Secret Trusts (NT)

The contents of a will are confidential while the will-maker (testator) is alive. After the will-maker dies and their will is probated, the contents of their will become public knowledge. However, a will-maker can create special testamentary instruments to shield their true intentions. Specifically, they can conceal a bequest through a secret trust. As the name suggests, a will-maker typically creates a secret trust to keep a bequest secret. The testator might want to privately benefit a political or charitable cause or make a bequest that would upset their family. For instance, a secret trust might be implemented to provide for an illegitimate child that has been concealed from the deceased’s acknowledged family. This article explains the role of secret trusts in testamentary arrangements in the Northern Territory.

Legal Requirements

From a legal perspective, a secret trust is an arrangement whereby a testator entrusts a trustee with property for the benefit of someone not named in the will. Under the Wills Act 2000, a testator can delegate in their will the power to dispose of deceased estate property. This includes making a secret trust in a will.

This type of trust only activates upon the testator’s death. A secret trust operates outside the will, so the normal statutory protocols do not apply. Instead, a secret trust is valid when there is evidence of:

• the testator’s intention to form the trust;
• communication of the testator’s intention to the trustee; and
• acceptance by the trustee of the duty.

To protect the trust, the testator should ensure that there is evidence of the elements of a valid agreement, namely intention, communication, and acceptance between the testator and the trustee. The trustee must also demonstrate that the secret trust is genuine, meeting the ordinary civil standard of proof, which is on the balance of probabilities.

Half secret and fully secret trust

A secret trust can be either half secret or fully secret. With a fully secret trust, the testator does not refer to the trust anywhere in the will. For instance, a testator could leave $100,000 in his will to his daughter, but privately ask the daughter to pass these funds on to his grandson, who is estranged from the family. In that scenario, creating this type of secret trust allows the testator to provide for his grandchild while avoiding the acrimony that would result if he made his wishes clear in the will. This secret trust is valid if the testator intended to make the secret gift to his grandson, asked his daughter to act as trustee, and she accepted the request.

There are evident dangers with making a fully secret trust in a will. The testator must choose someone as trustee who is absolutely trustworthy. It could be very tempting for the trustee to take the bequest as written in the will and disavow any knowledge of a secret trust. In addition, a fully secret trust can also fail if the trustee dies before they can reveal knowledge of the arrangement. In the Northern Territory, when a gift fails, the asset reverts to the residuary estate, which may result in a quite different outcome to the testator’s intention.

Alternatively, the testator can make a half-secret trust by naming a person a trustee in their will, but omitting the terms of the trust and the name of a beneficiary. For example, a testator can leave a bequest to a trusted family member giving no other details in the will. The beneficiary then follows the agreement that they made with the testator to pass the bequest on to another person. In that case, there is no question that the testator intended the trustee to receive the bequest as an absolute gift, and this offers some protection for the true beneficiary of the trust.

A testator might create this type of half-secret trust for practical reasons or for the sake of expediency. For instance, a farmer might own a valuable farm, but not want to bother with elaborate arrangements to protect the farm from being sold and divided up after his death. He could execute a simple will, leaving most of his deceased estate to one beneficiary on the understanding that the beneficiary will “look after” other family members as agreed. In this way, a testator might leave everything to his eldest child on the understanding that he or she takes over as “head of the family”, passing out funds as appropriate and practicable to other family members.

A secret trust is an option for a testator who wants to keep their testamentary arrangements from outside scrutiny. Both half-secret and fully-secret trusts allow for secrecy from public knowledge and can also allow concealment from other beneficiaries of the will. However, there are risks associated with making a secret trust in a will, which makes it essential to consult a solicitor before taking any action. Talk to Go To Court Lawyers today on 1300 636 846 for advice on testamentary trusts or any other legal matter.