Resulting Trusts Flashcards
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.
For example, resulting trusts will arise for A in each of the following circumstances:
(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.
(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.
(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.
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.
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.
In both cases, the property is held on a resulting trust for the settlor’s estate.
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.
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* 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.
The position is more complicated 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.
Gratuitous transfer 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 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.
Consider a scenario where A transfers the legal title of an asset to B:
(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.
Purchase money resulting trusts
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.
The analysis is more complicated in situations where the purchase price for an asset is provided
by more than one person. There are two broad situations to consider here:
(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.
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.
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.
86 Trusts Law
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’.
Presumption of advancement
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).
The following transfers of property will give rise to the presumption of advancement:
(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.
(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.
(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.
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.
