Secret trusts are an interesting and strange animal indeed! Under common law, it is a form of trust effective on death but which does not actually appear in the will. It may or may not be in writing and usually involves a gift to a person in the will with a statement to that person, either orally or in writing, that the gift is to be held for the benefit or use of another group of people or another person. For the trust to be effective, that apparent beneficiary has to accept the role of trustee even if the words “trust” or “trustee” are not used in the communication. As long as the intention is clear and accepted by the would-be trustee, the trust will be established. Secret trusts are rare and difficult to prove, for obvious reasons.
In Cotte v. Dabrowski et. Al, 2010 ONSC 3436 (CanLII), the Court made reference to the principles of the secret trust are described by Professor Donovan W.M. Waters, Q.C., at page 269 of the 3rd edition of Waters’ Law of Trusts In Canada, 2005, Thomson Canada Limited as follows:
Whenever a person takes property beneficially under a will or on an intestacy, and it is shown that during the testator’s, or the intestate’s, lifetime the devisee, legatee, or intestate successor undertook to hold the property on trust for specified objects, he will be held to that obligation on the death of the deceased. What must be shown is that there was a communication to the devisee, legatee, or intestate heir of the deceased’s intentions, and an acceptance by that person of the request that he hold the property on trust for the enumerated person or purposes.
Milsom v. Holien, 2001 BCSC 868 (CanLII) was a case decided by the Supreme Court of British Columbia in which it was alleged that the testator had given some of his assets to his surviving common-law spouse, Elsie Holien, in a secret trust for certain Spanish relatives. The action concerned the estate of Frank Canas-Prats who died on April 10, 1999. He left a will in which the defendant, Ms. Holien, who had been his common-law spouse since 1984, was declared Executrix and sole beneficiary.
In its analysis, the Court determined that the essence of the matter was the intention of the donor. Specifically, did Mr. Canas-Prats intend, by his words, to bind Ms. Holien by a legally enforceable trust or, rather, to create a moral obligation to serve as a guide to her conscience?
In the end, the Court found that “Mr. Canas-Prats did not intend to create a legally enforceable trust. He intended his words to be suggestive of his wishes, to provide guidance to Ms. Holien’s conscience, but not to create an obligation enforceable in the courts.” The evidence the Court relied upon and accepted as fact included the fact that the deceased had sought and received advice from several professionals in the month that preceded the conversation with Ms. Holien. In that time frame, he replaced a will which contained significant bequests to the Spanish relatives with one which made Ms. Holien his sole beneficiary. Thus the Court concluded that, in the circumstances, if the deceased had wanted to create a legally enforceable obligation upon Ms. Holien tantamount to a secret trust, he would have done so in the will or in some other formal document. He would have sought the assistance of professionals as he had done in connection with the will and the transfers only the month before. The Court, therefore, concluded that the deceased’s actions were indicative of an astute personality, such that he would have created a formal trust in the will rather than a secret one.
Therefore, the allegation of a secret trust failed and Ms. Holien’s legal and beneficial title to the property in question was confirmed.
This case shows us why secret trusts are rare and difficult to prove. If you intend to create a trust to benefit someone, please contact Andrea Kelly to either have it formally established in a will or trust indenture or to explore effective alternatives.
Andrea Kelly, Lawyer, has extensive experience in wills, trusts, powers of attorney and estate administration matters. She provides clients with a high standard of timely professionalism and expertise, incorporating a very thorough fact finding process. This is quite often enlightening for her clients and facilitates individually tailored services. If you would like to know more, feel free to use the easy contact form or read Andrea’s bio.