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.
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 30th 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.
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.