When does a promise become more than a promise?
In the recent case of Bergler v Odenthal (“Bergler“), the BC Supreme Court had the chance to revisit the concept of the “secret trust”.
A secret trust is created when:
- a person gives property to another person;
- communicates to the recipient that the property is to be dealt with in a specific way when some particular event occurs; and,
- the recipient accepts the obligation to deal with the property in that specific way.
In Bergler, Ms. Stuhff told her common-law spouse, Mr. Odenthal, that she wanted her assets to go to her own family and specifically to her niece, Ms. Bergler. Mr. Odenthal apparently told Ms. Stuhff that he would follow her wishes.
Ms. Stuhff died without a Will, which meant that Mr. Odenthal would receive her entire estate on intestacy. He treated the estate assets as his own and did not transfer any of those assets to Ms. Bergler. However, he did make a new Will leaving 3/10 of his estate (which worked out to an amount roughly equivalent to value of Ms. Stuhff’s estate) to Ms. Bergler.
Ms. Bergler believed that Ms. Stuhff’s estate should be transferred to her immediately, so she sued Mr. Odenthal. The Court agreed with Ms. Bergler and ordered that Mr. Odenthal pay her the value of Ms. Stuhff’s estate. The decision was based on the concept of the secret trust – Mr. Odenthal had accepted the trust conditions when he received the assets, was bound by them, and Mrs. Bergler was entitled to Ms. Stuhff’s assets.
Mr. Odenthal appealed this decision, but it was upheld by the Court of Appeal (appeal decision here).
The concept of the secret trust is an important and interesting one. In this case, for instance, the obligation that Mr. Odenthal accepted had the effect of overriding his right to receive Ms. Stuhff’s estate for himself on intestacy. We are left to wonder whether, in some future case, a secret trust might similarly override the right of a spouse or child to vary the testator’s Will for being unfair – remembering that the power to vary a Will does not extend to trusts. For example, rather than leaving an unfair Will that could be challenged under a Wills Variation action by the disappointed spouse or child, the would-be will-maker instead gives the asset to the recipient, and obtains the recipient’s promise to deal with it in a certain way, thereby creating the “secret trust”. This secret trust cannot be challenged by the disappointed spouse or child in the same way that the Will could have been.
In any event, the takeaway from this case for legal and financial professionals is two-pronged – first, the Courts may enforce trust obligations even if they are not in writing; and second, the family in this case would have saved a presumably stressful and expensive lawsuit if Ms. Stuhff had only put her wishes into some form of written express trust.