A Lifetime Personal Trust as the Legal Alter Ego of Its Founder

Personal trusts are legal entities of a special kind, combining the features of unitary and corporate, commercial and non-commercial legal entities, property and contractual legal relations. The legislative framework governing the internal structure of a personal trust allows for the creation of an entity with limited autonomy of will, functioning as an extension of the founder’s own personality-‑a legal alter ego. A personal trust, as a nominal owner subordinate to the control and economic interest of the founder, requires separate legal classification based on the criteria used in trust jurisdictions for sham and illusory trusts. The cumulative criteria for the illusory nature of a personal trust include the absence of a purpose distinct from that of a corporate entity; the establishment of the trust for a fixed term; the lack of beneficiaries; full managerial control of the founder, the lack of their independence; and the absence of a factual separation between the founder’s and the foundation’s assets (commingling). The economic and legal assessment of the expediency of using the mechanism of mutua subsidiary responsibility of the foundation and its founder is given. To protect the interests of the founder’s creditors — whose claims arose before the foundation’s establishment — it is proposed to impose solidary liability on the trust instead of subsidiary liability. Subsidiary liability of the founder for the obligations of the trust has no economic and legal prerequisites, and therefore it should be abandoned.

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