The Theories Of The Fraud Theory Of Secret Trusts

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One of the reasons for why the courts enforce secret trusts can be explained by the fraud theory. Fraud theory is based on the maxim that “equity will not permit a statute to be used as an instrument of fraud”. [8] Equity will not permit the secret trustee to keep the property fraudulently to themselves relying on failing to comply with Wills Act’s requirements such as the terms not in signed writing, but instead will ensure them to hold the property on trust. [8] In this context, “fraud” should be understood as failing to give effect to the final intention of the testator by the secret trustee who has promised to carry out the trust obligation but then frustrate testator’s wishes and sacrifice the interest of the secret beneficiaries. In this …show more content…
Although the above justification seems to be fair for the doctrine of the secret trusts as it does not allow one from defrauding the testator or the intended beneficiary, there is some criticisms found in this theory.
First of all, it is argued that the fraud theory could fail in the cases of half secret trusts. Given the trustee is identified in the will, there could be no personal benefit gained by the trustee as the property is held on resulting trust for testator’s residuary legatee. This thus rise a doubt that whether it is also a fraudulent behavior since in the case of half secret trust, a secret trustee is never allowed to keep the property.
A justification for secret trusts based on fraud is considered as a reason why the secret trustee should not take the testator’s property as an absolute gift, but not by itself a reason why secret trusts ought to be enforced for the interest of the genuine beneficiates. A possible way round this problem is to give the term “fraud” a wider meaning. According to Allan’s analysis, case laws have shown that “the view that fraud must involve the secret trustee gaining personally was rejected outright”.
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[9] If we interpret “fraud” at wider view, it is construed that that the secret beneficiaries are equally defrauded in both fully and half secret trusts cases, and “the faith on which the testator relied is equally betrayed” since the beneficiaries cannot receive what they were supposed to receive. [6] It thus can be said that fraud theory is extended to justify half secret trusts. Such wide approach has some merit but in chorus can be considered as a fabricated theory conceived with an attempt to evade the criticism without actually defeating

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