RESULTING TRUSTS Flashcards
types of resulting trusts
(1) trusts arising following a voluntary transfer or purchase in the name of another, and (2) trusts
arising on failure to exhaust the benefcial interest under an express trust.
VOLUNTARY TRANSFER AND PURCHASE MONEY CASES
Where an individual, X, transfers the legal title in property to another, Y, without consideration and there is no evidence
before or at the time of the transfer of the reason why it has been made, the general rule is that equity presumes that X did not intend to make a gift and Y holds the property on
resulting trust for X. The resulting trust involves no manage-ment duties. Y’s sole duty is to convey his title to X.
Providing Purchase Money
Similar principles apply where, on the purchase of real or personal property, X provides the purchase money but the legal title is transferred to Y. The general presumption is that Y holds the legal title on resulting trust for X. If X and Y both contribute to the purchase money but the property is
transferred into Y’s name alone, it is presumed that Y holds on trust for himself and X in proportion to their respective contributions.
a.Use of Consideration
The consideration paid by X must be for purchase of the property. Sums paid by X to makeimprovements on the property or to pay taxes on it do not give rise to a resulting
trust.
b.Time When Consideration Furnished
The consideration (or obligation to pay) must be supplied at or before the time Y takes title.
Exam Tip
On the exam, pay attention to when the consideration is paid. If the unnamed party merely reimburses the title holder after the purchase, no purchase money resulting trust will arise.
c.Burden of Proof on Claimant
The burden is on X, the party claiming to be the benefciary of a resulting trust, to prove by clear and convincing evi-dence that they supplied the consideration.
Rebutting Presumption of Resulting Trust
Once the presumption of resulting trust has arisen, Y, the title holder and alleged trustee, may rebut the presumption by submitting evidence that no trust was intended and that, to
the contrary, the money used as consideration for the pur-chase was: (1) a gift from X to Y; (2) a loan from X to Y; or (3) payment by X of a debt owing to Y.
Exception—Presumption of Advancement
The presumption of resulting trust does not apply in certain specifc cases where X is treated as being under a moral obligation to make fnancial provision for Y. This outdated presumption applies where:
*X is Y’s husband or fancé;
*X is Y’s father; and
*X stands in loco parentis to Y (that is, X has taken on parental duties in relation to Y).
In cases where the presumption of advancement applies, it is presumed that X intended to make a gift to Y.
Limitation on Presumption of Advancement
Although the presumptions do not refect modern conditions, there is no authority to apply them to transfers from wife to husband or mother to child. However, the ‘loco parentis’ category has been applied to a transfer from mother to child, where the mother had sole responsibility for the child as a
single parent.
Rebutting Presumption ofAdvancement
Once the presumption of advancement has arisen, X, the transferor or provider of purchase money, may rebut it by providing evidence to show that they did not intend to make a gift but instead intended to retain an equitable interest in
the property.
Evidence Admissible to Rebut
Presumptions of Resulting Trust and
Advancement
a.Surrounding Circumstances
Evidence of the surrounding circumstances at the time of the transfer is admissible. Courts tend to use such evidence to reduce the discriminatory efect of the presumption of advancement.
b.Acts and Declarations
Only evidence of acts and declarations made by an individ-ual** before or at the time of the purchase or transfer** will be admissible in support of that individual’s claim.
EXAMPLE
A father transfers his shares in X Co Ltd to his daughter.
Subsequently he continues to treat the shares as his own, receiving and spending the dividend payments. The pre-sumption of advancement applies. Evidence of the father’s actions after the transfer is not admissible in support of his
claim that he did not intend to make a gift.
Evidence of Illegal or Fraudulent Motive
If the property transfer was made as part of an illegal or fraudulent transaction, the court must decide whether it is in the public interest to allow a claim.
RESULTING TRUSTS ARISING ON FAILURE OF EXPRESS TRUST
A resulting trust arises where S, the settlor, creates an ex-press trust and conveys legal title to T, the trustee, but the declared trust fails to dispose of the entire equitable interest or fails for some other reason (for example, failure of contin-
gent interest; lack of certainty). T was never intended to have benefcial ownership and so T now holds on resulting trust for S. T has no management duties as trustee: T’s duty as
trustee of the resulting trust is simply to convey title back to S. If S is dead, S’s estate is the benefciary. The property will pass to those entitled under S’s will or intestacy.
