A trust is a legal device for an individual, known as a settlor, to distribute their assets to one or more individuals, known as the beneficiaries. A settlor must first put assets into the trust to create a trust.
Another individual, known as a trustee, will then manage the trust and distribute the assets in the trust. The trustee performs these duties in accordance with the wishes of the settlor who intended to create the trust.
An example of an invalid trust is a sham trust. This type of trust is when a settlor does not distribute assets but instead wishes to create an impression that those assets have been eliminated.
The settlor creates this impression so that they can maintain actual control of the trust. A sham trust is created for an unlawful purpose, including:
- Tax evasion;
- Intent to defraud one or more creditors; or
- Other fraudulent purposes.
What is Required to Create a Valid Trust?
A trust that the settlor intends to create is called an express trust. To create a valid express trust, the trust’s creator distributes funds or property into the trust.
The property in the trust is then managed by the trustee, who holds the property or res in trust, meaning that the trustee holds legal title to the trust. The trustee holds the property in the trust subject to the rights of the beneficiary or beneficiaries or the individuals who are entitled to the trust property, as noted above.
What is a Secret Trust?
A secret trust is a type of trust where property is devised to an individual in their will document. The property in the trust is to be held by the trustee based upon the understanding that they will hold that property and then transfer it to the rightful beneficiary when the settlor passes away.
Therefore, upon the property owner’s death, the property is supposed to be held by the trustee until it is transferred formally to the beneficiary or beneficiaries. Overall, trust is a financial tool that allows for more control over how the property is transferred to another individual.
As previously noted, with a trust, the creator will pass their funds or property to another individual who will hold it, called the trustee. The trustee then releases and transfers that property to other individuals, or beneficiaries, as directed by the creator of the trust.
In general, there are two types of secret trusts: fully secret and semi-secret. With a fully secret trust, the existence of the trust is not mentioned in terms of the settlor’s will documents.
In other words, the will is completely silent regarding the existence of the trust or the trust property. Although the will may contain instructions, if there is no formal mention in the will of a trust, it will typically be labeled as a fully secret trust. In many cases, a fully secret trust is simply known as a secret trust.
What is a Semi-Secret Trust?
On the other hand, a semi-secret trust is a type of trust where the settlor’s will mentions the trust. Still, it does not specifically name a beneficiary or beneficiaries, or it is unclear on the specific terms of the trust. Therefore, the trust is semi-secret because only part of the information regarding the trust is written in the will, but important key provisions are left out.
Both secret and semi-secret trusts are fairly rare when it comes to will documents. Every state has its own set of laws that govern secret and semi-secret trusts. An individual may be required to consult with an attorney for details regarding their specific state laws.
What are the Effects of Secret and Semi-Secret Trusts?
Both fully secret trusts, as well as semi-secret trusts are, in general, discouraged under trust laws. A court would much rather work with will documents that clearly and directly describe the existence and details regarding the trust.
Therefore, if a will contains a secret or semi-secret trust, a court will typically provide some equitable remedy to resolve any uncertainties or ambiguities regarding the trust.
A secret trust or a semi-secret trust may result in one of the following equitable court actions or remedies:
- A secret trust: As an equitable remedy, a court will typically impose the introduction of a constructive trust. A constructive trust means that the court will create a new trust that more clearly establishes the rights of the various parties involved;
- Often, this is an appropriate remedy because, with a secret trust, the parties may not be aware of their rights if the trust is not mentioned at all;
- A semi-secret trust: This will typically result in the court issuing what is known as a resulting trust. A resulting trust is where the funds or property that was in the trust is returned to the testator or individual who created the will;
- This is considered an appropriate remedy because, with a semi-secret trust, the beneficiary or beneficiaries are not identified, or named. Therefore, the property owner will simply have the property returned to them. The property will be added to their total estate if they are deceased.
What are Some Common Disputes and Issues Involved with Secret or Semi-Secret Trusts?
Similar to any type of will and trust arrangement, various disputes and legal issues may arise. These disputes may have to do with various aspects of the trust or will document as a whole.
Examples of common concerns and conflicts which are related to secret trusts and semi-secret trusts may include:
- Disputes over the property: Often, disputes may arise over the property involved, including disputes such as a dispute related to a specific item or a dispute related to the amount of money supposedly held in the trust. In many cases, there can be uncertainties since the trust is not referred to or described in the will document;
- Disputes over beneficiaries: One common trust and will dispute is where other individuals contest the rights of others to receive property as beneficiaries. That is, there may be disputes as to which individuals are entitled to receive property;
- Again, these types of conflicts may be avoided if there is a more clear will or trust document in existence that provides instructions regarding the names and identities of beneficiaries.
Do I Need a Lawyer for Help with Secret Trusts or Semi-Secret Trusts?
A secret and semi-secret trust are types of trusts that are discouraged because many parties may lose their rights to property items of an estate. If you are involved in a dispute regarding secret or semi-secret trusts, you should contact an attorney in your area as soon as possible.
This is especially important if you anticipate a lawsuit or legal action regarding the trust. In many cases, a secret trust can be avoided altogether by using accurate and detailed drafting of your will and trust documents.
Your trust lawyer in your area can assist you with drafting your will documents in such a way that they are valid under state laws and avoid secret trusts altogether. Also, they can keep you updated if there are any changes in the law that might affect your legal rights and options.