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Secret Trusts - An Overlooked Plaintiff's Remedy?
Until my recent involvement as counsel on the appeal of Glasspool v. Everett, I had basically thought secret trust cases involved little old ladies handing a letter to their lawyer/executor, that imposed certain "secret trust" conditions that dealt with the disposition of the assets of the estate, that were not evident on the face of the will. While this fact pattern is indeed true of certain types of secret trusts, it really does not tell the entire storey of just how powerful the secret trust claim can be as a legal remedy. As Glasspool v. Everett, and other cases discussed hereafter will
indicate, an oral conversation can indeed create a secret trust,
that will be enforced by the Courts, even though the conversation
circumvents the requirements of both the Wills Act and the Statute
of Frauds. In 1677 the British Parliament passed the Statute of Frauds. The Statute provided, inter alia, that no devise of lands could be valid unless it was in writing, signed by the testator or someone acting under his or her directions, and properly witnessed. Approximately a hundred and seventy years later, the Wills Act was passed by the British Parliament. That Act required all wills to be in writing, signed by the testator or someone in his presence acting under his or her directions, and to be witnessed by two persons. Subsequently, all of the common law provinces of Canada adopted these requirements. The law of trusts, including that of secret trusts, arose out of the provisions of initially the Statute of Frauds, and then the Wills Act as well. Many people attempted to circumvent these statutes, particularly by attempting to impose oral trust obligations on certain persons for certain purposes. From early on, the British Courts had little difficulty deciding that the Statute of Frauds could not be used as an instrument of fraud. The Courts held that evidence was permitted as to the terms of the trusts, even though those terms were not created in proper testamentary form. Concurrently, the law in England prior to the passing of the Executors
Act of 1830, allowed the executor of an estate to take the residue
of the estate beneficially if the residue was not otherwise properly
disposed of. As the Courts were very reluctant to allow an executor
to inherit the residue, the Courts went to extremes to prevent this.
One method used by the Courts to this end, was to find that certain
testamentary language was of a precatory nature, that only revealed
an intention of the testator to transfer the residue in trust, and
not absolutely. A precatory trust meant that the words used to create
the trust were merely an expression of the testator's wish, but
were not to be held by the Courts to be imperative. The question
usually came down to whether the gift was absolute, or whether the
words used were precatory. If it was the latter then the gift was
not absolute, but instead was based on a trust. A fully secret trust arises where a testator gives property to
a person apparently beneficially, but has told that person certain
trusts on which the property is to be held. The trust arises outside
of the will, is hidden from view, and is revealed only by extrinsic
evidence. Where the beneficiary agrees to act as trustee or acquiesces
in such arrangement, a Court of equity will enforce the secret trust
to prevent the requirements of the Wills Act, or the Statute of
Frauds, from being used as an instrument of fraud. The communication
can be either oral or in writing, or both. 4. WHAT IS REQUIRED TO CREATE A SECRET TRUST? A plaintiff must prove on the balance of probabilities that: There was an intention of the testator to subject a primary donee to an obligation in favour of a secondary donee; There must be communication of that intention from the testator to the primary donee; The primary donee must accept to carry out that obligation. The method by which the primary donee is to carry out the obligation, whether by the making of a will in favour of the secondary donee or by some form of inter vivos transfer, is immaterial. Ottoway v. Norman [1971] 3 All E.R. 1325 and Hayman v. Nichol [1944] 2 D.L.R. 4 (S.C.C.) The facts in Ottoway v. Norman were as follows: The testator owned a bungalow where he lived with his housekeeper, and they in fact lived together as man and wife for many years. The testator's son from a former marriage frequently visited. On one visit the testator told his son in the presence of the testator's wife, that his wife should have the bungalow for the rest of her life, but that she should then leave it to his son on her death. The wife agreed to that plan. The testator subsequently made a will by which he devised the bungalow to his son. He also left his wife a pecuniary legacy and the residue of his estate divided between his son and wife. Between the date of the will and his death, the testator discussed the future plans for the bungalow with both his son and wife on a number of occasions. Immediately after the testator's death, his widow made a will where she devised and bequeathed all of her real property to the testator's son and his wife. However five years later the wife made a new will whereby she appointed a third party who had become her friend after the testator's death, to be her executor. The following year she had a discussion with the son with respect to the construction of a proper bedroom to the bungalow and the son agreed to pay for it since the bungalow was going to be his. The son and