The Basics: What is a Secret Trust?

A trust is one of the ways to financially settle and provide for your family. It can be a very useful tool. Essentially, a trust puts property 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 words used leave 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. For 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 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 of the trust. 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? A trust limited to the children and grandchildren of the settlor should be pretty easy to ascertain.

Administrative Workability  

This is the extent to which it is practicable for trustees to discharge their duties towards the beneficiaries. The trust has to be administratively workable for the trustees to discharge their duties.

Secret Trusts

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.

In more modern times, the secret trust, also referred to as a silent or quiet trust, has taken on a different purpose. Whereas in the traditional secret trust the true beneficiary of the trust was not named, in modern times, the secret trust serves as a tool to protect the trust from being squandered by the named beneficiary. Trustees have an obligation to account to the beneficiaries of a trust. In a modern secret trust, this obligation is waived (subject to applicable laws) so that the beneficiary (particularly a minor child) does not receive the obligatory accounts and is left “blind” as to the value of the trust. Some modern settlors use this form of secret trusts to keep the beneficiaries grounded and avoid a situation where knowledge of the value the trust acts as a disincentive to completing their education, pursuing their dreams, or contributing positively to society because they know that they are entitled to a pot of money at some point in the future.

Whatever your reasons are for considering a secret trust, speak with a lawyer to guide you in setting it up.