Resulting trust

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A resulting trust (from the Latin 'resultare' meaning 'to jump back') is the creation of an implied trust by operation of law, where property is transferred to someone who pays nothing for it; and then is implied to have held the property for benefit of another person. The trust property is said to "result" back to the transferor (implied settlor). In this instance, the word 'result' means "in the result, remains with", or something similar to "revert" except that in the result the beneficial interest is held on trust for the settlor. Not all trusts whose beneficiary is also the settlor can be called resulting trusts. In common law systems, the resulting trust refers to a subset of trusts which have such outcome; express trusts which stipulate that the settlor is to be the beneficiary are not normally considered resulting trusts.[1]

The beneficial interest results in the settlor, or if the settlor has died the property forms part of the settlor's estate (intestacy). It remains with the person and Re Vandervell case has proven that only the Beneficial interest disappears but not the beneficiary interest.

Closely Related Parties[edit]

Some jurisdictions may establish a rebuttable presumption of gift for property transfers between relatives. The presumption may operate as an affirmative defense to a petition to establish a resulting trust implied by operation of law.

The law presumes that it is legitimate to transfer property to a family member, particularly for a relative's support. But an unrelated transferee who receives substantial value without consideration is ordinarily presumed to hold the property in trust for benefit of the transferor. The rebuttable presumption of gift affects transfers between siblings, uncles, aunts, children, and grandchildren.

A notable exception to the presumption of gift is the transfer of property between husband and wife (transmutations). The marital exception to presumption of gift arises from the fiduciary duty that spouses owe to one another. Spouses have a special trusted relationship that imputes an obligation of utmost good faith and fair dealing. Accordingly, spouses are deemed incapable of transmutation except under specified circumstances, such as when making an EXPRESS DECLARATION of transmutation as by clear statement in a deed or other writing of substantial dignity.[2]

Unlawful Purposes[edit]

In a common law system, a resulting trust law is a creation of the law of equity rather than of common law (in the strict sense). Accordingly, the laws of some jurisdictions might recognize equitable defenses such as laches, unclean hands, and the responsibility to do equity. Where a transferor has transferred property for an unlawful purpose, and gained the benefit, then a court might hold that he has waived his right to claim a resulting trust(i.e.:settlor)(inter vivos). In such situations, a court balances the transferee's unjust enrichment with the enablement of cheating by the transferor. Enabling a cheater to gain from his transaction would erode the legitimacy of the court.

Other jurisdictions may elect to disregard an unlawful purpose.

In situations involving illegality, it can become difficult to distinguish implementation of a resulting trust theory (implied by operation of law) from an oral express trust (one implied by the facts). A transferor failing upon one theory might still prevail upon the other.

Resulting trusts in English law[edit]

Classification

One attempt to classify resulting trusts was made by Megarry J in Re Vandervell's Trusts (no.2)[1974] Ch 269. According to Megarry J there are two sorts of resulting trusts in English law.

Presumptive resulting trusts

These are transfers made by A to B, where the law creates a rebuttable presumption of a resulting trust applying if the intention is not made clear by A.(written evidence produced)

For example, when A transfers property to B, unless the transfer was made by father to child or by husband to wife, in the absence of any other evidence the law presumes that a resulting trust has been created for A.(Y this category excluded:i.e.:A evidence cannot stand in Course of testimony & remains Hearsay)(A will not get the property if H&W/F&C can adduce evidence it is their property and resulting trust will not arise.

The main categories of fact situations giving rise to a presumption of a resulting trust are: - Where A makes a voluntary conveyance of property to B - Where A has made a monetary contribution to the purchase of property for B ( The Venture, [1908] P 218,(1907) 77 L.J.P. 105.)

The presumptions are, however, easily rebutted. In Fowkes v Pascoe (1875) LR 10 Ch App 343, evidence was shown that a woman had purchased stock in the names of herself and her grandson; evidence by the grandson and granddaughter-in-law that this had been done as a gift was admissible. On the other hand, the presumption is solely concerned with evidence of an intent to create a trust; ulterior motives to create a trust are not taken into account. In Tinsley v Milligan [1994] 1 AC 340, a woman transferred property to her lover on trust in order to fraudulently claim social security payments; it was held that this did not defeat the presumption of a resulting trust.

The fact that is being proved by the presumption of a resulting trust is the intention to create a trust for the settlor. This view of presumed resulting trusts has been endorsed by Lord Browne-Wilkinson in Westdeutsche Landesbank v Council of London Borough of Islington [1996] AC 669);

"...the presumption of resulting trust is rebutted by evidence of any intention inconsistent with such a trust, not only by evidence of an intention to make a gift."

Some have argued that this presumption arises as a result of a lack of intention to transfer any beneficial interest,.[3] This view has generally not received judicial endorsement.(obiter dicta)

Automatic resulting trusts

In these trusts " there is no mention of any expression of intention in any instrument, or of any presumption of a resulting trust: the resulting trust takes effect by operation of law,(by law:implied that property will revert back to u) and so appears to be automatic." ( per Megarry J, Re Vandervell's Trusts (No 2)) [1974]

Automatic resulting trusts can arise when the settlor tries to set up a trust for a third party, but there is an initial failure for want of objects; for example, by naming beneficiaries which cannot be defined, as in Morice v Bishop of Durham 1805 10 Ves 522, or when the objectives of the trust no longer become possible or relevant by the time of the transfer to the trustee, as in Re Gillingham Bus Disaster Fund [1958] Ch 300.

Settlor's intention in automatic resulting trusts

In relation to automatic resulting trusts, there is some difference in expressing the nature of the settlor's intention:

  • In Westdeutsche Lord Browne-Wilkinson stated that a resulting trust arises due to a legal "presumed intention to create a trust in favour of the donor"
  • It has also been suggested that it is the fact of a "lack of intention to benefit the recipient" that creates the trust.[4] The settlor intends to retain the beneficial interest in the property, but transfers the legal title to someone else (for example, to let an active child manage the assets). The trust is implied by the settlor's lack of intention to transfer any beneficial interest[5]

Although in many cases the outcome would be the same, the difference is significant. It is often difficult to prove intention, but easier to prove the circumstances when a legal presumption will arise. It may be more or less easy to rebut a presumption than to disprove an intention.

Lord Browne-Wilkinson was afraid that this would create a "floodgates" problem, by giving every claimant a proprietary right in bankruptcy - making many more claimants secured creditors, and thus making the position of a secured creditor much less valuable.[6]

Resulting Trusts in South Africa[edit]

In South Africa there is no doctrine of resulting trusts. The main remedy if any of the trust purposes should fail would be through Unjust enrichment. (Westdeutsche Landesbank v Council of London Borough of Islington)

See also[edit]

Notes[edit]

  1. ^ Gardner (Secret trust), An Introduction to the Law of Trusts
  2. ^ http://caselaw.lp.findlaw.com/data2/californiastatecases/B203089A.PDF
  3. ^ Birks, Restitution and Equity: Resulting Trusts and Equitable Compensation (2000) ; Chambers, Resulting Trusts, (1997)
  4. ^ Chambers, Resulting Trusts, (1997)
  5. ^ Re Vandervell's Trusts (No.2) [1974] Ch 269
  6. ^ Westdeutsche landesbank v council of london borough of islington [1996] AC 669