Resulting trusts

Question 1

When do resulting trusts arise?

Answer 1

• they arise where a legal owner has transferred ownership of their property to a third party but, for some reason, equity recognises that they should retain or regain the beneficial interest in that property.

Question 2

What are the two key categories of result trusts?

Answer 2

Automatic and presumed resulting trusts

Question 3

When does an automatic resulting trust arise?

Answer 3

• These are default trusts that arise where there has been a failure in the creation of the trust.
• If a trustee is holding legal title but the trust has failed, equity imposes a resulting trust meaning that they hold the property on trust for the settlor. This gives the settlorSaunders v Vautierrights, allowing them to collapse the trust and recover the property.
• If the trust had failed from the outset, the settlor can then attempt to correct that problem. If the trust fails at a later date (for example because it is a purpose trust where the purpose can no longer be fulfilled), the resulting trust ensures that the surplus trust property is returned to the settlor.
• Automatic resulting trusts are a default trust which do not respond in any way to the actual intention of the settlor. They are just equity’s way of ensuring that the property returns to its original owner when it is otherwise unclear what should happen to it.

Question 4

When does a presumed resulting trust arise?

Answer 4

• in response to a transfer of legal title, but the intention of the settlor is relevant to the determination of whether a resulting trust has arisen.
• Where a person makes a gratuitous transfer of property to a third party, equity raises a presumption of a resulting trust rather than an outright gift.
• So if a person transfers their property to someone else, equity will presume that they wanted that other person to hold it on trust for them.
• The presumption of resulting trust can be rebutted by evidence that the transferor did not intend the property to be held on trust for them. So, for example, if it is clear that the transferor intended a gift to the recipient, the presumption will be rebutted and the gift will take effect. A resulting trust will only arise if there is no evidence rebutting the presumption.

Question 5

What are the 3 situations that a resulting trust will arise?

Answer 5

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