Worldwide: Recent Trust Case Law

During the three past years, a number of interesting cases that were dealing with Trusts have come into surface with attention-grabbing results, which in some cases come to reinforce and strengthen the principles of Trusts while in other cases come to question the courts' approaches to the concept of Trusts. Below we will attempt to analyse some of the most appealing cases of the two past years.

Rybolovlev v Rybolovleva [2012] - Switzerland

This case arose when a couple was taking a divorce and the wife claimed that her payment after the divorce could only be achieved if the husband had access to the property, which he had years before transferred to a Cyprus Trust. The question that the court had to answer was whether the husband was still the beneficial owner of the property or whether he controlled the trust property. The Court held that the husband had control over the trust, had management powers and appeared as the primary beneficiary. This was one of the first decisions taken after the implementation of the Hague Convention on the Law applicable to Trusts and their Recognition, which nevertheless brought more doubt than certainty.

The husband had no proprietary interest in the trust property since it was a discretionary trust, and the decision on the disposal of the assets of the trusts was vested on the trustee's discretion and even though he was the protector of the trust and had powers of appointment, those per se did not give him a proprietary interest.

The doctrine of Durchgriff was used, which is used as the doctrine of piercing the veil of incorporation, which nevertheless, had no application to trusts since they are considered transparent and not similar to companies.

However, the Swiss court did not contest the validity of the Trust and did not question the transfer of the assets to the trust.

Moreover, the Court disregarded some crucial points in making its decision. It did not analyse Cypriot Trust Law, which governed the Trust and was the chosen governing law, while the Trustees, were never brought as third parties to the case, even though their position and power over the property was not questioned. The property was situated and owned outside Switzerland, and so, according to international Law, Swiss courts had no jurisdiction. According to Cyprus Legislation on Trusts, once the property is transferred to a valid trust, which the trust's validity in this case was not questioned, the transferor looses any control over the property and he is not considered as the legal owner of that property.

In conclusion, the decision of the Swiss court is very unlikely to be enforced in the Republic of Cyprus and in fact the decision will have no power at all. Even though, the decision was eagerly anticipated, it let to disappointment and raised more questions instead of providing answers and guidelines. It seems that the Swiss court completely overlooked the principles of trusts and more importantly the Cypriot principles on trusts, when taking its decision.

Whaley v Whaley [2011] – England and Whales

Again, the English Courts here had a case of family law. A couple was divorcing and the wife claimed that the assets to be taken into account were extremely higher than the assets presented by the husband. The wife claimed that the assets belonging to trusts were to taken into account when deciding the division of assets, since they were available to the husband and had an interest in them.

The High Court held that the assets of the first trust should be taken into account in regards to the division, since they were more likely to become available to him, since the instructions of the husband to the trustees related only to the arrangement of the assets while the trustees always provided funds for the husband's needs. The judge took into consideration the attempts of the husband and the trustees to conceal the true use of the trust.

The husband appealed claiming that the decision would force the trustees to ignore the interests of other beneficiaries and that they would have to realise assets when it was not commercially advisable. The husband was not in fact the settlor of the trust and it was in fact stated that the decision would place an "improper pressure" on trustees to deviate from their intentions, since the wife was not a beneficiary to the trust.

Even though, the validity of the Trust was not questioned by the Court, the Court of Appeal, by taking into consideration the functioning of the Trust, its structure and operation up until then, it held that the assets were likely to be made available to the husband if he asked the trustees to do so. The fact that the trustees and protectors of the trust were "trusted family advisors" of the husband and his family also played a significant role to the decision of the court.

In regards to the second trust, the court held that the assets should be taken into account, since, even though the husband was not a beneficiary, the true purpose of the trust was tax optimization and there was never an intention of the actual beneficiaries of the second trust to benefit truly. In fact, the decision read that if the tax regime were to change, the husband would have most probably be appointed as a new beneficiary.

The approach taken by the Court for its decision seems to be unorthodox. The Court did not consider the principle of Trusts and its elements. The Trust was discretionary, and even though, up until that point, the husband was continuingly receiving funds from the trust for his needs, the Trustees had every power to discontinue the payments, since they were given power to pay capital to one or more beneficiaries as they thought fit.

Nevertheless, in regards to the second trust, the intention of the court and its decision clearly point out that the trust was considered as a sham. The court considered the creation of the Trust by the husband, who was the settlor, as merely an action of alienating assets from himself, while in the meantime being aware that his marriage had broken down.

