ABSTRACT
An increasingly frequent problem faced by courts is the abuse of trusts by settlors who attempt to have the best of both worlds by transferring property to a trustee and yet retain many, or even, all the benefits and powers of owning property whilst divesting themselves of all the responsibilities, eg, liability to pay debts. Courts and practitioners have developed several doctrines to invalidate such trusts, with the most recent to have gripped their imagination being the illusory trust. Such trusts are variously described as being trusts where the settlor has retained too much control or having some other defect in their creation, with the result that what at first sight appears to be a trust is in fact nothing of the sort. The idea has met with a mixed reception with some courts holding that illusory and sham trusts are the same, others holding that they are different but the term is nevertheless unhelpful, and yet others holding that the term is in fact useful. This paper analyses the history of the illusory trust and in so doing demonstrates that the doctrine has a long history, dating from at least the early 1800s. General unawareness of this has led to several fundamental errors in their analysis of illusory trusts which this paper aims to fix by mooring the modern doctrine of illusory trusts to its historical foundations.
Clover Alcolea, Lucas, Nothing New under the Sun: The Case of the Illusory Trust (November 12, 2022), New Zealand Universities Law Review (Forthcoming, 2022).
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