Secret trusts

Secret and trusts are essentially trust arrangements made between a testator and a trustee, without written disclosure or agreement of the terms of the arrangement, but where an understanding exists between the parties.

Based on precedent in case law, the essential elements of a secret trust are:

•  An intent by the testator to subject the trustee to an obligation in favour of a beneficiary;
• Communication of that intent to the trustee;
• Acceptance of the obligation by the trustee, either expressly or implicitly; and
• The obligation is satisfied according to the wishes of the testator.

In Bergler et al. v. Odenthal, 2019 BCSC 1882, Ms. S passed away without a will. However, prior to her passing, she gave her common law spouse (“Mr. O”) specific instructions about her estate. She told him that she wanted her entire estate be given to her niece.

Subsequent to Ms. S’s passing, Mr. O. kept Ms. S’s estate assets and, according to his testimony in Court, he intended to give the estate assets to the niece when he passed away. In this regard, Mr. O created a will wherein he divided the residue of his estate into ten shares, and left three tenths of those shares to the niece. He confirmed in evidence that he estimated 3/10 of the residue of his estate to be equal to the value of Ms. S’s estate on her death. Mr. O confirmed that his intention in creating this will was to put Ms. S’s wishes into effect.

However, according to the niece’s family (which included the deceased’s sister), Ms. S wanted her estate to go back to her family after her death, that she told Mr. O. he was to transfer her estate when he began a relationship with a new partner. Specifically, she wanted her niece to receive all her estate because she didn’t have a career or a home and was planning to go back to school.

After hearing testimony from Mr. O and various members of Ms. S’s family, the Court determined on the balance of probabilities that a secret trust was created. Mr. O admitted that he had discussed Ms. S’s estate before she died and that she wanted her estate to go to Susanne. As Ms. S trusted Mr. O regarding her affairs and finances, she relied on him to fulfill his obligation as a “trustee to the trust”. It was noted by the Court that, in circumstances where a person dies intestate relying on the fact that her intestate heir has accepted the trust, the law will compel the trustee to carry out the trust.

Further, the Court determined that Mr. O breached the conditions of the trust as he did not maintain the estate assets separate for Ms. S’s niece and he had not transferred the estate according to Ms. S’s wishes. Therefore, the niece was entitled to Ms. S’s estate long before the Court Action and was entitled to certain additional remedies accordingly.

Secret and trusts are essentially trust arrangements made between a testator and a trustee, without written disclosure or agreement of the terms of the arrangement, but where an understanding exists between the parties.

Based on precedent in case law, the essential elements of a secret trust are:

• An intent by the testator to subject the trustee to an obligation in favour of a beneficiary;
• Communication of that intent to the trustee;
• Acceptance of the obligation by the trustee, either expressly or implicitly; and
• The obligation is satisfied according to the wishes of the testator.

In Bergler et al. v. Odenthal, 2019 BCSC 1882, Ms. S passed away without a will. However, prior to her passing, she gave her common law spouse (“Mr. O”) specific instructions about her estate. She told him that she wanted her entire estate be given to her niece.

Subsequent to Ms. S’s passing, Mr. O. kept Ms. S’s estate assets and, according to his testimony in Court, he intended to give the estate assets to the niece when he passed away. In this regard, Mr. O created a will wherein he divided the residue of his estate into ten shares, and left three tenths of those shares to the niece. He confirmed in evidence that he estimated 3/10 of the residue of his estate to be equal to the value of Ms. S’s estate on her death. Mr. O confirmed that his intention in creating this will was to put Ms. S’s wishes into effect.

However, according to the niece’s family (which included the deceased’s sister), Ms. S wanted her estate to go back to her family after her death, that she told Mr. O. he was to transfer her estate when he began a relationship with a new partner. Specifically, she wanted her niece to receive all her estate because she didn’t have a career or a home and was planning to go back to school.

After hearing testimony from Mr. O and various members of Ms. S’s family, the Court determined on the balance of probabilities that a secret trust was created. Mr. O admitted that he had discussed Ms. S’s estate before she died and that she wanted her estate to go to Susanne. As Ms. S trusted Mr. O regarding her affairs and finances, she relied on him to fulfill his obligation as a “trustee to the trust”. It was noted by the Court that, in circumstances where a person dies intestate relying on the fact that her intestate heir has accepted the trust, the law will compel the trustee to carry out the trust.

Further, the Court determined that Mr. O breached the conditions of the trust as he did not maintain the estate assets separate for Ms. S’s niece and he had not transferred the estate according to Ms. S’s wishes. Therefore, the niece was entitled to Ms. S’s estate long before the Court Action and was entitled to certain additional remedies accordingly.

As featured on All About Estates Blog where Baker Tilly WM Partner, Steven Frye, is a regular contributor.