widow then had an argument over the plans, and the widow subsequently changed her will whereby she left the bungalow to the third party and his wife. Following the widow's death, the son and his wife sued alleging that the estate of the widow held the bungalow in trust for the son and his wife, and the Court action was allowed. In Hayman v. Nichol, the Supreme Court of Canada dealt with whether a secret trust had been created or not, on the following facts, namely: The testatrix died in 1937 having made her last will and four codicils thereto. In the fourth codicil she bequeathed an amount of money which she had on deposit at her death to her daughter, in "full confidence that she will dispose of the same in accordance with the wishes I have expressed to her". The daughter received the money and treated it as her own, and died intestate in 1940, without having disclosed any wishes of the testatrix mentioned in the codicil. The residuary legatees of the testatrix brought an action against the administrator of the estate of the daughter, alleging that the bequest to S was a trust which the daughter failed to carry out, and thus in the absence of any evidence showing the nature of the trust, the money should go to the residuary legatees. The Court followed the reasoning stated aforesaid in Ottoway v. Norman, but declined to impose a secret trust on the wording of the will, on the basis that the language of the will was precatory, not imperative, and thus did not create a legal obligation. 5. PRECATORY VERSUS IMPERATIVE WORDING: Dr. Donovan Waters, in the Law of Trusts, 2d ed., page 110 states that: Every care has to be taken not to make mandatory words from those which are the mere indication of a wish or request and that to construe the true intention of the testator the Courts must examine the will as a whole and not be mesmerized by particular words. Dr. Waters relies upon the decision of Re Atkinson (1911), 103 L.T. 8 60 at 862 (CA) for this proposition. Justice Fletcher Moulton L.J. in Re Atkinson stated: "I can see that there has been a very great change of opinion in later years, if one regards the words which are considered to create a precatory trust now and what words were so considered in olden times. but I do not think that the principle on which the courts have acted can have changed. The principle is that you have to find from the words of the will the intention of the testator. The doctrine of precatory trusts does not mean that the courts may create an intention which they do not think from the words of the will was in the mind of the testator. It means that they may come to the assistance of weak or even inapt words and recognize his intention to create a trust in spite of the language being such that lawyers would not have used it for that purpose. It only meets the case of recognition of the intention of the testator and is not a doctrine by which an intention that did not exist is read into the will." The more modern view of the Courts is probably that precatory words may in fact create a trust, if it can be established on the evidence as a whole that the testator clearly intended to create a trust. There probably are really no such things as precatory trusts anymore, if the precatory words are imperative. If the precatory words are imperative, then the trust is an expressed trust. If the words used are not imperative, then there is no trust at all, and it's a matter of interpretation. See McHugh v. McGuire 1917 (45 NBR 167) 6. REQUIREMENTS OF THE THREE CERTAINTIES TO CONSTITUTE A TRUST: 1. Certainty of Intention It must be clear that the settlor intended that the property received by the trustee to be held in trust, is a binding obligation and not just a moral wish. The language used by the alleged settlor must be imperative, with the intention of creating legal relations. 2. Certainty of Subject Matter The trust property must be clearly identified as must the entitlements of the beneficiaries in the property. It must be possible to clearly identify the property which is to be subject to the trust. In addition, even if the trust property is clearly defined, the share or shares in that property to which the beneficiaries are entitled must also be clearly defined. 3. Certainty of Objects The beneficiaries or purposes for which the trust property is held must be clearly identified. The word "objects" is a neutral word because a trust may be created in favour of persons, as well as in favour of purposes, which the settlor or testator would like to see carry out. For example, the settlor or testator may not wish to benefit an individual directly, but instead may wish to indirectly benefit individuals through the use of a trust to "fund cancer research". If any one of the three certainties does not exist, the trust fails to come into existence and is void. 7. EXAMPLES OF SUCCESSFUL CLAIMS FOR SECRET TRUSTS a.Re D'Amico 1974 2 W.W.R. 559 - one of the most "classic" fact patterns involving a secret trust is found in Re D'Amico. Facts: Held: In Blackwell v. Blackwell [1929] A.C. 318, at 339, Lord Summer stated: "It is communicated of the purpose to the legatee, coupled with acquiescence or promise on his part, that removes the matter from the provisions of the Wills Act [1837 (Imp.), c. 26] and brings it within the law of trusts. b. Re Romanow 17 Sask. R. 38 Facts: Held: c. Re Poohachoff Estate [1971] 1 W.W.R. 463 Facts: Held: d. Glasspool v. Motiuk and Everett (1998) 22 ADAIR (2d) 66; upheld by the B.C. Court of Appeal January 19, 1999, Vancouver CA024500. This decision in my view is