Business, Legal & Accounting Glossary
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:
(i) Trusts that fail to specify the beneficiaries with sufficient precision (see, e.g., the certainty of objects). In Vandervell v IRC 1966, for instance, the settlor very generously created a trust of his company’s shares but on the condition that the beneficiary grants an option to the (nominally separate) trustee company for later purchase of these very same shares. However, because it was clear that the beneficial interest in the shares was not intended to go to the trustees themselves, and since there was no one else to whom this interest could be ascribed, the beneficial rebounded to the settlor as a resulting trust.
(ii) Trusts that fail to prescribe with sufficient clarity on how the beneficial interest is to be shared amongst the beneficiaries (e.g. Boyce v Boyce 1849).
(iii) Trusts in which the animating goal or purpose has been effectively served, satisfied or rendered complete (e.g. re Gillingham Bus Disaster Fund 1958 and re Abbott 1900).
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:
(i) The trust would be unworkable. In re West Sussex Constabulary Widows Fund 1971, specific donations were held to give rise to resulting trusts whereas money derived through public collections were not. Although there may be little, if any, the practical difference between these two forms of charitable giving, the court felt that it would be extremely difficult to manage a trust with a large or indeterminate number of unknown beneficiaries.
(ii) The settlor’s intention (in some sense) survives the completion of the trust purpose. In a trust of imperfect obligation, the express purpose of the trust is deemed subsidiary to the settlor’s less explicit intention to benefit the object(s) in the general sense. As a result, the courts may find it preferable to continue maintenance of a prima facie ‘completed’ trust rather than to find a resulting trust (see re Osaba 1979
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This glossary post was last updated: 4th April, 2020 | 274 Views.