A court battle over the estate of the late artist Lucian Freud has put the spotlight on the little known area of law of secret trusts. The artist had 14 children. After he died on 20th July 2011 it quickly became apparent that his estate of some £42m had been left to his solicitor and one of his daughters (who were also appointed as executors of the Will).
Lucian Freud’s son Paul challenged the validity of the Will; if it was found to not be valid his father’s estate would pass under the intestacy rules which would mean that it would have been divided equally between all 14 children.
The executors of the Will argued that the £42m was being held by them under a “secret trust”. A Will becomes a public document as soon as a grant of probate is made (this is a document that gives an executor power to deal with a deceased’s assets after their death). Freud wanted to keep his wishes entirely private and, on legal advice, used the little known option of creating a hidden trust.
The solicitor and daughter said that before his death Lucian Freud had told them what he wanted them to do with the money – and that he didn’t want his other children to know what that was. It was made clear to Paul Freud by the executors that he was not to benefit under the trust. So what is a secret trust? Simply put, a trust can be described as a relationship created at the direction of an individual, in which one or more persons hold the individual’s property subject to certain duties to use and protect it for the benefit of others. The person who holds the property for another’s benefit is called a ‘trustee’ and the person who benefits from the trust is the ‘beneficiary’.
In a fully secret trust the Will does not reveal that a trust exists at all. It is simply an earlier agreement between the maker of the Will and the trustees during their lifetime. Half secret trusts arise when a Will refers to a trust but is silent about any specific instructions – for example A might leave a bequest to B “for the purposes for which I have told him.”
Paul Freud argued that in fact, his father had tried, and failed, to create a half secret trust, which made the Will invalid. However, at court, the executors of the Will successfully established that a fully secret trust had arisen.
The drama may not be over because Paul Freud and his siblings could bring a separate challenge under the Inheritance Act 1975 to say that the Will did not make “reasonable financial provision” for them. It is possible for adult children to bring claims against a parent’s estate but these claims are not easy to pursue unless, for example, the adult child was financially dependent on their parent at the time of their death.
Ridley & Hall Partner Sarah Young comments:
“Fully secret and half secret trusts are rare – and it’s easy to understand why the artist’s son in this case was suspicious. On the face of it his father was leaving his incredibly large fortune to his solicitor and one daughter. But it is clear that Lucian Freud had received professional advice and the law does permit secret arrangements like this. Historically, in Victorian times, men who had a mistress and illegitimate children wanted to be able to provide for them without their legitimate family finding out after their death; secret trusts provided an opportunity for them to retain a veneer of respectability.”
She went on to add:
“Generally speaking it’s not a course of action that would be recommended by solicitors because of the risk of a dissatisfied family member challenging the trust. Also, of course, the Will maker is relying heavily on his trustees to do what they are asked to do after he has died! The best way to try to prevent disputes after your death is to make a Will with the benefit of expert legal advice from a solicitor.”
Sarah Young is a Partner with Ridley and Hall solicitors in Huddersfield. She specialises in inheritance disputes and has a particular interest in cases involving missing people and financial abuse.
For further information please contact Sarah Young of Ridley & Hall, Queens House, 35 Market Street, Huddersfield HD1 2HL on her direct dial 01484 558838 or her mobile 07860 165850.