Resulting trust

A resulting trust is an implied trust that comes into existence by operation of law, where property is transferred to someone who pays nothing for it; and then is implied to hold the property for the benefit of another person.

The trust property is said to "result" or revert to the transferor (as an implied settlor). This use of "result" means spring back:^[1] on the face of it the property in question has been transferred to the recipient (and indeed it has come into the recipient's legal ownership), but the legal owner is not permitted to benefit from it, and so beneficial ownership of the property springs back to the settlor.

Not all trusts where the settlor is also the beneficiary are resulting trusts. In common law systems, express trusts that clearly state the settlor as the beneficiary are typically not considered resulting trusts.^[2]

Beneficial Interest and Outcome

The beneficial interest results to the settlor, or if the settlor has died, to the settlor's estate. This concept is illustrated in the case of Vandervell v Inland Revenue Commissioners [1967],^[3] where the beneficial interest vanishes while the beneficiary interest remains.

Closely-Related Parties

Some jurisdictions might establish a rebuttable presumption of gift for property transfers between relatives. This presumption could serve as an affirmative defense in petitions to establish a resulting trust implied by operation of law.

The law presumes that transferring property to a family member, particularly for supporting a relative, is legitimate. However, when an unrelated party receives substantial value without providing consideration, it's usually presumed that they hold the property in trust for the transferor, unless proven as a gift. This presumption of gift applies to transfers between siblings, uncles, aunts, children, and grandchildren.

An exception to the presumption of gift is property transfers between spouses. This exception arises from the fiduciary duty spouses owe each other, based on a special trusted relationship implying utmost good faith and fair dealing. Spouses are generally incapable of transmuting property, except under specific circumstances where they make an EXPRESS DECLARATION of transmutation through a clear statement in a dignified document.^[4]

Unlawful Purpose

In common law jurisdictions, a resulting trust is an equitable creation, rather than a common law concept. Consequently, equitable defenses like laches, unclean hands, and the duty to do equity may be recognized in some jurisdictions. For instance, if a transferor conveys property for an unlawful purpose and benefits from it, a court might rule that the transferor has waived the right to claim a resulting trust. Courts in these situations balance the transferee's unjust enrichment against enabling cheating by the transferor. Allowing a cheater to gain from such transactions would undermine the court's integrity.

Other jurisdictions might disregard an unlawful purpose.

In scenarios involving illegality, distinguishing the implementation of a resulting trust theory (implied by operation of law) from an oral express trust (implied by facts) can become difficult. A transferor failing under one theory might still succeed under the other.

Resulting Trusts in English Law

Classification

An 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 trusts arise when A transfers property to B, and the law creates a rebuttable presumption of a resulting trust if A's intention is unclear (absence of written evidence).

For instance, if A transfers property to B, except when the transfer is between parents and children or spouses, the law presumes a resulting trust for A in the absence of evidence to the contrary (unless A provides evidence that the property is actually owned by B).

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

These presumptions are rebuttable. In Fowkes v Pascoe,^[5] evidence was presented that a woman had purchased stock in the names of herself and her grandson; the grandson and granddaughter-in-law's evidence that this was a gift was admissible. However, the presumption only considers an intention to create a trust, not ulterior motives. Tinsley v Milligan^[6] exemplifies this, where fraudulent intent didn't defeat the presumption of a resulting trust.

Voluntary Transfer of Land

Despite the general presumption of resulting trust, this doesn't apply to voluntary transfers of land due to the Law of Property Act 1925 s.60(3). However, the court can still consider extrinsic evidence to establish the creation of a trust.

Automatic Resulting Trusts

These trusts take effect by operation of law and are automatic. They can arise when a settlor sets up a trust for a third party, but there's an initial failure due to the lack of defined beneficiaries or changing objectives.

For example, when the settlor names beneficiaries who can't be defined, as in Morice v Bishop of Durham, or when trust objectives become impossible or irrelevant by the time of the transfer, as in Re Gillingham Bus Disaster Fund.

Some academics suggest automatic resulting trusts arise only when a property has been transferred to a trustee on an express trust, where the trustee has legal title to the property, to be held on trust for the settlor.

Settlor's Intention in Automatic Resulting Trusts

In relation to automatic resulting trusts, there's some difference in expressing the nature of the settlor's intention: - According to Westdeutsche, Lord Browne-Wilkinson stated that a resulting trust arises due to a legal "presumed intention to create a trust in favor of the settlor". - It's also suggested that the trust arises from a "lack of intention to benefit the recipient". This could be referred to as the Chambers Model of intention, where the settlor intends to retain the beneficial interest in the property but transfers the legal title.

Differentiating between a positive intention to retain beneficial interest and a lack of intention to benefit the transferee is significant. It's often harder to prove intention than to establish the circumstances for a legal presumption. Rebutting a presumption might be easier than disproving intention.

Resulting Trusts in South Africa

In South Africa, there's no doctrine of resulting trusts. The main remedy, if any trust purposes fail, would be as an unjust enrichment, as seen in Westdeutsche Landesbank v Council of London Borough of Islington.

References

^ "result | Etymology, origin and meaning of result by etymonline". www.etymonline.com. Retrieved 2023-10-24.
^ Gardner (Secret trust), An Introduction to the Law of Trusts
^ "Vandervell v IRC", Wikipedia, 2021-08-07, retrieved 2021-08-31
^ "California Legal Research" (PDF).
^ Fowkes v Pascoe (1875) LR 10 Ch App 343
^ Tinsley v Milligan [1994] 1 AC 340