Secrets, trusts and tax: The Court of Appeal opens the door in Lorenz v Caruana

The Court of Appeal’s decision in Lorenz v Caruana & Ors [2025] EWCA Civ 606 demonstrates how a lack of clear evidence may not necessarily be fatal for establishing the existence of a secret trust.

What is a Secret Trust?

A trust is a legal arrangement in which one party (the trustee or legatee) holds assets for the benefit of others (the beneficiaries), in accordance with the wishes of the person who creates the trust (the settlor or testator). A secret trust arises when the testator leaves an asset to someone under their will, but with a separate understanding – whether written or oral – that the recipient will hold that asset for others. Because this arrangement is not explicitly set out in the will, it is described as “secret”.

The Evidential Hurdles of Secret Trusts

By their very nature, secret trusts are difficult to establish. However, like other trusts, the court must be satisfied that:

Lorenz v Caruana: Facts & Procedural Journey

Alan Lorenz died on 13 February 2021, having executed a will on 12 November 2020 that left his entire residuary estate to his civil partner, Sheila Caruana.

In July 2023, Alan’s brother, Robert Lorenz, claimed that Sheila had agreed to hold one half of the residuary estate on secret trust for Robert and his siblings.

• At first instance, the Master dismissed Sheila’s application to strike out the claim, holding that it had at least arguable grounds.
• On appeal, the High Court struck out the claim, finding it speculative and unsupported by sufficient evidence.
• In 2025, the Court of Appeal overturned that decision, restoring the first instance decision and allowed the claim to proceed to trial.

The Court of Appeal’s Reasoning

The Court of Appeal emphasised that the High Court had applied the wrong test when striking out the claim. At the interlocutory stage, the question is not whether the claim is likely to succeed at trial, but whether it has a realistic, as opposed to fanciful, prospect of success. On this basis, Robert’s claim should not have been dismissed summarily.

The Court noted that there was at least some evidence supporting the existence of a secret trust. In particular, attendance notes from Alan’s solicitors in October 2020 recorded that Alan gave “instructions” to Sheila regarding his estate. The use of the word “instructions” suggested more than a mere hope or expression of a wish and instead pointed to the possibility of a binding obligation being imposed.

The Court also held that the lack of clarity around the reference to “the residuary estate” was not fatal at this stage. Ambiguities in the scope of the alleged trust were factual matters that ought properly to be tested at trial.

Importantly, the Court highlighted that Sheila herself had not yet provided substantive evidence in response to the claim. The prospect of further material emerging through disclosure, witness statements and cross-examination was another reason why the claim should be permitted to proceed.

Interestingly, Alan’s long-standing aversion to paying tax gave additional credibility to Robert’s case. Alan had previously received legal advice that an outright gift could avoid inheritance tax if he survived seven years after making it. This lent weight to the argument that Alan’s intentions went beyond the face of the will, even if such tax-motivated secrecy ultimately made the arrangement more difficult to prove.

Lessons from Lorenz v Caruana

This decision provides several important takeaways:

1. Secret trusts can resist early dismissal. Even where documentary evidence is limited, courts may be reluctant to strike out claims summarily if there is a real prospect that further relevant evidence could emerge at trial.
2. Writing alone is not enough. While some testators may prefer secrecy, disputes are less likely where there is a clear written record. After all, one makes a will and plans succession precisely to avoid ambiguities that may give rise to conflict. The last thing most testators intend is for their families to become embroiled in litigation over their estate. Even with secret trusts, it is possible to document the arrangement confidentially – for example, through a sealed memorandum or letter of wishes kept securely until it is needed. This preserves secrecy while minimising risks of later conflicts. However, writing alone is not a complete solution. If the secret trustee is the only person holding any paperwork about the trust, there is a real risk they could destroy it and claim the trust monies as their own. To mitigate this, the testator (or those advising them) should be careful in selecting the trustee and ensure that an additional party – such as a solicitor – is aware of the trust’s existence. This extra layer helps maintain secrecy while safeguarding against potential abuse.
3. Equity’s flexibility endures. The Court of Appeal’s approach underlines the role of equity in ensuring unconscionable outcomes are prevented.

Lorenz v Caruana clarifies that claims grounded in oral or informal trust agreements can survive summary dismissal where there is a real prospect of evidential support at trial. This opens the door to a full evidential investigation – through disclosure, statements, and cross-examination.

If you have any questions regarding this article, please contact Justin Briggs or the author, Simon Lellouche. This update was written with the assistance of Paddy Carey.