Sham and Illusory Trusts

Many high-net-worth individuals mistakenly believe that simply transferring their assets into a trust will provide complete legal protection, ensuring that creditors, tax authorities, courts, or other interested parties cannot access those assets. This assumption is entirely incorrect. If a trust is deemed a sham trust or an illusory trust, it becomes invalid in the eyes of the law, and the intended asset protection is rendered ineffective. In such cases, others may still be able to claim the assets held within the trust.

In numerous legal disputes regarding trusts overseas, creditors have successfully argued that certain trusts were sham or illusory, thereby gaining access to the assets held within them. In this article, we will explore the circumstances under which a trust may be classified as a sham or illusory trust.