Part 3: The Effect Of Reserved Powers Legislation

This article is part of a mini series that explores the relationship between sham trusts and illusory trusts.

As set out in Parts 1 and 2, a settlor who retains too much power and control in relation to a trust and its assets is at risk of creating an illusory trust, either because there is a failure of the irreducible core obligations necessary for a valid trust or because there is a failure to make an effective disposition of trust property. A finding that a trust is illusory does not require the settlor to have acted with any improper intent, and it is possible that a settlor will inadvertently create an illusory trust (or, more accurately, fail to create a trust) notwithstanding that he had every intention of creating a valid trust. For this reason, any settlor creating a trust will want to know, with as much certainty as possible, that the trust he is creating is valid. He will want to strike the right balance between retaining the control he wishes to retain,