Implied trusts: Resulting trusts Flashcards
When do resulting trusts arise?
They arise in three situations:
· Where a transfer on trust wholly or partially fails but the property has been transferred to the trustee
· Where a person gratuitously transfers property to another person
· Where a person pays all or part of the purchase price for an asset
What are automatic resulting trusts?
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.
What are presumed resulting trusts?
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 or contributor intended to create a trust. The presumption can be rebutted by evidence that the transferor or contributor’s actual intention is inconsistent with the creation of a trust.
True or false: The presumption of resulting trust can be rebutted
True
The presumption is rebutted by evidence that the transferor did not intend the recipient to hold the property on trust for them.
Which of the following will give rise to an automatic resulting trust?
An intended transfer on trust fails due to lack of constitution
An intended self-declaration of trust fails due to uncertainty of objects
An intended transfer on trust fails due to uncertainty of objects
An intended gift fails due to lack of constitution
An intended self-declaration of trust fails due to uncertainty of subject matter
An intended transfer on trust fails due to uncertainty of objects
A man purchases a piece of land which he intends to use for a new business venture. His boyfriend contributes 50% of the purchase price for the land but the man is registered as the sole legal owner of the land. The couple break up and the boyfriend claims that he is entitled to a share of the land. There is no express trust declared over the property and no evidence that the boyfriend intended a gift or a loan when contributing towards the land.
What is the most likely conclusion that a court will reach as to the legal and equitable ownership of the land?
The man holds the land for himself and his boyfriend as equitable tenants in common in equal shares.
The man is the sole legal and beneficial owner of the land.
The man holds the land for himself and his boyfriend as equitable joint tenants.
The man and his boyfriend are legal joint tenants and hold the land on trust for themselves as equitable tenants in common in equal shares.
The man and his boyfriend are legal joint tenants and hold the land on trust for themselves as equitable joint tenants.
The man holds the land for himself and his boyfriend as equitable tenants in common in equal shares.
This is the most likely conclusion. As there is no evidence to rebut the presumption of resulting trust, the man will hold the land on trust for himself and his boyfriend, with their shares reflecting their respective contributions to the land. They will therefore be equitable tenants in common and will each have a 50% share. This is different to joint tenancy, where they would both own 100% of the land.
Presumption of advancement?
In some voluntary transfer and purchase money cases, a different presumption applies. This is
known as the presumption of advancement (or presumption of gift). When the presumption of
advancement applies, there is no resulting trust and the transferor is presumed to be gifting
property to the transferee.
The presumption of advancement applies when equity regards the transferor as being under
a moral obligation to provide for the transferee (or, rather, regarded the transferor as being
under such an obligation back in the 19th century). It applies in cases of voluntary transfers
and provision of purchase money:
(a) from father to child (the child here can be either a minor or an adult);
(b) from person in loco parentis to child. A person in loco parentis is effectively a guardian
who has taken on the responsibility to provide financially for a child. This responsibility
generally finishes when the child reaches the age of 18 years;
(c) by husband to wife; and
(d) by fiancé (male) to fiancée (female), so long as the couple subsequently marry.
Note that the presumption of advancement does not apply if the roles are reversed. The
presumption of advancement does not apply if a wife voluntarily transfers property to
her husband or adult children voluntarily transfer property to their father. In both of these
situations, the presumption of resulting trust will apply, unless rebutted by contrary evidence.
Are formalities needed for resulting trusts?
Whilst you need written evidence of an express trust over land in order to comply with s 53(1)
(b) of the LPA 1925, the same is not true of an implied trust (such as a resulting trust). Section
53(2) of the LPA 1925 makes it clear that an implied trust can be created without any formality.
Question 1
A man bought shares in a company. His son’s name was listed as the owner of the shares
in the company’s register of members. The son was aged 25 years. On the same day as
the purchase took place, the son emailed the man to say, ‘Hi Dad. When I get the share
documents, I will send these over to you as agreed. As we also agreed, if any dividends
are paid on these shares, I will forward those on to you as well.’
A year later, the man instructed a solicitor to draw up a will for him. He said that the value
of the shares had doubled over the last year and that he wanted to leave them to his wife.
Does the man have a beneficial interest in the shares?
A Yes, because he paid for the shares.
B Yes, because the email from the son a year ago is sufficient to rebut the presumption of
advancement that would have otherwise applied.
C Yes, because the fact that he instructed a solicitor to draft a will leaving the shares
to the wife is sufficient to rebut the presumption of advancement that would have
otherwise applied.
D No, because the presumption of advancement applies and can never be rebutted.
E No, because his name is not listed in the company’s register of members.
Answer
Option B is correct. The man has purchased shares in the name of his son. Whilst the
presumption of advancement applies where a father transfers property to, or purchases
property for, his child, here there is likely to be sufficient evidence to rebut that presumption.
That evidence is the email contemporaneous with the purchase recording an agreement
that the man would hold the share certificate (which indicates an intention that the man
should continue to have some kind of interest in the shares) and that future dividends would
be paid to the man (which indicates some kind of entitlement to the shares). It is likely
therefore that the man has retained a beneficial interest in the shares.
Option A is not the best answer. Just because the man paid for the shares does not
necessarily mean that he will retain an interest in them.
Option C is wrong. Whilst the presumption of advancement initially arose on the purchase
of the shares, this cannot be rebutted by the instructions the man gave to the solicitor.
