangement. Viscount Sumner treated acceptance of the secret obligation as attracting equity’s intervention. The case remains the foundation for the requirements of intention, communication and acceptance.

Re Keen imposes discipline on half-secret trusts. Communication must be before or at execution, and the communicated terms must match the will. A will referring to a sealed envelope containing terms ‘already communicated’ could not be supported by a later communication. The decision prevents the testator from making unattested future dispositions by private instructions.

Re Snowden and Ottaway v Norman are useful modern illustrations. Re Snowden confirms the evidential caution required: the court should not infer a secret trust merely from family expectations or informal statements of wishes. Ottaway shows that a secret trust may be imposed where a primary donee agrees to leave property by will to a secondary beneficiary. The trust was not a mere hope; it was a binding obligation accepted by the first donee.

See practice questions section below.

See further reading section below.