Separate agreement amounts to secret trust, not testamentary instrument: N.S. Court of Appeal

While secret trusts need not be “secret,” they are private and generally do not become public documents, unlike wills in most common law jurisdictions, the Nova Scotia Court of Appeal has said. Because of their secrecy, their obligations do not appear in the will.

In Gough v. Leslie Estate, 2022 NSCA 25, the testator executed a 2014 will, which gifted his home to his daughter – the respondent in this case – and appointed her as executor. The will gave RRSP and pension plan funds to the appellant, who had a common law relationship with the testator.

That same day, the testator, the appellant, and the respondent made a written agreement. The agreement provided that, after the testator’s death, the appellant could live in his home on certain terms and would enjoy the income from his RRSP, the capital of which would go to the respondent upon the appellant’s death.

In November 2015, the testator and the appellant had a falling out. The testator made a new will revoking all of his former wills and testamentary dispositions and gifting the residue of his estate, including his residence, to the respondent. The 2015 will did not mention the appellant or the 2014 agreement.

In 2018, the testator signed a codicil to his 2015 will which specifically gifted a registered retirement income fund to the appellant and his estate’s residue to the respondent.

The appellant remained in the testator’s home after his death. The respondent filed a court application under the Probate Act raising certain contentious matters. The judge ruled that the 2014 agreement was a testamentary instrument, which was revoked in the testator’s 2015 will.

The Nova Scotia Court of Appeal, in allowing the appeal, held that the 2014 agreement was not a testamentary instrument and was instead an agreement creating a secret trust. The issue of whether the 2014 agreement made a secret trust was not new – rather, it arose from the testamentary instrument question that the respondent raised. Ignoring the issue could lead to injustice, the appellate court added.

The appeal court rejected the respondent’s contention that the agreement could not be a secret trust because it was not a secret. It also dismissed the respondent’s argument that the agreement failed to certify the three certainties for forming a trust.

The agreement described what the testator intended, what property was subject to a beneficial claim, and who the beneficiaries were, as well as complied with a secret trust’s particular requirements, the appeal court said. Since the agreement created a secret trust, it could not be a testamentary instrument and was not revoked by subsequent wills.

The lower court judge questioned the 2014 agreement’s enforceability because it qualified the absolute gift of the house to the respondent contained in the 2014 will and therefore appeared to offend the principle against repugnant gifts.

The appeal court, determining that the secret trust did not offend the repugnancy principle, agreed with the appellant’s submission that creating a trust that modified an otherwise absolute gift did not necessarily engage the principle, which would only be offended depending on the circumstances.

The appeal court made no conclusion on the question of whether the secret trust was properly constituted and thus enforceable, or whether it was enforceable on contract principles, since the parties had sought bifurcation and a second hearing on the agreement’s efficacy if the court found the agreement not to be testamentary.