A lost opportunity? Omission of the illusory trust doctrine from the Trusts Bill 2017

Abstract

This paper considers the role of the illusory trust doctrine in New Zealand. It argues that the illusory trust doctrine should be incorporated into the Trusts Bill 2017 (290-1). Incorporating the illusory trust will enhance clarity in New Zealand’s law of trusts, by providing the courts with a conceptually coherent method to assess the permissible boundaries of the trust. This paper explores the differing views of illusory trust in the context of the Trusts Bill and in light of policy concerns. The “no meaningful accountability” view of illusory trust is identified as the best formulation of the doctrine, for incorporation into the Trusts Bill. Importantly, the no meaningful accountability view does not jeopardise discretionary family trusts, which have social and economic significance. The author goes further by drafting a tentative provision, for incorporation in the Trusts Bill. The provision is then applied to the nefarious, Clayton v Clayton [2016] NZSC 29 trust and a typical, discretionary family trust. This application demonstrates that the provision will only catch the most nefarious Clayton-type trusts, thus preserving discretionary family trusts.