The illusory trust: Pugachev revisted and Webb v Webb

If a settlor transfers property to a trust in which he has no fixed interest, it ceases to belong to him and passes beyond the reach of his creditors as well as the claims of a divorcing spouse. It must then seem rather puzzling and indeed frustrating for the creditors or spouse to see the settlor continuing to exercise control over, and receive distributions out of, that same property. The old adage about the consumption of cakes may come to mind. Nevertheless, this is a situation which, traditionally, the law of trusts has been happy to permit. The retention of powers, interest and control by the settlor does not, conventionally at least, prevent a trust from taking effect according to its terms. But in these circumstances is the property really out of the creditors’ reach? Are there any steps they might take to re-capture the property disposed of to satisfy their claims?