somewhat of a high water mark in terms of an oral conversation creating legal obligations that circumvent both the Wills Act and the Statute of Frauds. The facts of the case briefly stated are as follows: Facts: The Trial Judge regarded the mineral rights as a secret trust in favour of the plaintiff, and not forming part of the testator's estate that had been bequeathed to his common-law wife. The deceased had not seen the plaintiff in approximately twenty-five years. The Trial Judge believed the evidence of the independent witness as to the conversation that led to the creation of the secret trust. The entire evidence that created the secret trust was as follows: Q. Is that -- yes. Did you have -- Did you and Larry, your brother, Larry and you, the deceased, Larry, you, and your mother have a conversation about a will? A. Yes, we did. Q. Yes, what was that conversation? A. She wanted Larry to leave his share of the oil rights to his son. Q. That would be the plaintiff? A. Yes. Q. Now, what did Larry say to that? A. He agreed. Held: the intention of the testator (the grandmother) to subject the primary donee (the deceased) to an obligation in favour of the secondary donee (the plaintiff); the communication of that intention by the testator to the primary donee; and the acceptance of that obligation by the primary donee. The Trial Judge found that the grandmother's use of the word "want", was not precatory, and that she intended to create a legal obligation by the use of that word. Accordingly the mineral rights did not form part of the deceased's estate, and were imposed with the provisions of a secret trust in favour of the plaintiff. The Court of Appeal had no difficulty at all in unanimously finding that the Trial Judge came to the conclusion that the grandmother did in fact intend to create a binding trust, and that the essential ingredients of her finding a secret trust were present. As such the Court would not interfere with the Trial Judge's findings. The Court of Appeal also stated that corroboration is not an essential ingredient and the evidence of the independent witness was treated by the Trial Judge as being disinterested evidence, and itself was corroborative of the claim that was being put forward by the plaintiff. The Court of Appeal in Glasspool v. Everett also stated that while corroboration is required as a matter of practice, corroboration is not an essential ingredient to prove a secret trust. In any event the evidence of the independent witness in Glasspool v. Everett, was treated by the Trial Judge as being a disinterested evidence, and itself was corroborative of the claim that was being put forth by the plaintiff. In J.M. Lumber King Ltd. v. Von Transehe-Roseneck Estate, Mr. Justice Hutchinson examined the necessity for corroboration in claims by or against deceased persons, and after stating several authorities, found that there is a rule of practice but not a rule of law in British Columbia, that corroboration is generally required for a claim against an estate of a deceased person. At paragraph 7 of his decision, Mr. Justice Hutchinson states "Counsel submits that the Courts generally require corroboration before allowing a claim against the estate of a deceased person. Until 1976 there was a statutory requirement in s. 11 of the Evidence Act, R.S.B.C. 1960, c. 134, which provided that a party could not obtain judgment against the estate of a deceased person on his own evidence alone, unless the evidence was corroborated by some other material evidence. In 1976 that section was repealed, S.B.C. 1976, c.2, s. 20(a) and the law that is to be applied is the law that existed before that legislation. The common law rule and the rule applied in equity was summarized by the Supreme Court of Canada in Adamson v. Vachon (1974) 6 W.W.R. 114 by Anglin, J. at page 20: "A more suspicious claim against a dead man's estate it would be difficult to imagine. While there is no absolute rule requiring corroboration in the case of a claim against the estate of a deceased person (In Re Griffin (1898) 1 Ch. 408, 413, 68 L.J. Ch 220), the uncorroborated evidence of a claimant will be regarded with jealous suspicion (In re Garnet (1885) 31 Ch. D. 1), and the Court will in general require corroboration (In re Hodgson, 31 Ch. D. 177, 183, 55 L.J. Ch. 241). The plaintiff's testimony did not convince the learned Chief Justice who heard it. The Court ought to be completely satisfied before allowing such a claim as this (Rawlinson v. Scholes (1898) 79 L.T. 350. I am far from being so satisfied". "In a more recent decision Aikins J. in Re Murray (1966), 60 D.L.R. (2d) 76 (B.C.S.C.), suggested that this was a rule of practice rather than a rule of law. I proposed to apply those principles to the claim against the estate of the personal defendant as fairness requires that any allegation that cannot be rebutted due to the death of the defendant be very carefully scrutinized." 9. CONCLUSIONThose of you reading this paper for the first time may be reminded of various oral conversations that your clients may have related to you in your office, that may not have been acted upon by yourself, due to lack of knowledge about the scope of the secret trust as a legal remedy. I am of the opinion that the Glasspool v. Everett decision did not create any new law, but simply reminded us that the law of secret trust can circumvent both the Wills Act and the Statute of Frauds. I suspect that we will see a lot more litigation in the future under this head of claim. |
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