Sham Trusts

Extract

Documents or arrangements which have been falsely created will not be permitted to “prevent [a court] from getting at the real truth of the matter”: “if it [is] a mere cloak or screen for another transaction one [can] see through it”. Such documents or transactions are generally referred to as “shams”. The courts' ability to “see through” the false façade of a sham has been widely discussed in the context of documents or arrangements which purport to create licences, rather than leases, in an attempt to avoid statutory protections granted to residential lease-holders, and of transactions or arrangements which purport to avoid the payment of tax. However, there has been much less discussion of the way in which the concept of sham intersects with the law of trusts. The leading practitioner texts on trusts contain only short discussions, and the point has been discussed briefly in the practitioner literature. This article seeks to offer a broader, conceptual understanding of the way in which the sham doctrine applies to trusts.