To sum up, the court here took a good look on the essence of the Trust and not merely to its legal structure. The time of creation of the second trust, simply provided the basis of a sham, while the fact that the trustees of the first trust, were not independent and were guided by the husband over-shadowed the legal concept and applicability of Trust. The decision affirmed the notion that the creation of a trust would not by itself be evidence of the actual presence of a Trust.

Re the AQ Revocable Trust [2010] – Bermuda

The case was concerned with testamentary trusts (created after the death of the settlor, as specified in his will). The plaintiffs were two of the sons of the Settlor and Beneficiaries of the Trusts, while the defendants were a third son of the Settlor and a beneficiary to the Trusts, a grandchild of the Settlor and two Trustees of the Trusts.

The plaintiffs here were claiming that certain Trusts that were created were invalid on the basis that they were revoked due to the revocation of his previous wills by the will of 1978. As a result all the property Trust would have fallen only under one Trust that was established by his will of 1978.

The Settlor was also the Trustee of the Trust up until his wife was eventually appointed as a second Trustee. The Trust Deed provided that the Settlor may revoke the Trust, that the income may be paid to the Settlor, upon the discretion of the Trustees and that the Settlor had powers to remove and appoint Trustees. In addition, the Trust Deed also included provisions in which the Trustees' liability was absolved. In fact the plaintiffs focused on a provision which released from liability the Trustees or the Settlor from any liability on any transactions, which required the written approval of the Settlor.

The judges, by citing a number of other cases from different jurisdictions but by keeping in mind the local trust provisions of Bermuda, held that the Trust was illusory during the lifetime of the Settlor. Their decision was based primarily on the concatenation of the Settlor's powers and rights as well as the fact that he was also the Trustee. The fact that one of the articles of the Trust absolved the Trustees from any breaches of the Trust was not the decisive role for the decision of the case; the fact that the Settlor was also the Trustee and the presence of that provision rendered the Trust illusory. It was furthermore concluded that the Trusts that he had created during his lifetime were invalid, as the actions of the Settlor resulted to the retention of the legal ownership of the assets in the Trust, which defeats the main conditions of a Trust. It was finally held that his intentions were for the Trust to take effect after his death and not to create a Trust during his lifetime.

The above judgement provides some guidance on the worldwide provisions included in many legislations on Settlors' reserved powers; that were also recently extended in Cyprus. Even though, the legislation may provide the ability of reserving powers, the combination of those powers may cross the fine line between creating a valid Trust or creating an illusion. As the judges in this case very distinctively observed "... in this case it is the combination which pushes it over the top". This case re-confirms the careful selection of reserved powers that a Settlor may choose to reserve otherwise he faces the risk of a non-effective Trust.

In the Matter of the Shirnovic Trust [2012] – Jersey

The Settlor had established a Deed of Settlement in 1988 and in the following years he exercised his power to add to the beneficiaries more people, including his girlfriend. The new Trustees that took over after the death of the Settlor sought the court's directions as the deed of declaration that added his girlfriend as a beneficiary was not witnessed and so failed to follow the procedure as described in the Trust Deed.

In this case the Court was facing the question of whether the equitable doctrine that equity can aid the defective execution of a power had an application or not. It was argued by one of the beneficiaries that the doctrine could not include the girlfriend since she did not fall into the categories recognised in the doctrine and confirmed by the courts and could not be expanded to include a girlfriend. The Trustees from the other side claimed that the doctrine would need to be examined in the modern days that we live in and take into consideration the modern family relationships recognised in our society today, which are not merely restricted to wives and children but also to girlfriends, step children and same-sex partners.

The Court concluded that the equitable doctrine was of application on this case. The Settlor had the intention and it was evidenced from his actions that he felt the moral obligation that he wanted to provide for his girlfriend after his death, just like a husband would want to provide for his wife. It was stated that "... the general principle is an entirely beneficial one and prevents errors in formality leading to real hardship for those to whom the donee of the power owes a moral or natural obligation and resulting in the clear intention of the donee being defeated for no good reason".

The decision of the Court is significant in the fact that it shows that the Courts will not hesitate to go beyond formalities and interfere in a Trust Deed when this is necessary. The Court also observed that a different argument could also be used in this case; that of imputed intention to overcome the defective Deed. In certain circumstances where there is an intention to bring a particular result and that could only be concluded by the exercise of a certain power, the Courts may hold that the power may be exercised by implication. It is interesting here also to compare this case with the Re the AQ Revocable Trust. In the Shirnovic case the reserved power of the Settlor did not create any concerns or raise any arguments as to the validity of the Trust, which comes to confirm the conclusion that reserved powers of Settlors are not by themselves indications of a void Trust but it is their combination that may trigger such claims.

