Chapter 8: Resulting Trusts

Question 1

1. Introduction

Answer 1

Resulting trusts are so named because property is held on trust for the person who transferred it
or contributed to its acquisition. The equitable interest ‘results’ back to the transferor or contributor. Conventionally, they arise in three situations

Question 2

Introduction

Answer 2

(a) Where a transfer on trust wholly or partially fails but the property has been transferred to the
trustee
(b) Where a person gratuitously transfers property to another person
(c) Where a person pays all or part of the purchase price for an asset

The trust in (a) is called an ‘automatic’ resulting trust.
The trusts in (b) and (c) are called ‘presumed’ resulting trusts.

Question 3

2. Automatic resulting trusts

Answer 3

Automatic resulting trusts arise where there has been some sort of failure in the creation of a transfer on trust. They are effectively a default position which returns the beneficial interest to the settlor, giving them Saunders v Vautier rights and thus the ability to collapse the trust and either retain the property or re-attempt the intended express trust

Question 4

Uncertainty of objects

Answer 4

(a) A transfers property to B intending B to hold it on trust but fails to properly identify the
intended beneficiaries. The trust fails for uncertainty of objects.

Question 5

Uncertainty of subject matter.

Answer 5

(b) A transfers property to B intending B to hold it on trust for C and D but fails to specify their
beneficial entitlements. The trust fails for uncertainty of subject matter.

Question 6

Beneficiary principle

Answer 6

(c) A transfers property to B intending B to hold it for a non-charitable purpose which does not
fall within a recognised exception to the beneficiary principle. The trust fails for noncompliance with the beneficiary principle.

Question 7

2 Automatic resulting trusts

Answer 7

It is important to note that not all failed attempts to create an express trust will produce a resulting trust. In particular, if the trust fails to due lack of constitution (ie legal title has not
passed to the trustee) there is nothing to result back to the settlor: they still have the property.

Question 8

Failing trusts

Answer 8

Even if a trust has been validly created, it may still fail subsequently. For example:
(a) A private express trust has run for the full 125-year statutory perpetuity period and some of the trust property has still not vested in a beneficiary. There is no gift-over.
(b) The purpose of a non-charitable trust can no longer be carried out (eg the trust is for a pet that has died) but there are funds remaining and no gift-over.

Question 9

In both cases, the property is held on a resulting trust for the settlor’s estate.

Answer 9

It is also important to note that a problem with one of the three certainties does not necessarily
mean there will be a resulting trust:
* A self-declaration of trust which fails for uncertainty of objects or subject matter will simply have no effect. The settlor remains the full legal owner of the property.
* Similarly, a testamentary trust which fails for uncertainty of objects or subject matter will be void. The property will form part of the testator’s residue.
* If property is left to an individual in a will, and it is concluded that there is insufficient certainty
as to whether they are intended to be a trustee, the effect of the provision will be a straightforward gift to that individual.

Question 10

The position is more complicated

Answer 10

If the legal owner of property transfers that property to a third
party during their lifetime and it is concluded that there is no intention to create an express trust. If there is evidence that the transferor intended a gift, then that is the effect of the transfer. If there is no such evidence, it is likely that there will be a resulting trust but it will be properly categorised as a presumed resulting trust

Question 11

3. Presumed resulting trusts

3.1 Gratuitous transfer resulting trusts

Answer 11

Presumed resulting trusts arise in situations where a transfer is gratuitous and there is no evidence
that the transferor intended the recipient to receive the property as a gift. They arise by way of a
presumption that the transferor intended to create a trust. The presumption can be rebutted by
evidence that the transferor’s actual intention is inconsistent with the creation of a trust.

Question 12

Consider a scenario where A transfers the legal title of an asset to B:

Answer 12

(a) If B provides consideration for the transfer, there is no presumption of resulting trust. The transaction is a sale.
(b) If B provides no consideration, there is a presumption of resulting trust. But if there is evidence
that A intends to make a gift to B, the presumption will be easily rebutted and B will become the full legal owner of the property.
(c) If B provides no consideration and can adduce no evidence that A intended to make a gift, B will hold the asset on a resulting trust for A.

Question 13

3.2 Purchase money resulting trusts

Answer 13

Another situation in which a presumed resulting trust will arise is where, rather than transferring
an asset to someone else, a person pays all or part of the purchase price for an asset. Where the person pays the full purchase price, the analysis is very similar to the previous
scenarios.

For example, A purchases shares and has them registered in B’s name. As with the previous examples, B will hold the shares on resulting trust for A unless it can be shown that this was not A’s intention because, for example, B provided consideration or A demonstrated an intention to make a gift to B.

Question 14

There are two broad situations to consider here:

Answer 14

(a) A and B both contribute towards the purchase price of an asset but B becomes the sole legal
owner.
(b) A and B both contribute towards the purchase price of an asset. A contributes more than B but they become joint legal owners of the asset.

