Resulting Trusts

Question 1

Define resulting trusts and explain their purpose.

Answer 1

1. Definition:
   * Resulting trusts are implied trusts created by operation of law, not express intention. They arise when there is uncertainty about the beneficial interest in property, or when an express trust fails.
2. Purpose:
   * To prevent property from being without a beneficial owner (since “equity abhors a vacuum”).

• To ensure that equitable ownership reflects contributions or intentions where no explicit trust has been created.

3. Key Features:
   * Legal ownership is held by the transferee (trustee).

• The equitable interest “results” or reverts back to the transferor unless evidence shows otherwise.

4. Types of Resulting Trusts:
   * Presumed Resulting Trusts: Based on presumptions about the transferor’s intention.

• Automatic Resulting Trusts: Arise when an express trust fails to dispose of the entire beneficial interest.

Question 2

When does the presumption of resulting trust apply in voluntary transfers?

Answer 2

1. Definition:
   * If property is voluntarily transferred without consideration, the transferee is presumed to hold the property on a resulting trust for the transferor.
2. Applies To:
   * Personal Property (Personalty): The presumption readily applies to money, shares, or movable assets.

• Land (Realty): The presumption is limited by s.60(3) of the Law of Property Act 1925.

3. Examples:
   * Sam hands £10,000 to his brother Tom without explanation. It is presumed Tom holds it on a resulting trust for Sam unless evidence of a gift is provided.

• If Mary transfers company shares to John without consideration, John holds them on a resulting trust for Mary.

4. Key Rule for Land:
   * Section 60(3) LPA 1925 states that a resulting trust cannot be presumed for voluntary transfers of land unless additional evidence shows the transferor’s intention.

Question 3

How does the presumption of resulting trust apply to voluntary transfers of land?

Answer 3

1. Key Rule:
   * Under s.60(3) LPA 1925, voluntary transfers of land do not automatically result in a resulting trust unless evidence suggests the transferor did not intend to transfer the beneficial interest.
2. Judicial Interpretation:
   * In Ali v Khan [2002], the court held that a resulting trust for land requires supporting evidence, as s.60(3) limits the automatic application of the presumption.
3. Example:
   * Peter transfers ownership of his farm to Sara without consideration. Absent evidence that Peter intended a gift, a resulting trust might arise only if additional evidence supports Peter’s claim.
4. Practical Implications:
   * For land, courts require more than the mere absence of consideration to presume a resulting trust.

Question 4

Explain resulting trusts in purchase money cases.

Answer 4

1. Definition:
   * A purchase money resulting trust arises when person X pays all or part of the purchase price for property held in person Y’s name. The property is presumed to be held on trust for X.
2. Rules for Application:
   * The contribution must:
   * Be contemporaneous with the purchase.

• Go towards the purchase price itself (not ancillary costs, like legal fees).

3. Proportional Beneficial Interest:
   
   • The resulting trust allocates the beneficial interest proportionally to each party’s financial contribution.
4. Examples:
   * Tess pays £50,000 towards the purchase of a house in Maggie’s name. Maggie contributes £450,000. Tess holds a 10% equitable interest in the property under a resulting trust.

• James pays the entire purchase price for a property held in Sarah’s name. The presumption is that Sarah holds the property on trust for James.

5. Key Case:
   * Dyer v Dyer (1788): Established the principle that the beneficial interest follows the financial contribution.

Question 5

What is the presumption of advancement, and how does it differ from a resulting trust?

Answer 5

1. Definition:
   * The presumption of advancement assumes that a transferor intended to gift the property, typically in relationships where the transferor is under a moral obligation to provide for the transferee.
2. When It Applies:
   * Father to Child: Both minors and adults.

• Person in Loco Parentis to Child: A guardian who assumes parental responsibility.
• Husband to Wife: Traditionally presumed as a gift.
• Fiancé to Fiancée: Only if they later marry.

3. Example:
   * Richard buys shares in his wife Sienna’s name. The presumption is that he intended to gift the shares to her.
4. Limitations:
   * Does not apply in reverse (e.g., wife to husband).

• Section 199 of the Equality Act 2010 seeks to abolish the presumption but is not yet in force.

Question 6

How can the presumptions of resulting trust and advancement be rebutted?

Answer 6

1. Rebutting a Resulting Trust:
   * The transferee can rebut the presumption by proving the transferor intended a gift.

• Evidence: Words, conduct, or circumstances at the time of transfer.

2. Rebutting Advancement:
   * The transferor can rebut the presumption by showing the property was not intended as a gift.

• Example: Retaining title deeds (Warren v Gurney [1944]).

3. Key Rule:
   * Evidence after the transfer can only be used against the transferor but not in their favor.

Question 7

When does an automatic resulting trust arise?

Answer 7

1. Definition:
   * An automatic resulting trust arises when an express trust fails or does not fully dispose of the beneficial interest.
2. Common Scenarios:
   * Failure of Condition: Laura is to inherit £250,000 if she turns 25 but dies at 22. The equitable interest results back to the settlor.
   
   • Uncertain Objects: “To my best friends” lacks conceptual certainty, so the interest returns to the settlor.
3. Outcome:
   * The equitable interest reverts to the transferor or their estate.

Question 8

What happens when the beneficial interest in a trust is uncertain?

Answer 8

1. Principle:
   * Equity ensures there is no vacuum in beneficial ownership. If the beneficial interest is uncertain, it “results” back to the settlor or their estate.
2. Examples of Uncertainty:
   * “To my best friends” lacks conceptual certainty.

• “A decent amount to Ruby and the rest to Sylvia” lacks clarity in beneficial interests.

3. Key Rule:
   * Resulting trusts act as a fallback mechanism when the settlor’s intent is unclear.

Question 9

Are formalities required to establish a resulting trust?

Answer 9

1. General Rule:
   * Resulting trusts do not require formalities. Section 53(2) of the LPA 1925 exempts implied trusts (including resulting trusts) from the formal writing requirements of s.53(1)(b).
2. Exception:
   * If the transfer involves land, an express trust must comply with s.53(1)(b) (evidenced in writing).
3. Practical Application:
   * Paul transfers land to Quentin with no clear beneficial ownership. A resulting trust arises without requiring formal documentation.

Question 10

Who holds the beneficial interest under a resulting trust?

Answer 10

1. General Rule:
   * The equitable interest results back to the transferor unless rebutted by evidence of an intention to gift.
2. If the Transferor Has Died:
   * The interest passes to the transferor’s estate and is distributed according to their will or intestacy rules.
3. Example:
   * Michael creates a void purpose trust. The £250,000 results back to Michael’s estate and passes to his residuary beneficiary, Oxfam International.

Question 11

How do you determine whether the presumption of resulting trust or advancement applies and how can it be rebutted?

Answer 11

1. Determine the Presumption:
   * Presumption of Advancement: Applies in specific relationships, such as:

• Father to child.
• Husband to wife.
• Presumption of Resulting Trust: Applies to all other scenarios unless evidence suggests otherwise.
• Note: For voluntary transfers of land, there is no automatic presumption of resulting trust under s.60(3) LPA 1925.

2. Rebutting the Presumption:
   * Is there evidence to rebut the presumption?

• Examples: Retaining title deeds, statements indicating intent to retain beneficial ownership.
• the evidence admissible?
• Only contemporaneous evidence (at or before the transfer) is admissible. Post-transfer statements cannot be used in favor of the transferor.