Business, Legal & Accounting Glossary
Resulting trusts arise in the absence of an express declaration where a person holds legal title in circumstances where they can not be taken to have full equitable ownership.
There are two categories of resulting trusts:
Both types of resulting trust are traditionally regarded as examples of trusts giving effect to the common intention of the parties. A resulting trust is not imposed by law against the intentions of the trustee (as is a constructive trust) but gives effect to his presumed intention.
An automatic resulting trust will arise where the settlor transfers property to the intended trustee but the trust has failed for some reason. The trustee holds the legal title of the property on trust. The beneficial or equitable ownership is retained by the settlor.
In general, an automatic resulting trust arises when a settlor transfers property to another to be held on trust, but, for some reason or other, the beneficial interest cannot be assigned properly to the beneficiaries. The beneficial interest, therefore ‘rebounds’ or ‘results back’ to the settlor, there is no other object to which it may be assigned.
The term ‘automatic resulting trust’ was popularised by the decision of Megarry J in Re Vandervell’s Trusts (No 2) (1974). There, he described how a resulting trust could come into existence where a settlor’s actions had successfully separated the legal and equitable titles to his property but had failed (for various possible reasons) to assign the equitable title to the intended beneficiaries. No particular motive or intention was needed in order to create the resulting trust; hence the designation ‘automatic’.
However, the decision of the House of lords in Westdeutsche Landesbank Girozentrale v Islington LBC (1996) later cast doubt on Megarry’s analysis. In particular, the House expressed scepticism that any such trust could arise ‘automatically’. This is because a key feature in any obligation or duty arising from a trust is conscience — the intended trustee should at least be aware he is entering into a trust obligation before it can be equitably imposed on him. As a result, a number of earlier cases in which a resulting trust was said to have arisen were now best regarded as improperly decided or incorrectly analysed. (See Theoretical Basis for Resulting Trusts for more on this point.)
Generally speaking, cases in which — prior to the decision in Westdeutsche — resulting trusts have been readily pronounced and construed as ‘automatic’ tend to fall into the following groups:
Note that in the final two categories review may, in the light of Westdeutsche, be especially appropriate, since in these cases there is rarely any expressed intention to create a trust.
Note also that even cases that seem to fall under one of the above headings but without offending against the requirements of Westdeutsche may still produce a rejection by the courts of any claim of an automatic resulting trust due to the following circumstances:
Presumed resulting trusts are formed either through the voluntary transfer of the legal estate or by contributions to the purchase price. In these cases, it is assumed that the person did not intend to make a gift of property or money unless there is clear evidence that they did. In such cases, a resultant trust is formed, and the transferor or contributor keeps or receives a share of the beneficial interest. In other situations, however, there is a counter-presumption that a gift was meant. This is referred to as the presumption of advancement.
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This glossary post was last updated: 7th January, 2022 | 0 Views.