Trust disputes—sham trusts
Trust disputes—sham trusts

The following Private Client practice note provides comprehensive and up to date legal information covering:

  • Trust disputes—sham trusts
  • Definition of 'sham' with examples
  • Intention
  • Sham trusts
  • Proving sham
  • Avoiding sham
  • Offshore settlements

The issue of sham is most likely to be raised by the settlor's creditors or former spouse if the settlor is involved in matrimonial proceedings, who will seek to argue that the assets transferred to the trustees still belong to the settlor, so are available to them for the purposes of enforcing an order of the court. If a trust is held to be a sham, it will usually be void with the trust assets reverting to the settlor's ownership.

A sham is a pretence, with the settlor and possibly also, the trustees, lacking the necessary intention to create a valid trust. They instead intend to create the impression to third parties and to the court, that they have created a valid trust by purportedly transferring the legal title to property to the trustees and the equitable interest in the property to the beneficiaries but in reality, retaining ownership of the property with the assistance, knowing or otherwise, of the trustees, as principal and agent/nominee on a bare trust for the settlor. It is the intention to deceive that is relevant.

An allegation that a trust is a sham is an allegation that:

  1. the settlor lacked the intention to create a trust in the terms set out in the trust instrument, and

  2. the trustee(s) knew this and joined the settlor in creating trust documents which mislead

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