Resulting Trusts

1. Resulting Trusts Associate Professor Cameron Stewart

2. Definition • A resulting trust is a trust that arises because equity presumes an intention to create a trust. • They are often referred to as ‘implied’ trusts, although they should not be confused with express trusts where an intention to create the trust is implied from wording or surrounding circumstances.

3. Automatic resulting trusts • WestdeutscheLandesbank Girozentrale v Islington Borough Council • Resulting trusts which arise when there has been a failure of an express trust, or, alternatively, where there is a surplus of trust property after a trust has been terminated. In these situations the remaining trust property is held on resulting trust for the creator of the trust because it is presumed that the creator intended to receive any leftover beneficial interest

4. Presumed resulting trust • Resulting trusts which arise because contributions have been made to the purchase of property but the contributor has not been given a legal title that is equivalent to that contribution. In such a transaction, equity presumes that the equivalent legal title is held on trust for the contributor

5. An institutional trust • Any presumption that equity makes about a person’s intention can be rebutted by evidence of actual intention • A resulting trust comes into existence from the date of the circumstances giving rise to its presumption • The resulting trust is a property institution like an express trust, rather than a remedy

6. An institutional trust • Rickett and Grantham (2000) at 19: • The resulting trust and its foundational presumptions operate as part of the law of property, simply as a series of default rules locating the beneficial interest in property when the transfer of the property is itself ambiguous as to the location of that interest, or ineffective to dispose of that interest

7. An institutional trust • Some scholars, like Chambers (1997), have argued that beyond this basic but fundamental role, lies an attempt by equity to prevent or reverse unjust enrichment on the part of those who have received legal title where there was no intention for them to obtain a beneficial interest.

8. Incomplete disposition of a beneficial interest • A resulting trust will be imposed when there has been an incom­plete disposition of a beneficial interest in a trust. This can occur when an express trust fails, when the purpose of a trust fails or when a trust surplus exists after satisfaction of the purpose of a trust.

9. Failure of an express trust • After an express trust fails, equity imposes a resulting trust by presuming an intention on the part of the creator for the trust property to revert back to the creator. • If a trust fails for illegality, equity looks at the specific circumstances of the case and the particular policy behind the law that had been breached, before determining whether a resulting trust should be applied: Nelson v Nelson

10. Failure of the purpose of a loan • Quistclose trusts • This trust has been classified by Lord Millet in Twinsectra Ltd v Yardley [2002] 2 AC 164; [2002] 2 All ER 377, as a resulting trust • Salvo v New Tel Ltd [2005] NSWCA 281: the majority (Spigelman CJ and Young CJ in Eq) favoured an express trust treatment

11. Trust surpluses after satisfaction of the purpose of a trust • A trust surplus might exist after the beneficiaries in a fixed trust have taken all their entitlements or have died. In such cases there will be a resulting trust of the surplus back to the creator of the trust

12. Purchase of property in another person’s name • If a purchaser buys property and voluntarily directs the transfer of the property into the name of another person, equity presumes that the owner holds that property on resulting trust for the purchaser: Napier v Public Trustee (WA) • For example, if A purchases property from B, and directs that B transfer the title into C’s name, equity presumes that C holds the property on trust for A.

13. Purchase of property in another person’s name • The presumption applies to both real and personal property • Eg Russell v Scott (1936) 55 CLR 440, the presumption of resulting trust applied to a bank account that was opened by one party in her own name and the name of her carer. That presumption was rebutted by evidence of an intention to convey a beneficial interest on the carer

14. Purchase of property in another person’s name • The presumption of resulting trust will not arise in cases where the purchase monies have been provided as a loan. The presumption only applies when the provider of the monies acts as a purchaser or directs that the purchase take place

15. Contributions to the purchase of property • In cases where the purchase money is provided by two or more parties jointly, and the property is put into the name of one of the parties, equity will presume a resulting trust in favour of the other party or parties

16. Contributions to the purchase of property • For the presumption of resulting trust to arise, contributions that are made by the parties must go towards the purchase price of the property. Importantly, equity determines this by looking at what was provided by the parties at the date of purchase

17. Contributions to the purchase of property • Several types of contribution can be recognised as contributions to purchase price. Obviously, direct payment of money towards purchase will be included, as will be legal fees, stamp duty and incidental costs associated with the costs of acquisition • If a party has incurred a mortgage liability to provide contributions to the purchase price, that mortgage liability counts as a contribution

18. Contributions to the purchase of property • Because equity looks at contributions that are made at the date of purchase, the presumption of resulting trust will not arise when payments are made towards costs incurred after the property has been acquired • Australian courts have refused to recognise payments of mortgage instalments as contri­butions if they are made by a party who incurred no mortgage liability at the date of purchase

