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What is a Secret Trust? Hint: it’s not actually a “secret”

Let’s say you told your friend Bob that that you will leave him some money when you die. You draft a will that leaves all the money in your estate to Doug. You say nothing to Doug about your intentions, but you tell Bob that he can rest assured that he can collect the money from Doug after you die.

If Doug seems unaware of this arrangement after you die, will Bob be able to convince the Court that the money in question is subject to a secret trust in favour of Bob?

The Ontario Superior Court of Justice considered a fact pattern similar to the above and confirmed that without communication of the terms of the trust to the trustee, there can be no secret trust.1 That case also considered what qualifies as evidence of communication. More recently, the British Columbia Court of Appeal confirmed in the above principle in Peters v Peters Estate2: if the trustee wasn’t aware of the alleged secret trust, it’s not a secret trust.

In Peters, the deceased died intestate, and the applicants argued that the intestate beneficiaries held their legacies in trust for the applicants. However, the applicants failed to prove that the deceased informed the beneficiaries of the secret trust, and so the Court could not find a secret trust.

Litigators take note: for a trust to be a secret trust, the following conditions must be satisfied (in addition to the conditions precedent for a trust):

  • The settlor must communicate his or her intentions in respect of the trust to the trustee; and
  • The trustee must acquiesce to hold the property on trust for the specified beneficiaries.

Both the OSCJ and the BCCA relied on Jankowski v. Pelek Estate, a Manitoba Court of Appeal in which the Court describes secret trusts thusly:

A fully secret trust is a trust which a court of equity imposes on a person who has obtained title to property obliging him to hold it for the benefit of the persons for whom or purposes for which he knew that it was given or allowed to pass to him. It arises where a testatrix gives property to a person apparently beneficially, but has communicated to that person during his lifetime certain trusts on which the property is to be held. The trust arises outside the will. Any trust obligation which the legatee has undertaken is hidden from view, revealed only by extrinsic evidence. In such circumstances, where the testator has communicated the intention that the legacy should be held in trust for others, where the objects of the trust are known to the legatee, and where the legatee agrees to act as trustee or acquiesces in that arrangement, the trust will be enforced and extrinsic evidence is admissible to prove the essential facts. A court of equity will enforce the secret trust to prevent the requirements of The Wills Act being used as an instrument of fraud. (Halsbury’s Laws of England, 4th ed. reissue 1995, vol. 48, pp. 291-96, and In re Keen, [1937] 1 Ch. 236 (C.A.).)3

In conclusion, the not-so-secret secret to establishing a secret trust is to establish that it was not actually a secret. Or perhaps it’s better to think of it this way: a secret trust is a secret that must be shared by at least three people: the settlor, the trustee, and the beneficiary.

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1. Ziomek v. Miokovic, 2014 CarswellOnt 12550, 2014 ONSC 5126, 244 A.C.W.S. (3d) 505

2. Peters v Peters Estate, 2015 ABCA 301 (CanLII)

3. Jankowski v. Pelek Estate, 1995 CarswellMan 447, 131 D.L.R. (4th) 717, 60 A.C.W.S. (3d) 216 at para 107.

 

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