Resulting trusts

What are ‘resulting trusts’?

In English Law resulting trusts are trusts that arise in the absence of the creation of an ‘express’ trusts. Similarly, ‘constructive trusts’ are trusts that may exist even though an express trust has not been expressly created.

A resulting trust arises essentially where property is transferred back to someone who is implied to have held the property on trust for the benefit of another. A ‘simple’ automatic resulting trust arises where someone transfers property to the intended trustee but the trust fails for some reason. In this case, the trustee holds the legal title to that property on trust and the beneficial ownership of the property remains with the transferor.

The circumstances in which property will become subject to a resulting trust were examined by the House of Lords (HL) in the leading case in 1996 (Westdeutsche Landesbank Girozentrale v Islington London Borough Council). Two circumstances were identified in which a resulting trust would arise:

“Under existing law a resulting trust arises in two sets of circumstances: (A) where A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested either in B alone or in joint names of A and B, there is a presumption that A did not intend to make a gift to B; the money or property is held on trust for A (if he is the sole provider of the money) or in the case of a joint purchaser by A and B in shares proportionate to their contributions. It is important to stress that this is only a presumption, which presumption is easily rebutted either by the counter presumption of advancement or by direct evidence of A’s intention to make an outright transfer…(B) Where A transfers property to B on express trusts, but the trusts declared do not exhaust the whole beneficial interest.”

The HL ruled that such a trust must be intended, or must be able to be presumed to have been intended: presumed intention to reflect what is conscionable underlies all resulting and constructive trusts.

What is the difference between resulting and constructive trusts?

Constructive trusts are imposed by the court as an equitable remedy where it would be unconscionable for the other party to hold onto the property. For instance, it may be that funds or property were given to the other party by mistake, or there was a common intention that one party should have the benefit of the property and acted to their detriment on the basis of that understanding.

However, resulting trusts give effect to the implied intentions of the owner. Where a transfer of the legal title to property has taken place, but the transferor has failed to show an intention to divest themselves fully of all their interest in that property, the transferee will not be permitted to receive the property absolutely for their own benefit. Instead, they will hold it on trust for the transferor. The equitable interest is said to ‘result back’ to the transferor, thus ensuring that they retain their interest in the property.

A distinction may need to be drawn between beneficial entitlements taking effect under resulting and constructive trusts for practical purposes: the leading case of Re Densham [1975] 1 WLR 1519 concerned a dispute as to the ownership of the matrimonial home. Whilst the husband was the sole legal owner of the house, his wife had contributed towards the purchase price and they had agreed that ownership should be jointly shared. The court held that in consequence of the agreement, the wife was prima facie entitled to a beneficial half share in the ownership of the house by way of a constructive trust, and that through her direct financial contribution to the purchase price she was also entitled to a ninth share of the beneficial ownership by way of a resulting trust. However, because the husband was bankrupt, she was held unable to assert any entitlement by way of the constructive trust, because it was not a settlement made for ‘valuable consideration’ and it was therefore void against his trustee in bankruptcy. Nevertheless, she was able to assert her entitlement by way of the resulting trust.

Re Densham illustrates the practical need to distinguish between the operation of resulting and constructive trusts.

Rationale of resulting trusts

Resulting trusts arise to fulfil the implied intentions of the parties. In Westdeutsche Landesbank Girozentrale Lord Browne-Wilkinson stated: “Both types of resulting are traditionally regarded as examples of trusts giving effect to the common intentions 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.”

Note that it is not necessarily the case that the trustee who received the legal title intended the property to be held on trust. In many cases, a resulting trust has been found in circumstances where the transferee of the legal title anticipated that a gift had been made divesting the transferor of their entire interest in the property. Many cases involve a dispute as to whether a presumption of resulting trust has been rebutted.

A resulting trust will not only arise on the basis of the mutual intention of the parties. A resulting trust may arise whenever a transferee (or contributor) cannot be shown that an outright gift was intended.

As Lord Goff stated (in Westdeutsche Landesbank Girozentrale), a presumed resulting trust arises when there are “…voluntary payments by A to B, or for the purchase of property in the name of B or in his and A’s joint names, where there is no presumption of advancement or evidence of intention to make an out-and-out gift”.

The law relating to resulting trusts is complex and it is best to seek the advice of specialist solicitors about how the law relates to your specific circumstances.