Trusts 3

Question 1

In which two situations are resulting trusts most likely to arise?

Answer 1

• A voluntary transfer or purchase in the name of another* A failure to exhaust the beneficial interest under an express trust.

Question 2

What general rule applies in the following situation: 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?

Answer 2

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 management duties. * Y’s sole duty is to convey his title to X.This presumption is subject to:* Presumption of advancement* Evidence rebutting the presumption (e.g. showing it was a gift, loan or payment of a debt, or, if admissible, an illegal or fraudulent motive)

Question 3

X transfers his shares in ABC Co Ltd to his friend Y. What presumption arises?

Answer 3

Y will be presumed to hold the shares on trust for X and will be expected to convey title to the shares back to X when X so requests.

Question 4

What general rule applies in the following situation: on the purchase of real or personal property, X provides the purchase money but the legal title is transferred to Y.

Answer 4

• Y is presumed to hold 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.

Question 5

X agrees with his friend Y that they will purchase a flat together. X contributes £60,000 toward the purchase price and Y contributes £40,000, but title is taken only in Y’s name. What presumption applies?

Answer 5

Y will be presumed to hold the legal title on trust for herself and X, with X having a 60% beneficial interest and Y having a 40% interest.

Question 6

In order for a presumption of resulting trust to apply in voluntary purchase situations, what 2 rules apply regarding the consideration?

Answer 6

• The consideration paid by X must be for purchase of the property. Sums paid by X to make improvements on the property or to pay taxes on it do not give rise to a resulting trust. * The consideration (or obligation to pay) must be supplied at or before the time Y takes title.

Question 7

If a party who reimburses the title holder of property after the purchase is not named on the title, will a resulting trust arise?

Answer 7

No

Question 8

Who has the burden of proving a resulting trust has arised in a voluntary transfer/purchase money case?

Answer 8

The party claiming to be the beneficiary of a resulting trust, to prove by clear and convincing evidence that they supplied the consideration

Question 9

Once the presumption of resulting trust has arisen, how can it be rebutted?

Answer 9

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 purchase 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

Question 10

What is the presumption of advancement?

Answer 10

The presumption of resulting trust does not apply in certain specific cases where X is treated as being under a moral obligation to make financial provision for Y: where:* X is Y’s husband or fiancé* X is Y’s father and * X stands in loco parentis to Y (i.e. 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. (Note: this presumption can also be rebutted)

Question 11

A father transfers his shares in X Co Ltd to his daughter. Does a resulting trust arise?

Answer 11

No, the presumption of advancement applies and a gift is presumed.

Question 12

Does the presumption of advancement apply to transfers from wife to husband or mother to child?

Answer 12

• There is no authority to apply them to transfers from wife to husband or mother to child. * However, the ‘loco parents’ category has been applied to a transfer from mother to child, where the mother had sole responsibility for the child as a single parent.

Question 13

Can the presumption of advancement be rebutted?

Answer 13

Yes 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.

Question 14

What two types of evidence are admissible to rebut presumptions of resulting trust and advancement?

Answer 14

Surrounding Circumstances * Courts tend to use such evidence to reduce the discriminatory effect of the presumption of advancement. Acts and Declarations* Only evidence of acts and declarations made by an individual before or at the time of the purchase or transfer will be admissible

Question 15

A mother transfers shares to her adult son on his birthday but gives no explanation. Is a resulting trust likely to arise?

Answer 15

No, the presumption of resulting trust applies, but the court is likely to conclude that a birthday gift was intended on the basis of the surrounding circumstances.

Question 16

A husband transfers cash into a bank account in the joint names of himself and his wife. He provides evidence to suggest that the reason for opening the account was convenience. Is a resulting trust likely to apply?

Answer 16

The presumption of advancement applies. The evidence to suggest that the reason for opening the account was convenience rather than a gift may be sufficient to rebut the presumption and enable the husband to show that the money is his alone, thereby giving rise to a resulting trust.

Question 17

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. Is a resulting trust likely to arise?

Answer 17

No. The presumption 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.

Question 18

If the property transfer was made as part of an illegal or fraudulent transaction, is this evidence admissible in seeking to establish a resulting trust?

Answer 18

If the court decides it is in the public interest to allow a claim. The court takes into account all relevant factors, including the underlying purpose of the relevant law and the respective conduct of the parties.

Question 19

A father, fearing that his personal property may be at risk if his business fails, transfers assets into the name of his son. The presumption of advancement applies. The father attempts to reclaim the assets by explaining to the court that he did not intend to make a gift to his son, but that his intention was to hide the assets from his creditors should his business fail. Is this evidence admissible?

Answer 19

It depends on whether the court decides if it is in the public interest to allow the claim. The court will consider all relevant factors, including:* whether creditors have in fact been deceived, * whether the son was aware of the scheme, and * the effect on either party of allowing the father’s claim.

Question 20

A and B, an unmarried couple, both contribute to the purchase of a flat, but it is transferred into the name of A alone so that B can make a fraudulent claim for government benefits. The relationship breaks down and B claims a share in the flat under resulting trust principles. Is this evidence admissible?

Answer 20

It depends on whether the court decides if it is in the public interest to allow the claim. The court has discretion as to whether to enforce the claim, taking into account the seriousness of the fraud, the conduct of both parties, and the effect of allowing the claim.

Question 21

What is required for a resulting trust to arise in the event of a failure of an express trust?

Answer 21

It will arise if:* S, the settlor, creates an express 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 (e.g. failure of contingent interest; lack of certainty). T was never intended to have beneficial 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 beneficiary. The property will pass to those entitled under S’s will or intestacy.

Question 22

E’s father transfers a house which is rented out to tenants to E. E’s father, however, continues to receive the rent from the house after the transfer. Does a resulting trust arise?

Answer 22

No. The presumption of advancement will apply, because it was a father to child transfer. E’s father wants to rebut the presumption of advancement and argue that E holds the property for him on a resulting trust. The mere fact that E’s father continued to receive rent is not admissible to support an argument that no gift was intended, because this took place after the time of the transfer.

Question 23

S transfers property to trustees to hold on trust for X, provided X attains the age of 21. Xena dies aged 19. What happens to the property transferred?

Answer 23

X’s contingent interest has failed. In the absence of any further provision in the trust instrument, the trustees hold on resulting trust for S and must transfer the property back to him.

Question 24

In his will, T gives the residue of his estate to trustees to hold on trust for “my old friends in equal shares”. Is a valid express private trust created?

Answer 24

No, the trust fails for lack of certainty of objects; thus, the trustees hold on resulting trust for T’s estate. In the absence of further provisions in the will, the property passes to T’s next of kin under the intestacy rules.

Question 25

In her will, T gives “£5,000 to my Trustees to hold on the trusts which I have communicated to them”. No communication was made. What happens to the £5,000?

Answer 25

The attempted half secret trust has failed and the trustees hold the £5,000 on resulting trust for those entitled to the residue of the estate under the will.