The man would want to use those instructions as evidence that he retained an interest in
the shares. However, evidence of words and conduct after the purchase had taken place
would only be admissible against the man’s case and could not be used in support of his
case. As a result, the instructions to the solicitor are not sufficient by themselves to rebut the
presumption of advancement.
Option D is wrong. Whilst it is correct to say that the presumption of advancement initially
arose on the purchase of the shares, it is not correct to say that this presumption can never
be rebutted. The presumptions of resulting trust and advancement are just presumptions
and are often readily rebutted in the light of contrary evidence.
Option E is wrong. Whilst the man does not own legal title to the shares given that his
name is not listed in the register of members, he can still own the beneficial interest in the
shares.
Question 2
Three years ago, an estate agent sent a letter, enclosing a cheque for £10,000, to a
paramedic that said, ‘As agreed, cash this cheque and give most of it to your daughter
and then the rest to your son when they reach the age of 21 years’. The daughter was then
aged 18 years and the son was aged 12 years. The paramedic cashed the cheque.
The daughter has now reached the age of 21 years and has found the letter. She wants
the paramedic to transfer at least a half share of the money to her (she has not discussed
this with her brother). The estate agent has recently fallen out with the paramedic and has
written to the paramedic demanding that she return the money to him.
Must the paramedic return the money to the estate agent?
A Yes, because whilst the estate agent tried to create a trust in favour of the paramedic’s
children, that trust failed due to uncertain intention.
B Yes, because whilst the estate agent tried to create a trust in favour of the paramedic’s
children, that trust failed due to uncertain subject- matter.
C Yes, because whilst the estate agent tried to create a trust in favour of the paramedic’s
children, the trust offended the relevant perpetuity rules.
D No, because the daughter has reached the age of 21 years and her entitlement to the
money has vested.
E No, because the estate agent created a valid trust. Given that the declaration of trust
did not specify the shares that each child would get, the law presumes that each child
gets an equal share.
Answer
Option B is correct. The estate agent tried to create an express trust. The reason that
trust is ineffective is due to the beneficial interests being uncertain (which is an aspect of
the second certainty – certainty of subject- matter). The paramedic does not know how to
separate the trust property between the daughter and son. All she knows is that she must
give the daughter more than the son, but beyond that the distribution between the two is
unclear. The paramedic therefore holds the legal title in the money on resulting trust for
the estate agent. As that resulting trust is a bare trust and the estate agent is absolutely
entitled, he can call for that money back.
Option A is wrong. There is certainty of intention – it is clear that the paramedic had to hold
the money on trust for other people.
Option C is wrong. Had the trust been valid, the contingent interests were clearly capable
of vesting within the perpetuity period of 125 years (being the perpetuity period relevant to
trusts for individuals).
Option D is wrong. As the express trust fails, the daughter has no beneficial interest in the
money, whether she reaches the age of 21 years or not.
Option E is wrong. This is not a case where the law can presume that each person should
get an equal share as this runs counter to the estate agent’s intention in setting up the
trust (the only thing we know for certain is that he wanted the daughter to get more than
the son).
Question 3
A son owned a house. His father came to live with him four years ago. Two years ago, the
son and his wife separated. The son was worried that his wife might divorce him and was
worried about what that might mean for the house. He therefore transferred the house into
the father’s sole name. No money exchanged hands between father and son. The son and
wife have now reconciled and no divorce proceedings are ongoing.
Throughout the past four years, the father and son welcomed paying lodgers into the
house. The money from these lodgers was only ever paid to the son.
The father has recently died and, in his valid will, left the house to his daughter.
Which of the following statements best describes why the son has a beneficial interest
in the house?
A The son has a beneficial interest because he continued to live in the house.
B The son has a beneficial interest because a presumption of resulting trust arose in the
son’s favour that has not been rebutted on the facts.
C The son has a beneficial interest because a presumption of advancement arose in the
son’s favour that has not been rebutted on the facts.
D The son has a beneficial interest because a resulting trust can be inferred on the facts.
E The son has a beneficial interest because a presumption of advancement arose in the
father’s favour but this has been rebutted on the facts.
Answer
Option D is correct. When the son transferred the house into the father’s sole name, he
was making a voluntary transfer of realty. In most cases, when a son voluntarily transfers
property to a father, a presumption of resulting trust will apply. However, the position seems
to be different for realty (land) – in these cases, it seems that no presumption of resulting
trust will apply simply because one party has voluntarily transferred land to another. Having
said that, a resulting trust is likely to be inferred in this case, given that the son continued to
profit from the income being generated from the house. This additional evidence indicates
an intention that the son retained a beneficial ownership in the house even when he
transferred the legal interest to his father.
Option A is wrong. The mere fact that you live in a house does not by itself give you a
beneficial interest in that house.
Option B is wrong. Whilst there is some doubt, the effect of s 60(3) of the LPA 1925 appears
to prevent a presumption of resulting trust arising merely by the fact that one person has
voluntarily transferred land to another. This option therefore is not the best description of
why the son has a beneficial interest in the house.
Option C is wrong. Whilst a presumption of advancement would have arisen had the father
voluntarily transferred land to his son, no similar presumption arises when a son voluntarily
transfers land to his father. The transfer is the wrong way round.
Option E is wrong. A father can never benefit from the presumption of advancement.
Victorian morality dictates that a father is financially responsible for his children. In the right
situations, the presumption of advancement may benefit his children, but never him.
