When assets thought to form part of the trust structure in fact belong outside the structure—bare trust as a route to enforcement

Abstract

The Collins Dictionary defines the noun sham to mean “something that is […] not real or is not really what it seems to be.”1 There is an additional ingredient to the legal test, namely an intention on the part of the parties to the document to mislead third parties. This “carries with it a finding of dishonesty.”2 Given the seriousness of such a finding, and the presumption that parties intend to be bound by documents they enter into, very clear proof is required.3 The difficultly facing claimants in bringing a sham claim is illustrated by the latest decision of the Royal Court of Jersey, In the Estate of the Late J D Hanson,4 which concerned a Jersey trust established ostensibly for charitable purposes. The learned Deputy Bailiff had no difficulty in finding shamming intention on the part of the true settlor (Mr Hanson) and his right-hand man (Mr O’Leary) who was one of the original trustees:5 In respect of the true settlor, Mr Hanson and Mr O’Leary, we have no doubt that the Trust was set up to shelter assets which Mr Hanson regarded as his from the incidence of UK taxation. The reference to the £20,000 available to be distributed to charity when the Trust was set up as being an ‘expense’ of the Trust is illuminating. Neither Mr Hanson nor Mr O’Leary ever intended for this Trust to be a genuine charitable trust and, at the time of its creation, they also shared a common intention to mislead HMRC as to the nature of the transaction they had entered into.