In re Heydenrych Testamentary Trust and Others [2012] – South Africa

The case referred to an ex parte application made by the administrator of charitable testamentary trusts. The administrator in its application claimed that the provisions of the trusts were discriminatory on the basis of race and gender. In particular the Trusts' provisions read that scholarships should be allocated only to white boys and that 50% at least should have British descent. The case brought the question as to which extent the courts were allowed to change and vary provisions in a trust instrument. The decision acknowledged that if the legislation provides such intervention by the courts then a trust instrument can be varied, changed, altered etc. as the court's discretion.

In fact, the Court held that the national law on Trusts empowered the court to delete or vary provisions which the founder (settlor) did not contemplate or foresee and which could:

  • hamper the achievements of the objects of the founder;
  • prejudice the interests of the beneficiaries; or
  • are in conflict with the public interest.

The court ruled in favour of the administrator and held that the provisions were in fact discriminatory, since the Trusts were created before the establishment of democracy and the introduction of the Constitution and the founder could not foreseen that those provisions would become unconstitutional and that its objects would be hampered by the discriminatory provisions.

Even though a great freedom is provided to the settlors/founders on many trust legislations in the world, the decision reconfirms that this freedom is not unlimited. Courts are given the power and according to the discretion to intervene wherever they make thing fit, in order to ensure the legal function of the trust and to obey the legal and constitutional terms. According to Cyprus International Trust Law, Courts are given the power to vary, revoke, modify or even enlarge provisions of an international trust if it thinks fit on behalf mainly of persons having or may have directly or indirectly an interest under an international trust.

Rea and Sargison v Russel [2012] – New Zealand

The court here was presented with a case in which payments between a company and a trust were sought be set aside in regards to a provision of the national law which could render the payments void. What is of interest in this case is in fact the comments of the court and the judges as to the nature of trusts. It was noted, through their comments, that the way legislation is drafted may not fully understand the role of a trustee in a trust who is in reality the legal owner but not the beneficial one.

The judges in this case noted that any liability would be difficult to be imposed personally on the trustees, due to their position in trusts, for voidable transactions. The position of a trustee provides him with an indemnity, which has as result any order for payment to come out of the trust assets and not out of his personal property; this of course could raise some complications if the trusts assets are not enough to cover the payments or if the trust is insolvent. The position of the trustee was compared to the position of an agent; that is the middle-man, who receives the funds but is not the beneficial owner of them. This is the approach that the judges thought that should be also taken in the cases of the trustees. If the payments were found to be voidable, then the claim should have been against the trust assets and the beneficiaries would be needed to become part of the legal proceedings.

The judges in this case also considered the cases were powers of a trustee may be delegated to third person. In the delivery of their comments they also considered other case law. It was noted that the trustee may appoint agents or other experts, such as solicitors in the cases where his expertise is not enough, but his powers and his discretion cannot be delegated to a third person. Thus, the weight of each decision is on the trustee and in numerous times point out that trust law distinguishes between appointments of agents and appointments of delegates, as well as that trusteeship is personal and only trustees can exercise the powers, authorities and discretions vested in a trust instrument. For example, a decision to make an investment or not is conferred on a trustee but an agent can be appointed to make that investments and to carryout investment strategies decided by the trustees. The choice of an agent by a trustee may potentially render him liable for losses to the beneficiaries.

To conclude, it is obvious that the decision of a court whether a trustee is liable or not for decisions he has taken is not easy. Each case would need to be examined differently based on its facts but courts seem very conscious in deciding that a trustee has crossed the line and that he has some liability to the beneficiaries.


Overall, recent case law confirms the confusion that surrounds trust law and its application. A trust is a unique legal instrument with different meanings and interpretations around the globe, which in many countries, especially civil-law countries, is not even recognised.

Courts need to be careful and cautious in their decisions, since as it can be seen in the case of Rybolovlev, a judgment can become unenforceable. In the cases of Whaley and In re Heydenrych the courts reconfirmed their powers and their strict approach in regards to that a mere structure of a trust cannot be used for avoidance of responsibilities. Moreover, in Re the AQ Revocable Trust the courts, with their decisions, pointed out that certain combinations of settlors' reserved powers may turned out to be the death stone of a Trust, while in the case of the Shirnovic Trust, the Court used an equitable doctrine to confront formal errors or overlooks.Finally, in Rea and Sargison, the confusion on the application of trusts was acknowledged, which made clear the need for guidance in an international level.

Despite the various case law in place and the puzzling way that trusts are structured, trusts still remain a powerful tool of tax structuring and planning, widely used globally and gaining every day more and more followers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions