Alter ego trusts - When a ‘trust’ is really just you by another name
Some court decisions – especially in family property disputes – talk about trusts being the “alter ego” or “puppet” of one person.
That language has sometimes led people to think that, if a New Zealand trust is called an alter ego trust, it can be automatically disregarded or treated as that person’s own property.
That is not the law.
Calling a trust an “alter ego” or “puppet” does not, by itself, make it a sham or automatically invalid.
New Zealand courts have confirmed there is no “halfway house” between a valid trust and a sham.
“Alter ego” language may, in some cases, be evidence that helps prove a sham or invalidity – but it is not a separate legal ground on its own.
The real focus remains on the parties' true intentions, the trust deed, and how the trust is actually administered.
What does “alter ego” or “puppet” actually mean?
In some family law cases, courts have described a trust or company as the “alter ego” or “puppet” of one party – usually to reflect the level of practical control that person has.
Fogarty J explained the difference between a sham and an alter ego in Marriage of Gould (emphasis added):
On the other hand, the description of an entity as the 'alter ego' or 'puppet' of a person really denotes something different. Correctly described, it is not an assertion that it is a "counterfeit, a facade or a false front". Rather, it describes an actual situation although as a matter of law or practicality the actions of the other entity may be capable of and may in fact be controlled by the party in question. For example, a party may establish a trust over which he or she exercises control. That trust may in turn own or control property. It may be correct to describe that trust as the alter ego or even perhaps the puppet of that party, but it would not be correct to describe its existence or its ownership or control of property as a sham. Transactions entered into by it under which it deals with its property by, for example, a transfer of property to a third party would not be a sham transaction. It is likely to be a genuine transaction although the evidence may demonstrate that the transaction was carried out 'by direction of or in the interest of' the party.¹
In other words:
an alter ego description is about practical control,
a sham is about pretending something is a trust when everyone intends something different.
The New Zealand position – no “halfway house” between a sham and a valid trust
In Official Assignee v Wilson, Chisholm J rejected the idea that “alter ego trusts” are a separate category that can simply be set aside.² He emphasised that the orthodox sham test (common intention to mislead) still applies:
[58] The underlying common intention requirement for a sham has been consistently adopted by the Court of Appeal and is clearly binding on this Court. If alter ego trusts were to be automatically recognised as shams that underlying requirement would be negated. The result would be that a half way house between a conventional sham trust and a valid trust would be created. In Re Securitibank Limited (No.2) at 168 Richardson J seems to have rejected the possibility that there is any half way house. I accept that view. It seems to be that to adopt a half way house would be to effectively re-write the traditional understanding of a sham."³
The Court of Appeal upheld this approach. In dismissing the appeal, the Court said:
[70] Actual control alone does not provide justification for looking through/invalidating a trust. The uptake of control by someone other than an authorised person cannot be sufficient to extinguish the rights of the beneficiaries under a trust. It is difficult to see the alter ego trust operating in New Zealand as an independent cause of action.³A
So, in New Zealand:
Actual control alone is not enough to invalidate a trust.
“Alter ego” is not an independent legal cause of action.
To disregard a trust you still need to show a sham, invalidity (e.g. no intention to create a trust, no certainty of beneficiaries or property), or rely on specific statutory powers (for example, under relationship property legislation).
Why some Australian and New Zealand family law cases need caution
Several Australian family law decisions – and a small number of New Zealand decisions – have used “alter ego” language in the context of relationship property or spousal support claims. These often aim to do justice between spouses, but they can be misleading if treated as general trust law.
Examples include:
Ascot Investments v Harper⁴ – Gibbs J indicated that sham transactions may be disregarded and that companies which are mere puppets of a party may, in some circumstances, be looked through in family property proceedings.
DCSR v B⁵ – a company described as the “alter ego” of the respondent in enforcement of family support.
In the Marriage of Kelly (No 2)⁶ – the Full Court treated the assets of a family trust under the control of one party as a financial resource for s 75(2) purposes.
In the Marriage of Ashton⁷ – the trust assets were effectively treated as the husband’s property for matrimonial property division because he had de facto ownership and control, even though he was not a named beneficiary, and used the trust assets as if they were his own.
In the Marriage of Stein⁸, Davidson⁹, and Gould¹⁰ – similar reasoning, focusing on how the trust was used and controlled in reality.
New Zealand decisions such as Prime v Hardie¹¹ and Glass v Hughey¹² applied some of these Australian concepts, sometimes treating a trust being the “alter ego” of one party as if that were enough to treat the trust assets as that person’s property.
With respect, the better view – reflected in Official Assignee v Wilson – is that:
“Alter ego” descriptions may be evidence of how a trust is used in practice;
but they do not, by themselves, justify ignoring the trust as if it were never validly created, unless the proper sham or invalidity tests are met, or a statute gives that power.
