Borges v Santos 2017 ONCJ 651 dismissed a claim brought against a trust alleging that the trust was a sham trust.
The case involved a garnishing order brought against a trust set up by the defendant’s mother from which he lived on.
The defendant had no other source of funds or assets and owed $40,000 of child support.
The plaintiff failed in her allegation that the trust was a sham. There was no deception when the trust was established and the defendant did not secretly control the trust.
Water’s Trusts in Canada describes a sham trust as follows:
The term sham is not a precise term, and practically means that “ something that is not what it seems , a counterfeit. It means that the parties true intent is that others will be mislead by the terms appearing on the document.
Used in a trust that the courts will declare void because the provisions in the document do not represent the settlor’s true intent as to the terms upon which the trustee is to hold the trust assets.
Though the trust sets out the persons or purposes that are to benefit, the settlor’s true intent is to retain control of the assets because the trusts intent is to appear as that the settlor has disposed of assets and so to defeat taxes, creditors, prejudice the rights of a spouse or the children of the relationship.
Thus a trust created by a Settlor who declares himself the trustee of the property, rather than make a transfer of the assets to another as trustee, lends itself to this misrepresenting behaviour. A trustee who agrees to assists the falsity, or who is indifferent to whether, in fact, he merely implements the trust , lends himself to the misrepresenting behaviour will equally enable the assertion to be made that the fraud is a deception and thus a void document.