Artist’s Million Pound Estate Passes Under “Secret Trust”

Once a testator has died and probate has been granted, the Will becomes a public document. This means that the people benefitting under the Will can be identified by anyone who views it.

Secret Trusts allow Testators to leave part or all of their estate to individuals without the need to name them in their Will.

Instead, the Will names somebody else as the beneficiary of the property. This person will have agreed with the Testator that they will not inherit the property absolutely but instead will act as a Trustee and will distribute the property to a third party not named in the Will.

In this case, anyone viewing the Will will be led to believe that the Trustees have inherited the property but in fact, the property will have been passed the unnamed “secret beneficiaries”. The most common use of the secret trust is to make provision for illegitimate children or mistresses.

The recent case of Rawstron v Freud shows how a secret trust works in practice. Artist, Lucian Freud died in 2011 leaving an estate amounting to £42million (after the deduction of tax and specific legacies) to his daughter, Rose and his solicitor, Diana. Rose and Diana subsequently revealed that the Deceased had instructed them to distribute “their inheritance” amongst a number of undisclosed beneficiaries, thereby creating a secret trust.

Paul Freud, an illegitimate son of the Deceased, claimed that the trust was invalid. If the trust failed, there would be no replacement provision for the residuary estate and he would inherit a share under the intestacy rules.

The dispute relied on the question of whether the Will had created a fully secret trust (where the trustees appear to inherit absolutely) or a half-secret trust (where it is clear that the trustees are to hold the property on trust but the beneficiaries are unknown) and whether the correct formalities had been adhered to.

The Court found that the trust was fully secret as nobody would have known that Rose and Diana were to pass the property on had they not said so. The trust was held to be valid and the trustees were permitted to distribute to the secret beneficiaries as the Deceased had intended.

It is a false assumption that secret trusts are rarely used in practice. The case of Rawstron v Freud shows how the structure can and still does allow Testators to keep the identity of their ultimate beneficiaries private.

Myerson Solicitors LLP provide specialist advice relating to wills, probate, probate disputes, inheritance tax planning and powers of attorney to clients in Manchester and Cheshire.

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