Practical implications – what this means for your trust
Putting the cases together:
A trust will not be set aside as a sham or nullity just because one person has significant influence or practical control.
However, if a person consistently treats trust assets as their own, ignores trustee duties and uses a trustee company as a mere puppet, courts (especially in family disputes) may:
treat the trust assets as a resource available to that person,
impose constructive trusts or other equitable remedies, or
scrutinise whether the trust was ever validly constituted.
That is why proper trust design, trustee selection, and day-to-day administration are so important.
1 In the Marriage of Gould (1993) 17 FamLR 156 at 167 applied in G v T [2003] FamCA 1076 by O'Reilly J.
2 Official Assignee v Wilson [2006] 2 NZLR 841, Chisholm J. This decision was followed by Williams J. in Isolare Investments Ltd v Fetherston HC Auckland CIV-2002-404-1791, 15 September 2006 BC200661868 at para [60].
3 Official Assignee v Wilson [2006] 2 NZLR 841, Chisholm J, at para 58. In that case his distinguished Prime v Hardie [2003] NZFLR 481, (2002) 22 FRNZ 553 as a sham had not been pleaded and Salmon J expressly upheld the objection of counsel for the plaintiff to that matter being raised, and Glass v Hughey [2003] NZFLR 865, (2003) 23 FRNZ 674 on the basis that Priestley J's comments were probably obiter.
3A Official Assignee v Wilson [2008] NZCA 122, [2008] 3 NZLR 45 BC200860991.
4 Ascot Investments Pty Ltd v Harper (1981) 33 ALR 631. This case was followed by Bulley J in In the Marriage of Moran (1994) 18 Fam LR 534.
5 DCSR v B [2000] FMCAfam 32.
6 In the Marriage of Kelly (No 2) (1981) 7 Fam LR 762.
7 In the Marriage of Ashton (1986) 11 Fam LR 457.
8 In the Marriage of Stein (1986) 11 Fam LR 353, (1986) FLC 91-779.
9 In the Marriage of KR and MI Davidson (1991) 14 Fam LR 580 (Family Court of Australia).
10 In the Marriage of Gould (1993) 17 Fam LR 156.
11 Prime v Hardie [2003] NZFLR 481; (2002) 22 FRNZ 553.
12 Glass v Hughey [2003] NZFLR 865.
13 Turner v Lynsky (High Court, Blenheim, CIV 2007-406-204, 7 September 2007) BC200762250.
Alter ego trusts – frequently asked questions
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In simple terms, an alter ego trust is a trust where one person:
effectively controls the trust, and
treats the trust assets as if they were their own, at least in practice.
Courts sometimes use “alter ego” or “puppet” language to describe that situation. It is a description of practical reality, not a legal category in itself.
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No.
As Fogarty J explained in Marriage of Gould, calling a trust an “alter ego” or “puppet” does not mean it is a sham. A sham requires a common intention to mislead – that the trust documents are being used as a facade to disguise the true arrangement.
A trust can be:
genuinely established and legally effective,
but still described as an alter ego because of how it is controlled or used.
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In Official Assignee v Wilson, the High Court – and later the Court of Appeal – made it clear that:
New Zealand law requires a common intention to mislead before a trust is a sham;
there is no “halfway house” between a valid trust and a sham; and
alter ego is not an independent cause of action – actual control alone is not enough to invalidate a trust.
“Alter ego” concepts may be evidence in a sham or invalidity argument, but they do not replace established trust law principles.
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Yes – but usually through relationship property doctrines, not by simply declaring the trust a sham because it is an “alter ego”.
In practice, the Family Court may:
treat trust interests as a financial resource of one party,
impose constructive trusts or other equitable remedies, or
take trust arrangements into account when adjusting relationship property entitlements.
That is different from saying the trust itself is invalid or a sham for all purposes.
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Helpful steps include:
using a modern, well-drafted trust deed with clear trustee powers and duties
appointing trustees who exercise independent judgment, not just “rubber-stamp” your wishes
keeping proper minutes and resolutions that show real trustee decision-making
avoiding behaviour that suggests you still treat trust assets as your personal property
reviewing your trust if you hold wide protector/appointor powers or extensive veto rights.
A trust review can identify where the balance between protection and control needs adjusting.
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Not necessarily.
Many settlors are actively involved in their trust as trustees or appointors. That is common and can be entirely legitimate if:
the trust was properly constituted,
trustees genuinely exercise their duties, and
the trust is administered in line with its terms and objectives.
However, if your trust structure or behaviour suggests that you retain complete control and benefit, it may be sensible to:
review the deed and governance;
adjust powers or trustees; and
bring your trust into line with best practice and recent case law.
We can help you work through these issues in plain English and recommend practical options.
Disclaimer: This article should not be relied upon for legal advice. Always seek professional legal advice before making any decisions regarding your trust-based estate and asset protection plan.