Looking through Trusts

As everyone knows, trusts are often used to avoid or subvert different rules of law. To combat such avoidance, jurisdictions enacted anti-avoidance rules; yet many of these rules do not fully prevent trusts-based avoidance, or in some cases reflect some jurisdictions’ acceptance of such avoidance. We review the anti-avoidance rules applied by Canada, the US, the UK, Australia and New Zealand to try and stymie trusts-based avoidance in three subject areas: distribution of family property on divorce or separation, taxation of income accrued in settlor-controlled trusts, and means-tested eligibility for welfare benefits. We find that anti-avoidance doctrines are often less than fully effective in tackling liability or means testing avoidance by way of discretionary trusts, and offer recommendations to improve the treatment of such trusts for anti-avoidance purposes.