Oral Secret Trusts and the Realistic Prospect Test: Lorenz v Caruana & Ors

Introduction

Lorenz v Caruana & Ors ([2025] EWCA Civ 606) is a Court of Appeal decision concerning the viability of a claim for an oral secret trust in a will executed for the express purpose of avoiding inheritance tax. The deceased, Alan Lorenz, left his entire residuary estate to his civil partner, Sheila Caruana. His brother, Robert Lorenz, sued on the basis that Sheila held one half of that residue on a secret trust for himself and two other siblings. Sheila succeeded before the Master on a strike-out or reverse summary-judgment application, failed before the High Court judge on appeal, and then obtained permission to appeal to the Court of Appeal. The key issues were:

Whether Robert’s pleaded case disclosed a “realistic prospect of success” at trial;
Whether the three certainties for an oral secret trust (intention, subject matter, objects) could be established from circumstantial and contemporaneous evidence;
Whether the motive to avoid inheritance tax undermines the existence of a secret trust;
What standard applies on an application to strike out or for summary judgment in this context.

Summary of the Judgment

The Court of Appeal (Cobb LJ, with whom Stuart-Smith and Phillips LJJ agreed) allowed the appeal, reinstated the Master’s decision, and held that:

The correct test on a Part 8 strike-out or Part 23 summary-judgment application is whether the claimant has a “realistic prospect of success”—an evaluative judgment, not a broad discretion.
On the evidence as it stood, there was a real prospect that, at trial, Robert could prove the necessary intention, subject matter, and objects for a secret trust, based on oral communications to Sheila and contemporaneous attendance notes.
The motive to minimise inheritance tax, and the need to leave property “outright” to a spouse or civil partner, does not preclude the existence of a secret trust; it merely affects the strength of the evidence.
The High Court judge was wrong to strike out the claim: the Master had correctly concluded that there was a real prospect of further evidence emerging at trial (from Sheila or the note-takers) and that it was inappropriate to conduct a “mini-trial” at this interlocutory stage.

Analysis

Precedents Cited

Ottoway v Norman [1972] Ch 698: Established that a legatee who promises to carry out a testator’s instructions is bound in equity.
Re Gardner [1920] 2 Ch 523: Warrington LJ’s classic formulation of secret trusts.
Kasperbauer v Griffith [2000] W.T.L.R. 333: Emphasised the requirement of imperative (not precatory) language for trust intention.
In re Snowden [1979] Ch 528: Distinguished moral obligations from enforceable trusts.
Summary-judgment authorities (Swain v Hillman [2001] 2 All ER 91; ED & F Man v Patel [2003] EWCA Civ 472; Easyair v Opal Telecom [2009] EWHC 339; Doncaster Pharmaceuticals v Bolton [2007] FSR 63).
Azam v University Hospital Birmingham [2020] EWHC 3384 (QB): Summarised appellate review of discretionary interlocutory decisions.
Re Sprintroom Ltd [2019] EWCA Civ 932: On interfering with evaluative judgments under the realistic-prospect test.

Legal Reasoning

The Court’s reasoning proceeded in two stages: first, identifying the correct standard for interlocutory disposal of a secret-trust claim; and second, applying that standard to the pleaded case.

1. Standard on strike-out/summary judgment. The Court clarified that under Easyair and Swain v Hillman the inquiry is whether a claimant has a realistic (more than fanciful) prospect of success. This “evaluative judgment” can only be disturbed if there is some identifiable flaw—such as a gap in logic or failure to take account of material factors.

2. Application to the pleaded secret trust. To establish a secret trust, the claimant must show:

Intention—the testator intended to impose a binding obligation on the legatee (imperative language);
Subject matter—the property subject to the trust must be certain;
Objects—the beneficiaries must be sufficiently defined.

Robert relied on multiple strands of circumstantial evidence—contemporaneous attendance notes, recorded telephone calls, prior wills—to infer that Alan had given Sheila “instructions” to benefit his siblings. Sheila’s only direct evidence denied any instruction. The Court of Appeal held that, at this interlocutory stage:

There was at least a realistic prospect that Sheila’s future testimony or further documents could fill evidential gaps;
Contradictions in the solicitor’s notes as to whether Alan wished to avoid writing down his instructions could support an inference of an oral trust;
Questions as to what comprised “the residuary estate” and which family members were to benefit could also be addressed at trial by cross-examination, further disclosure, or adverse inferences if Sheila declined to give further evidence.

The fact that Alan’s prime motive was tax avoidance did not ipso facto negate the secret trust; it only accentuated the need for oral arrangements and explains the paucity of written evidence.

Impact

Lorenz v Caruana has several significant implications:

It reaffirms the “realistic prospect of success” test for interlocutory disposal of trust claims, emphasising an evaluative, not discretionary, approach.
It confirms that secret trusts may survive even when the testator’s motive is to optimise tax outcomes, provided there is evidence (even oral or circumstantial) of a binding arrangement.
It underlines the importance of attendance notes and related contemporaneous documents in reconstructing testator-legatee communications.
It encourages courts to resist premature strike-out of parol-based trust claims absent clear impossibility of establishing the necessary certainties.

Complex Concepts Simplified

Secret Trust: A trust imposed on a will legatee by agreement with the testator; enforceable in equity even if not in the will itself.
Three Certainties: (1) Intention—imperative, not merely wishful; (2) Subject Matter—the property must be clearly identified; (3) Objects—the beneficiaries must be sufficiently described.
Precatory vs. Imperative Language: Precatory (“I hope you…”) expresses a desire; imperative (“You must…”) creates a binding obligation.
Realistic Prospect Test: On summary judgment, a claim must be more than arguable—it must carry some degree of conviction, though not amounting to proof on the balance of probabilities.
Mini-Trial Prohibition: Interlocutory disposal should not involve granular fact-finding; the focus is on the strength of the pleaded case and the evidence that might be available at trial.

Conclusion

Lorenz v Caruana restores the Master’s decision, holding that the claimant’s secret-trust case against a civil partner beneficiary survives interlocutory challenge. The Court of Appeal affirms that:

Oral secret trusts remain viable even in tax-avoidance contexts;
The interlocutory test is whether the claimant has a realistic prospect of success at trial;
Circumstantial evidence, attendance notes, and the possibility of future testimony suffice to overcome summary-judgment hurdles when the pleaded case is coherent and potentially supported by further evidence.

This decision strengthens the principle that equity will enforce genuine oral trusts over testamentary gifts, protects claimants’ rights to explore such claims at trial, and clarifies the scope of interlocutory review under the Civil Procedure Rules.