A person’s last will and testament becomes a public document once probate is granted. On occasions, a testator (a person making their will) may wish for certain gifts to not be available to the public. One option for doing so is through the use of a secret trust.
There are two types of secret trust: fully secret and half-secret.
Fully secret trusts
A fully secret trust is where the will does not make reference to any trust. Accordingly, anyone reading the will in isolation would not be aware that a trust exists. The gift in the will would look like an outright gift, when really the testator has intended for the gift to go somewhere else.
Example: Harry leaves £10,000 in his will to Carys. On the face of the will, it looks like Harry intended Carys to have the £10,000. However, Harry had previously communicated to Carys that when he dies Carys is to give the £10,000 to four specific charities that are close to his heart. Harry did not want his family or the public to know about this. Provided that the formalities of a trust have been met, Carys would therefore hold the £10,000 as trustee for the four charities.
With fully secret trusts, a testator must communicate the terms of the trust to the intended trustee at any point up to the date of their death.
A fully secret trust will fail if the trustee pre-deceases the testator i.e. if Carys dies before Harry. Furthermore, there is the risk that if a fully secret trust fails for another reason, the intended trustee will be able to take the gift for themselves.
Half secret trusts
A half-secret trust is where a will refers to a trust, but it does not identify the beneficiaries of it.
Example: Harry leaves £10,000 in his will to Carys ‘for her to act as trustee for the purposes that have been communicated to her’.
With half-secret trusts, a testator must communicate the terms of the trust to the intended trustee either before or at the same time that the will is made.
If a half-secret trust fails, the trustee does not take the gift for themselves because it will be clear from the wording in the will that this was not the intention of the testator. Instead, the trustee will hold the gift on trust for the residuary beneficiaries under the will.
Secret trusts can be attractive to testators who wish to make a gift that cannot be identified from the terms of the will in isolation. These potential advantages aside, they do add an extra layer of complication and risk, and as such specialist advice should be sought.