Question 15

3.2 Purchase money resulting trusts

Answer 15

Again, in the absence of evidence to the contrary, a presumed resulting trust will determine A and
B’s respective equitable interests. Regardless of how legal title is held, A and B will be treated as
having equitable interests which reflect their respective contributions to the purchase price.

This scenario commonly arises in situations involving joint ownership of land. In order to understand the following examples, it is important to be aware that legal title to land can only be held (i) by a sole legal owner or (ii) by up to four legal owners as joint tenants

Question 16

3.2 Purchase money resulting trusts

Answer 16

This means that the legal ownership of the land may not reflect the intended beneficial ownership.
Joint legal owners will therefore often hold the land on trust for themselves, with their equitable
interests reflecting the true beneficial ownership of the land.

Question 17

3.2 Purchase money resulting trusts

Answer 17

It is preferable to declare an express trust over the land which makes the beneficial entitlement clear. In the absence of an express trust, an implied trust may arise to determine the equitable ownership of the land.

It is important to note that presumed resulting trusts are not used to determine beneficial entitlement to land acquired jointly as a family home. Such cases involve the use of common intention constructive trusts, which are considered in the chapter on ‘Family homes’.

Question 18

Example: Sole legal ownership

Answer 18

A and B each contribute half of the purchase price for land and B is registered as the sole legal
owner. There is no evidence A intends a gift to B. No express trust is declared. B holds the land on trust for A and B as tenants in common in equal shares.

Question 19

Example: Joint legal ownership

Answer 19

A contributes 70% and B contributes 30% of the purchase price. They are registered as joint legal owners. They do not discuss how the property should be shared and no express trust is declared. A and B hold the land as legal joint tenants on trust for A and B as equitable tenants in common. A has a 70% equitable share and B has a 30% equitable share.

Question 20

3.3 Presumption of advancement

Answer 20

There are some situations in which the presumption of resulting trust does not arise because the
relationship between the transferor and the transferee gives rise to the ‘presumption of advancement’ (meaning a presumption that the transfer was intended as a gift).

Question 21

The following transfers of property will give rise to the presumption of advancement:

Answer 21

(a) From husband to wife (including a transfer made during their engagement, prior to marriage): This presumption is very limited. There is no such presumption where a transfer is made by a wife to a husband or from fiancée to fiancé. It is unclear whether the presumption
applies between same-sex spouses or opposite-sex civil partners.

Question 22

The following transfers of property will give rise to the presumption of advancement:

Answer 22

(b) From parent to child: The presumption clearly applies when a transfer is made from a father
to a child. This includes an adult child (although the presumption can be more easily rebutted in such cases). It is less clear whether the presumption applies when the transfer is made by a mother.

Question 23

The following transfers of property will give rise to the presumption of advancement:

Answer 23

(c) From a person in ‘loco parentis’ to a minor child: The presumption also applies in cases where a person who has taken on financial responsibility for a child. Unlike the presumption
applicable when the transfer is from father to child, this presumption typically only applies while the child remains a minor.

Question 24

3.3 Presumption of advancement

Answer 24

The presumption of advancement is very outdated and provision was made for its abolition in s 199(1) Equality Act 2010. However, this section has still not been brought into force. The following examples demonstrate how the presumption of advancement interacts with the presumption of resulting trust.

Question 25

Example: Transfer from father to son

Answer 25

A father transfers £1,000 into his son’s bank account. There is no evidence as to why the father did
this. The presumption of advancement applies meaning that the father is presumed to have made
a gift to his son. The father will need to rebut the presumption with contrary evidence (eg evidence
that the money was intended to be a loan or held on an express trust for the father).

Question 26

Example: Transfer from son to father

Answer 26

A son transfers £1,000 into his father’s bank account. There is no evidence as to why the son did
this. The presumption of resulting trust applies, meaning the father holds the £1,000 on a presumed resulting trust for the son. The father will only be able to displace the presumption, and establish beneficial ownership of the £1,000, if he can provide evidence displacing the presumption of resulting trust (eg evidence that it was intended to be a gift or the repayment of a
loan).

Question 27

3.4 Summary

Answer 27

• Resulting trusts give rise to a beneficial interest in favour of the transferor of property or a
  contributor to its acquisition.
• Automatic resulting trusts are default trusts which arise when property is vested in an intended
  trustee but the trust fails, either from the outset or subsequently.
• Common reasons for an automatic resulting trust to arise include uncertainty of subject matter, uncertainty of objects, non-compliance with the beneficiary principle or a surplus fund
  remaining at the end of the trust period.

Question 28

3.4 Summary

Answer 28

• A presumption of resulting trust arises where a person either transfers property to another
  person or contributes towards the acquisition of an asset which is transferred to another person. The
  presumption can be rebutted by evidence of the transferor or contributor’s actual intention.
• Where A transfers an asset to (or purchases an asset for) B, B will hold that asset on resulting trust for A unless there is evidence that this was not A’s intention.
• If A and B contribute towards the purchase price of an asset, regardless of how legal title is
  held, they will each gain an equitable interest that reflects their respective contributions unless there is evidence of a contrary intention.