This article is part of a mini series that
explores the relationship between sham trusts and illusory
trusts.
Whilst both will give rise to a finding that a trust is invalid,
sham trusts and illusory trusts are two very different beasts, as
noted by the New Zealand Supreme Court:
'a sham is a pretence: the terms of the document do not
represent what the party or parties really intended. A finding of
sham ... would involve the Court assessing the subjective intention
of [the settlor] and concluding that the [trust] deed did not
conform with his real intention.
... we do not find the term "illusory" trust
helpful. What the [lower courts] meant by that term was that no
trust was created. In such a case, the document as executed does
represent the terms to which the party or parties intended to agree
but, despite their subjective intention to create a trust, they
failed in their attempt to do so.'1
