The Succession Law Reform Act, sets out the formalities a Will must comply with to be valid in the Province of Ontario. Section 3 of the Succession Law Reform Act states that: “A will is valid only when it is in writing.” Surprisingly, this isn’t the full story. Judges have long provided for a back door to this requirement in the form of secret trusts. The exception is based on the maxim that equity will not allow a statute to be used as an “engine” of fraud.
By using the secret trust mechanism, a person who makes a Will (i.e. a testator) may turn what appears to be an outright gift to a beneficiary of their Will into an asset that is held in trust for someone who is not even named in the Will. Essentially, the beneficiary of the estate is required to use the gift for the benefit of an unnamed person. These trust obligations are then enforceable by the unnamed beneficiary.
In addition to the usual trust requirements of certainty of intention, objects and subject-matter, a secret trust must satisfy two further elements to come into existence: The first element is communication. There must be communication between the testator and the person who is named to receive the gift in the Will. This named person then becomes the trustee of the secrete trust. The communication between the testator and the named person must convey the terms of secret trust. This person must be told who the beneficiary of the secret trust is and what property they are to hold within the secret trust. This communication obviously must occur before the testator dies. The second element is acceptance of the offer by the named person, which can be made expressly, or their acceptance can be implied. Acceptance may be found to have impliedly accepted if the named person stays silent as to whether they accept their role as trustee of the secret trust, as opposed to taking the gift in the Will for themselves, personally.
Surprisingly, the person setting up the secret trust need not have executed a Will to create the secret trust. If this individual does not set up the secret trust by leaving the trustee of the secret trust assets within their Will, the person who sets up the secret trust is known as the settlor, instead of the testator. An individual may create a secret trust without executing a Will by asking a beneficiary who is to share in the settlor’s estate under the rules of intestacy to be the trustee of a secret trust for a beneficiary. As long as the elements described above exist, the beneficiary of the secret trust will be able to enforce their rights under the secret trust.
The issues surrounding secret trusts involve supporting their validity. By their very nature, the terms of the secret trust are not written out, this means that all the evidence in relation to the existence of a particular secret trust is only contained within the minds of those who know about it. The onus of proving the existence of the secret trust rests on the party who is attempting to enforce its terms. The party must meet the civil standard of proof, which is proof on a balance of probabilities.
The foregoing should not be considered to be legal advice and should not be relied upon as such. Please consult a lawyer to get advice and an opinion on your unique circumstances.