Illusory-Transfer Doctrine Law and Legal Definition
Illusory-Transfer Doctrine refers to a principle by which an inter vivos gift is disregarded by law if the donor retains so much control that there is no good-faith intent to relinquish the transferred property during the conveyor’s lifetime. This doctrine is usually applied to inter vivos trusts in which the settlor retains an excessive control or an interest. The donor who sets up the trust might retain the income for life, the power to revoke, and substantial managerial powers. A leading case on this is Newman v. Dore, 275 N.Y. 371 (N.Y. 1937) where the deceased left a last will and testament that contained a provision for a trust for his wife for her life. The deceased's will also left one-third of his both real and persona to his wife. However, three days before his death, the deceased executed trust agreements by which, in form at least, he transferred to the trustees all his real and personal property. If the agreements effectively divested the deceased of title to his property, then there would have been nothing left of the deceased's estate for the wife. On appeal, the court held that the deceased's trust conveyance was not valid because it was illusory. Moreover, the court held that the deceased's never intended to divest himself of his property and the evidence illustrated that he was unwilling to divest himself of his property even when he was near death.