Formalities and secret trusts

Formalities sit at the point where private intention meets public proof. Trusts law begins, as Week 2 showed, with the three certainties: intention, subject matter, and objects. Week 3 asks a different question. Even if a trust is sufficiently certain, has the law required a particular form before that intention can be enforced? The answer depends on the kind of property, the nature of the transaction, and whether the claimant is asking equity to enforce an express trust, recognise a constructive trust, or restrain a fraud.

The central statutory provision is s 53 of the Law of Property Act 1925. It contains three distinct rules which must not be collapsed. Section 53(1)(a) concerns the creation or disposition of legal interests in land. Section 53(1)(b) concerns declarations of trust respecting land: the trust need not be declared in writing, but it must be manifested and proved by signed writing. Section 53(1)(c) concerns dispositions of subsisting equitable interests: those dispositions must themselves be in signed writing. Section 53(2) preserves resulting, implied and constructive trusts. Much of the case law is a sustained attempt to determine whether a transaction falls within s 53(1)(c), or escapes through s 53(2).

For personalty, the basic common law position remains less formal. A trust of chattels, shares, money or choses in action can generally be declared orally, provided the three certainties and any special statutory rules are satisfied. But that does not mean that equity is indifferent to proof. The absence of formality may make intention difficult to establish; it does not necessarily make the trust invalid.

Secret trusts are the most striking exception to ordinary testamentary formality. Under the Wills Act 1837, a testamentary disposition must be made by a properly executed will. Yet equity enforces fully secret and half-secret trusts where a testator leaves property by will to a person who has accepted an obligation to hold for others. The doctrine is conventionally justified on the ground that equity will not permit the statute to be used as an instrument of fraud. More controversial is whether secret trusts operate dehors the will, outside the will, as inter vivos trusts constituted by the testator's death, or whether they are in truth testamentary dispositions given effect despite non-compliance with the Wills Act.

For Durham purposes, this topic is a bridge between doctrinal precision and equitable conscience. The first-year compulsory modules have already trained you to read statutes closely, to distinguish ratio from policy, and to analyse the relationship between judge-made doctrine and legislative form. In Trusts, those skills matter acutely. A good answer does not say that equity ignores formalities. It asks what the formality is for, which statutory provision applies, whether the transaction is a declaration or a disposition, and whether the claimant is invoking equity to prove intention or to prevent fraud.

The history of trust formalities is a history of suspicion. Equity originally intervened because the common law's rigid categories of title could be used unconscionably. The use, and later the trust, separated management from enjoyment. That separation made private ordering flexible, but it also created evidential dangers. If equitable obligations could be asserted orally after the event, property might be destabilised by fabricated claims. If formal requirements were enforced mechanically, a trustee or devisee might rely on legal title to defeat the very obligation he had accepted. The law of formalities has therefore always been double-edged.

The Statute of Frauds 1677 was the decisive early intervention. It did not invent trusts, but it imposed writing requirements for certain interests, especially land and testamentary dispositions. Its policy was not hostility to trusts as such. It was hostility to perjury, uncertainty and informal dealings in valuable property. The later property legislation of 1925 rationalised this landscape. Section 53 of the Law of Property Act 1925 is the modern descendant of those concerns. It insists on written evidence for declarations of trust of land and written form for dispositions of existing equitable interests, while expressly preserving resulting, implied and constructive trusts.

The Wills Act 1837 pursued a related but distinct policy. Testamentary dispositions are uniquely vulnerable to fraud because the alleged donor is dead. The requirements of writing, signature, intention and attestation are designed to provide reliable evidence, to mark the solemnity of the act, and to protect the testator from pressure. The statutory scheme also gives publicity, in a limited sense, to testamentary dispositions: those who benefit do so under the will, and the will is the document through which succession is administered.

Secret trusts disturb that settlement. In the classic case, a testator either leaves property absolutely to a legatee who has orally agreed to hold it for another, or leaves property to a legatee expressly as trustee but without naming the beneficiary or terms. In both cases the beneficial destination of the property is not apparent from the will. The doctrine predates the modern Wills Act, but its continued existence under that Act requires justification. The courts have repeatedly said that the doctrine prevents fraud: the legatee who has accepted the testator's confidence must not keep the property beneficially, nor may the next of kin take if that would defeat a trust which the legatee undertook to perform.

Yet the fraud rationale explains only part of the doctrine. It explains why an absolute legatee under a fully secret trust should not retain the property beneficially after accepting an obligation. It is less comfortable for half-secret trusts, because the will itself states that the legatee is not to take beneficially. If the oral terms fail, the legatee does not commit fraud by keeping the property: he cannot keep it. The result is usually a resulting trust to the estate. The insistence that communication in a half-secret trust occur before or at execution of the will, rather than merely before death, reflects not fraud prevention alone but the policy of the Wills Act: the testator must not reserve to himself a power to make future unattested dispositions.

