A short guide to sham trusts
10th July, 2026
What is a sham trust?
A sham trust is an arrangement where the trustees and the beneficiaries do not intend to create a valid trust. The sham arises when a trust structure is presented to the world, but the intention of the is to retain full control of the assets of the trust, and enjoy beneficial ownership of the trust assets.
Sham trusts are often created to give the impression of a valid trust but the original owner often retains control over the trust assets.
The issue of sham trusts may be faced by claimants in inheritance disputes, creditors in insolvency proceedings or an ex-spouse in matrimonial proceedings.
In inheritance disputes a trust may be set up to create the impression that one party has transferred ownership of an asset to hide assets from a claimant. The estate may, in reality, retain ownership and control over the trust asset but the alleged trust structure presents an additional hurdle in any claims to bring that asset into the proceedings.
How do you prove a trust is a sham?
It is usually presumed that a trust deed is intended to have the legal effect based on its written terms and the burden of proof rests with those making an allegation of a sham trust. Their investigation would ultimately aim to decipher the parties’ actual intentions and show that they are different from the written terms of the trust document.
Those investigations are difficult when the creators of the trust have died and can no longer give evidence on the arrangements relating to the trust.
For there to be a sham trust, there needs to be a finding that the parties to the transaction acted with dishonesty. It need to be found that the parties intended a transaction to appear to have a particular effect but for it actually to have an entirely different effect.
You would often need to show how the trust provisions have been ignored over the course of years and that there has been little or no consultation between trustees and beneficiaries on the operation of the trust and decisions affecting the beneficiaries.
What happens if a trust is held to be a sham?
If a trust is found to be a sham, it will be void. This means it is treated as if the trust never existed in the first place. The asset would then revert to the original owner.
This can be a useful outcome if there is a claim against a deceased’s estate and the estate assets have been placed in trust in an attempt to place them out of reach of any potential claimant in an inheritance dispute.
Once a trust is declared a sham trust, with no legal effect, the accounts and tax returns of the trust would need to be reviewed and amended as necessary. This could have adverse tax consequences and unpredictable outcomes depending upon the value of the trust assets. It can often be an untidy and potentially expensive process to unwind a sham trust.
If you need legal advice or support on any issues relating to sham trusts or inheritance disputes, our experienced team are happy to assist.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
This page may contain links that direct you to third party websites. We have no control over and are not responsible for the content, use by you or availability of those third party websites, for any products or services you buy through those sites or for the treatment of any personal information you provide to the third party.
Follow us on LinkedIn
Keep up to date with all the latest updates and insights from our expert team
