15 - Abuse of Trust

Summary

The trust can be an instrument of great power and influence in managing and maintaining wealth and creating vital rights and obligations. Settlors are given significant freedom as to when and how they create a trust, with few restrictions on the provisions they can include in the trust instrument. But with this conspicuous freedom comes responsibility to ensure that the trust is not abused. Equity will not allow such abuse, and if a trust is considered to have been abused, it may be void or unenforceable. But when will a trust be considered to be abused? Surprisingly, little attention has been paid by commentators or judges to the notion of abuse of trust, although there are particular doctrines that can be analysed as being triggered by an abuse of trust, which have received a significant amount of attention. These include the doctrine of sham trust, illusory trust, defrauding creditors, illegality and fraud on the power. All of these doctrines are examined, common principles are identified and the chapter concludes that it is possible to synthesise from these doctrines a distinct doctrine of abuse of trust which should be expressly recognised.