What is a secret trust?

A secret trust is a trust that is not included in the terms of a will. There are two types of secret trusts—fully secret trusts, which are not mentioned in the will, and semi-secret or half-secret trusts, which are mentioned in the will. Semi-secret trusts usually do not name the trust’s terms or the trust’s beneficiary.

Secret trusts are controversial because they are not covered by the probate process. Trust property may be protected from taxation and division. In the past, secret trusts were often used to leave property to a mistress or children born outside the marriage. Today, secret trusts are used to provide property to beneficiaries whose interests oppose the interests of those receiving property through a will. A secret trust can lead to intense, long-lasting lawsuits between the two groups of beneficiaries.

What Must a Secret Trust do?

As with any trust, a secret trust must demonstrate the intent of the creator of the trust, a communication of the intent to the beneficiary, and an acceptance of the terms of the trust by the beneficiary. Secret trusts are governed by state law. Often, states require the terms of a disposition of property to be in writing. A wholly or partially oral secret trust would likely be defeated in a state that requires a writing. A semi-secret trust might have a better chance of being upheld than a fully secret trust. It depends on how well the will described the semi-secret trust.

Enforceable Trusts

A secret trust can be made complicated by making it an enforceable trust. An enforceable trust requires that an event occur in order for the beneficiary to receive the property. The event can be anything. It is usually something that the beneficiary does, such as graduate from college, or an event in time, such as the beneficiary’s 30^th birthday. The language surrounding the event must be clear. The event must be legal. For example, courts will not uphold a requirement that the beneficiary sell a certain amount of illegal drugs.

Often, state courts will not enforce the terms of trusts that are harmful, impossible, or distasteful. They may choose to award the property to the beneficiary even if the event does not occur. For example, an intended beneficiary who is homosexual might successfully challenge a term requiring him to marry a person of the opposite sex.

Courts Role in Enforcing Secret Trusts

The objective of the courts is enforcement of a trust in a fair, reasonable, and impartial way. This result is called “equity.” Courts seek to prevent fraud by the person who holds the property in trust for the beneficiary. Courts do not want the person who holds the property in trust to find a way to keep the property for himself. Courts may choose to interpret trusts liberally to achieve the wishes of the party who created the trust. They understand that the aim of a secret trust is to get the property to the beneficiary. Otherwise, the person creating the trust would have put the property in the will.

Case Studies: Understanding Secret Trusts and Their Legal Implications

Case Study 1: The Hidden Beneficiary

John, a successful entrepreneur, passed away, leaving behind a will that explicitly distributed his estate among his immediate family members. However, after John’s death, it came to light that he had a secret trust arrangement with his loyal employee, Michael, whom he wanted to provide for after his passing.

John’s family members were taken by surprise when Michael came forward, claiming to be a beneficiary of a substantial part of the estate through the secret trust. The case went to court, challenging the validity and enforceability of the secret trust, resulting in a complex legal battle between John’s family and Michael.

Case Study 2: The Forgotten Clause

Elizabeth, a wealthy widow, created a will outlining the distribution of her assets among her children and close friends. Unbeknownst to her beneficiaries, Elizabeth had also established a secret trust for her favorite charity organization. Unfortunately, due to an oversight or clerical error, the secret trust clause was accidentally omitted from the final version of the will.

When her estate was being administered, the charity organization discovered the existence of the secret trust and sought to claim their entitlement. However, Elizabeth’s children contested the validity of the secret trust, arguing that it was not included in the will, leading to a legal dispute over the intended distribution of her estate.

Case Study 3: The Conditional Bequest

Robert, a philanthropist, wished to support his nephew, David, but was concerned about David’s financial irresponsibility. In his will, Robert created a conditional secret trust stating that David would only receive his inheritance if he completed a financial management course within three years of Robert’s passing.

However, after Robert died, David faced unforeseen challenges that prevented him from fulfilling the condition within the specified timeframe. The court was tasked with determining the enforceability of the conditional secret trust and whether the condition was reasonable under the circumstances.

Case Study 4: The Disgruntled Heir

Sarah, a wealthy heiress, passed away, leaving behind a will that divided her estate equally among her three children. Unbeknownst to her children, Sarah had also executed a semi-secret trust, bequeathing a significant portion of her estate to her long-lost niece, Emma, whom Sarah had reconnected with before her death.

When the will was read, Emma’s unexpected inheritance led to a dispute among Sarah’s children, who felt that Emma should not receive a share of the estate. The case delved into the intricacies of the semi-secret trust, challenging its validity and the rights of the beneficiaries involved.

Case Study 5: The Undisclosed Assets

William, a prominent businessman, passed away, leaving behind a will that distributed his known assets among his immediate family. However, it later emerged that William had undisclosed assets, which he had intended to transfer through a fully secret trust to his loyal business partner, James.

The existence of the secret trust only came to light after James approached the family, claiming his entitlement to the undisclosed assets. The case revolved around proving the existence and validity of the fully secret trust and clarifying the scope of James’s inheritance.

Getting Legal Help

If you have further questions about setting up a secret trust, make sure to talk to an estates and trusts attorney in your area.