A sham trust is a trust that, despite appearing legitimate on
the surface, is created with the mutual intention of the parties
(usually the settlor and trustee) to not be acted upon according to
its stated terms. Instead, the true intention is for the settlor to
retain control over the trust assets, undermining the basic
principles of trust law. Courts are willing to disregard such
trusts when it is clear that they were set up to mislead or deceive
third parties, such as creditors, tax authorities, or others.
To better understand the legal principles surrounding sham
trusts, it's essential to examine relevant case law.
Case Law on Sham Trusts
- Snook v. London and West Riding Investments Ltd [1967]
2 QB 786: This case is foundational in understanding the
concept of a "sham" in legal arrangements, including
trusts. Lord Diplock explained that a sham is an arrangement where
the parties "intend to give the appearance of creating legal
rights and obligations
