ILLUSORY TRUSTS IN DIVORCE PROCEEDINGS

An article in Thought Leaders 4 Private Clients Magazine Issue 2 says that there should shortly be persuasive guidance from the Privy Council on the existence and scope of illusory trusts.  Until then, the article states, existing case law suggests that the illusory trust concept is an attractive weapon in the armoury of applicant spouses seeking to attack trusts in financial remedy proceedings, and a growing concern for those seeking to “divorce-proof” assets using trusts.  An illusory trust, which need not be a “sham trust”, is an arrangement that gives the outward impression of being a trust, but is not in fact so because of powers retained in the settlor. The apparent trustee has no power to deal with the property of the trust. In illusory trusts the settlor retains so much control that, in effect, no trust exists.  Trusts & Trust from OUP says that “The question whether a trust is a sham is a different question from the question whether the control of the settlor over the trust fund and its income under the terms of the trust is so extensive that the trust is invalid as an illusory trust; and it does not follow from a decision that a trust is not a sham that it is not an illusory trust”.  It looks at recent divorce cases from New Zealand and the Cook Islands.  The article says that, subject to any changes following the Privy Council’s judgment in the latter case, determinations as to whether trusts are invalid on “illusory” grounds will be made on a case-by-case basis, based on the terms of the trust instrument in question.

https://doi.org/10.1093/tandt/tty046

Author: raytodd2017

Chartered Legal Executive and former senior manager with Isle of Man Customs and Excise, where I was (amongst other things) Sanctions Officer (for UN/EU sanctions), Export Licensing Officer and Manager of the Legal-Library & Collectorate Support Section

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