Trust busting is process where statutory provisions exist or person like
ex-partners and others apply to the court to have the trust “busted” so that they
access the assets
the assets of the trust. Trust busting is becoming a more common in use as
interested parties seek to recover losses from trusts.
Trust busting legislation exists in the area of property relationship matters but that does not mean that trusts are not capable of protecting property when relationships go wrong. Isolating pre-relationship assets into a trust before entering into a new relationship has been shown to be capable of protecting those assets.
A trust that is not validly created, i.e. the three certainties are not satisfied
results in the express
trust never being created in the first place. The three certainties are the
intention to create a trust,
the certainty of subject matter, there must be property settled on the trust and the
certainty of object,
the settlor must have clearly set out the purpose of the trust or the beneficiary(s)
and the extent of the benefit.
A sham trust occurs when the settlor’s intention and sometimes the trustees intention in agreement with the settlor was to create the appearance of a legitimate trust, but there was no intention to effect the rights and obligations of the relevant parties in the way that a valid trust would and results in concealing of the true nature of a transaction or transactions. In simple words there is an intention to mislead.
An example of what may determine whether or not a trust is a sham is the amount of control exerted over the trust by a person who is not entitled to control or direct the trust. This may indicate the required intention was not present.
If a trust is found to be a sham, it is invalidated, and the trust’s assets are available to claimants.