SHAM TRUSTS: COULD YOUR FAMILY TRUST BE A SHAM?

What is a sham trust?

What is a sham trust? The answer lies in the word “sham.” What is a sham? According to Merriam-Webster, a sham is a trick that deludes, not genuine. So a sham trust is one where the trustees supposedly jointly make and control the decisions of the trust, for the benefit of the beneficiaries. However, could your family trust be a sham? Or become a sham? Yes, and all too easily…

How a trust might become a sham

How a trust might become a sham: A trust that starts off as genuine and legitimate – the trustees are all involved in decision-making – might become a sham if one trustee in effect hijacks the rest. What do we mean?

Let’s imagine that one trustee buys properties in the name of the trust, but doesn’t inform his fellow trustees. That trustee takes trust money, fails to produce financial statements for the trust, does not keep records of trust assets and liabilities and generally runs the trust as if it were his own bank account and company. Could this be an emerging sham trust?

To find the answer, see this interesting article by Anthony Grant at The Law Association website.

Anthony Grant is an Auckland barrister who specialises in trusts and estates. Epsomtax.com Limited has no relationship or endorsement from Anthony Grant nor The Law Association.

How we can help your trust

Many trustees whose family trusts “only” own their home have never prepared financial statements. This weakens your trust’s claim to legitimacy (in our opinion). We can help though. Please contact us for a chat re getting your trust financials up to date.

We are not the only ones who interpret the Trusts Act this way! You might also be interested in:
COMMON MISCONCEPTIONS ABOUT FAMILY TRUSTS
FAMILY TRUST ACCOUNTING – WHAT DO I NEED TO DO?
RESIDENTIAL CARE SUBSIDY AND GIFTING