7 - Implied Trusts: Resulting Trusts Flashcards
What are implied trusts: resulting trusts?
- Implied trusts are trusts created through operation of law, not because the settlor has directed that there should be a trust.
- Resulting trusts are implied where a person transfers property to another in circumstances where it is unclear who owns the beneficial interest.
What happens legally when one person (A) transfers property to another (B)?
The legal ownership of the property that has been transferred needs clarification regarding the intentions of A and B.
Key questions include:
- Was it a gift?
- Did B borrow the property from A promising to give it back?
- Did B pay for the property?
If these questions cannot be answered, the law applies presumptions to determine the effect of the transfer, attempting to infer the intended result in the absence of evidence.
These presumptions can often be rebutted by evidence of A’s actual intention.
What is the presumption of resulting trust in the context of voluntary transfers of personalty?
- If A transfers personalty they already own to B for free, a presumption of resulting trust generally arises.
- Personalty is any kind of property other than land.
- Under a resulting trust, B holds the legal title, while A retains the equitable interest in the property.
Example: If Sam hands over £100 to his girlfriend Mary as a voluntary transfer (without consideration), the presumption is that Mary holds the money on a resulting trust for Sam.
This presumption can be rebutted by evidence of Sam’s actual intention, such as if the money were given as a birthday gift.
How does the presumption of resulting trust apply to voluntary transfers of land?
This presumption is less likely to apply to land transfers:
- Section 60(3) of the LPA 1925 states that in a voluntary conveyance, a resulting trust for the grantor shall not be implied merely because the property is not expressed to benefit the grantee.
- While some cases suggest there should be no presumption of resulting trust from a voluntary land transfer (as seen in Ali v Khan [2002] EWCA Civ 974), it can still arise with evidence that the transferor and transferee are strangers.
What is the rule regarding purchase money cases in relation to resulting trusts?
- If X purchases property but arranges for it to be put in the name of Y, there is a presumption that Y holds the property on a resulting trust for X.
- If X contributes to the purchase price, there may also be a presumption that Y holds the property on a resulting trust for both parties, proportionate to their contributions.
- Joint tenants must always hold the legal title; tenants in common can only hold the equitable title.
Example: Tess and her daughter Maggie buy a house where Tess contributes £40,000, and Maggie pays the remaining £360,000. The house is conveyed into Maggie’s name, leading to the presumption that Maggie holds the house on a resulting trust for herself and Tess, granting Tess an equitable interest of 10% of the house.
What is the presumption of advancement in trust law?
In certain voluntary transfer and purchase money cases, the presumption of advancement (or gift) applies, meaning there is no resulting trust.
This presumption applies when the transferor is under a moral obligation to provide for the transferee, such as:
- From father to child (minor or adult).
- From a person in loco parentis (guardian) to child.
- By husband to wife.
- By fiancé (male) to fiancée (female).
The presumption of advancement does not apply if the roles are reversed, such as when a wife transfers property to her husband, where the presumption of resulting trust would apply unless rebutted.
Example: If Richard purchases a house in the name of his wife Sienna, the presumption of advancement applies, assuming no contrary evidence. However, if Sienna were to purchase a house in Richard’s name, the presumption of resulting trust would apply, indicating she retains the beneficial interest.
How can the presumptions of resulting trust and advancement be rebutted?
- The presumptions are merely that—presumptions—and can be rebutted by evidence.
- They serve to allocate the evidential burden of proof, indicating who must prove what, and only hold until facts to the contrary are presented.
- Evidence must be of the transferor’s intention before or at the time of the transfer, as post-transfer intentions cannot be used to support the original intention.
Example: If Allen purchases a house in his daughter Beatrice’s name, the presumption of advancement initially applies. However, evidence such as Allen retaining the title deeds and intending to have Carlton repay the purchase price can rebut that presumption, replacing it with a resulting trust, as seen in Warren v Gurney [1944] 2 All ER 472.
How do resulting trusts apply when the beneficial interest is not completely disposed?
Resulting trusts arise when property is transferred to a third party intending to create an express trust, but the trust fails to take effect.
These are sometimes referred to as “automatic resulting trusts.”
The beneficial title reverts back to the settlor, meaning:
- If the settlor is alive, they regain the equitable title.
- If the settlor is deceased, the equitable title reverts to the beneficiary of the settlor’s residuary estate or the statutory next-of-kin on intestacy.
Why might an express trust fail, leading to a resulting trust?
Express trusts require certainty of objects, and if the criteria are vague, like “to my best friends,” the trust lacks conceptual certainty.
If the trust fails, it leaves the trustees holding legal title without a corresponding equitable title, which cannot be the case as “equity abhors a vacuum.”
The equitable title is presumed to revert to the settlor if there is no contrary intention.
In what situations can a resulting trust arise due to an incomplete beneficial interest?
A resulting trust may arise when:
- There is a gap in beneficial ownership due to no vested interest in a beneficiary (e.g., if Laura dies before reaching the age of 25, as in the example where James appointed Kamila as trustee).
- The attempted trust lacks certainty of objects (e.g., a trust for “my best friends” is too vague).
- The attempted trust does not define the beneficial interests with sufficient certainty (e.g., “a decent amount” to Ruby and the rest to Sylvia lacks clarity).
- The attempted trust offends against the rules against perpetuity (e.g., a purpose trust for a sportsground benefiting specific employees is void).
- The attempted trust offends the beneficiary principle.
What are the formalities surrounding resulting trusts in property transfers?
Unlike express trusts over land, which require written evidence under s 53(1)(b) of the LPA 1925, resulting trusts can be created without any formality.
Section 53(2) of the LPA 1925 makes it clear that an implied trust, like a resulting trust, does not require formalities.
What happens if a self-declaration of trust fails?
A self-declaration of trust which fails for uncertainty of objects or subject matter will simply have no effect. The settlor will remain the full legal owner of the property.
Provide a summary of resulting trusts.
Resulting trusts are used to determine the beneficial interest in property when it is unclear.
Situations that give rise to an underlying presumption of resulting trust include:
- Voluntary transfers of property or purchases for another generally indicate the transferor intended to retain beneficial interest.
The presumption of advancement arises in specific relationships conveying financial responsibility, leading to a rebuttable presumption of gift.
These presumptions can be rebutted by admissible evidence indicating the transferor’s intent, which must be contemporaneous with the transfer.
Resulting trusts effectively fill an equitable vacuum when an express trust fails, ensuring that property is held in trust for the settlor or their estate.
