ALTER EGO AND SHAM TRUSTS

Trusts are usually introduced as part of a person’s estate plan.
When the intention behind the creation of a trust is to exploit the trust form for personal gain or to evade liability, the trust will fall foul of the law and precipitate consequences.
Any abuse of the trust form or maladministration that flout the provisions of the Trust Property Control Act will not be tolerated, and may result in the trust being declared invalid by the courts.

AN ALTER EGO TRUST

As the name implies, it caters to the ego of one person who intends to use the trust to achieve his or her personal agenda. It is a trust formed and run autonomously by one individual who imposes his or her decisions without regard to the opinions of the other trustee/s or trust law. Should the assets of an alter ego trust be challenged by a creditor, sequestrator or soon-to be-ex-spouse, the courts may declare the trust invalid and rule in favour of the challenging party.

A SHAM TRUST

A trust without property, trustees or beneficiaries is said not to exist and is therefore considered a sham trust. In order for a trust to exist, the founder has to ‘make over’ the assets determined in the trust deed to a trustee/s for the purpose of administering them for the benefit of the beneficiaries.
A trust formed with dishonest or fraudulent intentions (such as to deliberately hide property in order to evade liability to a third party – examples include an impending divorce or sequestration order) may also be considered a sham trust. A trust may only be formed when there is nothing threatened, contingent or expected.

Assets held in trust for wrongful purposes as detailed above may, on application to the courts, be ‘pierced’ to reveal any mal-intent and enforce liability.