Modern doctrine therefore reflects a compromise. Equity does not abolish statutory formality. It supplements it where insisting on form would facilitate fraud or unconscionable denial of an obligation. But equity also recognises that formalities serve real values: caution, evidence, channeling and protection of third parties. The examination point is historical as well as doctrinal. Formalities are not technical irritants to be evaded by equity; they are part of the legal architecture within which equitable conscience operates.

The first principle is classification. Before applying any formality rule, identify the transaction. Is the settlor declaring himself trustee, transferring property to another on trust, directing trustees to hold an existing equitable interest for someone else, contracting to assign, or attempting to make a testamentary disposition? Most wrong answers on this topic begin by treating these as interchangeable.

A declaration of trust is not the same as a disposition of an existing equitable interest. If A owns land absolutely and declares that he holds it on trust for B, s 53(1)(b) applies. The declaration must be manifested and proved by signed writing. The oral declaration may be effective in conscience, but it cannot be enforced unless there is signed evidence. The writing can generally come later, because the subsection is evidential in language. By contrast, if B already has an equitable interest under a trust and orally directs the trustee to hold that interest for C, B has disposed of a subsisting equitable interest. Section 53(1)(c) applies, and the disposition must be in signed writing. Grey v IRC is the paradigm: an oral direction by a beneficiary to trustees to hold shares on trust for others was a disposition of the beneficiary's equitable interest.

The second principle is that equity will not perfect an imperfect gift. Formalities cannot be bypassed simply because the intended donee is morally deserving or because the donor's intention was clear. This principle, familiar from constitution of trusts, remains important here. If an intended transfer of property is not completed, and no valid declaration of trust is made, the court will not ordinarily recharacterise the failed gift as a trust. Formalities discipline intention; they do not merely evidence it.

The leading authorities form two clusters: inter vivos formalities and testamentary secret trusts. The inter vivos cases are dominated by s 53 of the Law of Property Act 1925. Rochefoucauld v Boustead is the starting point for the proposition that statutory formality may not be used as a cloak for fraud. Land was conveyed to the defendant on the basis that he would hold it for the claimant, but the arrangement was not evidenced in the statutory manner. The Court of Appeal allowed oral evidence of the trust. The case is best understood as an early constructive trust or fraud-prevention authority, now accommodated by s 53(2). It should not be read as a general permission to ignore s 53(1)(b).

Grey v IRC is the central authority on s 53(1)(c). A beneficiary under trusts orally directed trustees to hold shares for his grandchildren. Written instruments followed later. The House of Lords held that the oral direction was a disposition of a subsisting equitable interest and was ineffective without signed writing. The decision is a warning against describing an oral direction as a mere variation of trustees' duties. Where the beneficiary's equitable ownership is moved to another, s 53(1)(c) is engaged.

Vandervell v IRC draws the opposite boundary. Vandervell instructed trustees to transfer legal title in 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 full legal and beneficial interest did not require separate compliance with s 53(1)(c). There was no subsisting equitable interest left to dispose of separately when the legal title and beneficial ownership passed together. The case is also important for the resulting trust of the option, though that issue belongs partly with later study of resulting trusts.

Blackwell v Blackwell is the canonical half-secret trust case. A testator left property to legatees to apply for purposes he had communicated to them. The House of Lords enforced the trust. The case supplies both the fraud rationale and the dehors the will explanation. It also marks the difference between using evidence to prove an accepted trust and using unattested evidence to create a new testamentary disposition.

Re Keen shows that communication must be consistent with the will. The will referred to instructions communicated to trustees, but the actual arrangement contemplated a sealed envelope and possible future notification. The Court of Appeal held the trust failed. The case matters because it prevents the doctrine of half-secret trusts from becoming an informal power to reserve testamentary choices outside the Wills Act.

Ottaway v Norman demonstrates the flexibility of fully secret trusts. The testator left property to his housekeeper on the understanding that she would pass what remained to his son. Brightman J enforced the trust. The case is often used to show that the trust obligation can be successive or floating: the first recipient may have substantial enjoyment during life, yet be bound to pass the remaining property as agreed.

Re Snowden is the main cautionary authority. Megarry V-C refused to find a fully secret trust from equivocal evidence. The case is not hostile to secret trusts; it insists on proof of a binding obligation. Words of hope, confidence or moral expectation do not suffice. This links directly back to Week 2: certainty of intention remains essential.

Kasperbauer v Griffith is a modern reminder of the same point. Alleged assurances that property would be dealt with after death were insufficient to create a secret trust. The Court of Appeal required clear proof of intention to impose a trust obligation, communication of the terms, and acceptance. Modern courts remain willing to enforce secret trusts, but not to infer them generously from family conversations.

See practice questions section below.

See further reading section below.