The Proper Constitution of a Trust: Sham Trusts and Other Problems

• Author: David Brownbill
• Pages: 142-147

LEGAL ISSUES IN OFFSHORE FINANCIAL SERVICES

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The Proper Constitution of a Trust:

Sham Trusts and Other Problems

David Brownbill

THIS PAPER OUTLINES some of the key requirements for establishing valid

trusts in an offshore legal regime.

A. The Essentials for a Valid and Effective Trust

The following questions must be answered appropriately before a valid and

effective trust is established:

(1) What are specific assets to be held in trust?

(2) Are the assets beneficially owned by a person?

(3) Who has the capacity to transfer the assets into trust?

(4) Who makes a valid disposition of those assets to a trustee?

(5) Is the intent to create a trust on the terms set out in the trust deed

expressed?

(6) Which terms set out in the trust are sufficiently certain?

(7) Are any terms of the trust unlawful (in the sense that they breach

e.g. perpetuities laws)?

(8) Which terms are effective to take the trust assets out of the settlor’s

estate.

B. Completely Constituted and Incompletely Constituted Trusts

Role of the trust deed:

Three general comments are applicable in the offshore context:

(1) a trust deed is not needed for the creation of a trust;

(2) if there is a trust deed, its function is, usually, evidential or referential;