The limits of sham trusts: Whether a trust’s terms matter

Abstract

As attention surrounding the use of trusts in asset protection strategies has increased in recent years, so have questions surrounding the validity of such trusts. Central to this has been an attempted expansion of the sham doctrine from its traditional limits. These limits are that sham only considers the terms of arrangements as a point of comparison with a contrary shamming intention: that is, has the arrangement been used as a façade for the parties' true arrangement? Yet recent caselaw has advanced a view that an arrangement's terms matter in a more substantive way by themselves disclosing a shamming intention. This article challenges that view, asserting that sham should only be understood in its traditional sense for sound doctrinal reasons; and that expanding the sham doctrine in such a way conflates sham with improper motives for creating trusts and would introduce into the law value-judgments regarding what is, and what is not, an appropriate use of trusts.