19. Contributions to the purchase of property • in England the courts have recognised that some indirect financial contributions, which occur after purchase, may be considered in the calculation of the beneficial interests • In Midlands Bank v Cooke, the Court of Appeal found that once some direct financial contribution had been made it was then open to the court to calculate the beneficial interests on the basis of all contributions, whether direct or indirect, whether prior to or after purchase

20. Contributions to the purchase of property • Upgrades and maintenance will not be considered as contributions unless there was a common intention or agreement between the parties that is enforceable or gives rise to an estoppel

21. The nature of co-ownership in resulting trusts • Ordinarily equity’s presumption of resulting trust is based on the co-owners holding their shares as tenants in common • However, in cases where the parties made equal contributions, equity presumed that the interests were held as joint tenants and not as tenants in common.

22. The nature of co-ownership in resulting trusts • Why did equity prefer joint tenancy when the contributions were equal? In such circumstances it was said that ‘equity followed the law’ and the common law always presumed that co-owners took as joint tenants in the absence of an express declaration of tenancy in common • Statutory reforms have reversed the common law presumption of joint tenancy in some jurisdictions and imposed a presumption of tenancy in common

23. The nature of co-ownership in resulting trusts • In Delehunt v Carmody (1986) 161 CLR 464; 68 ALR 253, the High Court found that equity still followed the law in these jurisdictions and, given that the law had changed, equity would now presume tenancy in common when the parties make equal contributions to purchase price.

24. Rebutting the presumption of resulting trust • When the presumption of resulting trusts arises, evidence can be admitted of the actual intention of the parties to prove that no such trust was intended • Intention remains para­mount in resulting trusts and evidence of the circumstances surrounding the transfers is admissible, whether it be written or parol evidence. However, it is important to note that the evidence must relate to the intention of the parties at the time that the interests were created

25. The presumption of advancement • In some cases equity refuses to presume an intention to create a resulting trust and instead presumes that any purchase or contribution was intended to be a gift by way of advancement. • This presumption of advancement only arises in cases where purchase monies or contributions are provided by a husband to a wife or by a parent to a child (not necessarily biological children but someone to whom the provider of funds stands in the position of a parent).

26. The presumption of advancement • It does not arise in other fiduciary relationships, like those between companies and directors: SCE Building Constructions Pty Ltd (in liq) v Saad [2003] NSWSC 796 • The effect of a presumption of advancement is to override the presumption of resulting trust with the result that the legal and equitable estates will stay where they lie

27. The presumption of advancement • The presumption of advancement, like the presumption of result­ing trust, can be rebutted by evidence of the intention of the parties at the time of the transfer. If it is shown that there was no actual intention to confer a beneficial interest on the legal title holder the presumption will not be effective and the normal presumption of resulting trust will apply

28. The presumption of advancement • The presumption of advancement arises when a husband either provides the purchase price or makes contributions to the purchase price of property in which the wife is given a legal interest • It does not arise in cases of transfers from a wife to her husband: March v March (1945) 62 WN(NSW) 111. In the past it has been assumed that the husband had a natural duty to provide for his wife (and children) and this gave rise to the presumption

29. The presumption of advancement • In Scott v Pauly (1917) 24 CLR 274 at 282, Isaacs J stated that the presumption of advancement, • … is an inference which the courts of equity in practice drew from the mere fact of the purchaser being the father, and the head of the family, under the primary moral obligation to provide for the children of the marriage, and in that respect differing from the mother.

30. The presumption of advancement • In Calverley v Green (1984) 155 CLR 242 at 268; (1984) 56 ALR 483 at 501,Deane J advocated an adjustment of the doctrine to ‘reflect modern conceptions of equality in status and obligations of a wife vis-a-vis a husband’.

31. The presumption of advancement • The presumption can also arise in cases where a transfer occurs between a man and his intended wife or fiancee: Wirth v Wirth (1956) 98 CLR 228; Bertei v Feher [2000] WASCA 165. Such a transfer is consid­ered to be a gift in contemplation of marriage. If the marriage does not occur the gift should be returned. If the gift is not returned it will be then held on resulting trust: Jenkins v Wynen [1992] 1 Qd R 40

32. The presumption of advancement • The presumption of advancement does not arise in de facto rela­tionships • Calverley v Green(1984) 155 CLR 242 • . Mason and Brennan JJ stated at CLR 260; ALR 495 that: • The term ‘de facto husband and wife’ embraces a wide variety of hetero sexual relationships; it is a term obfuscatory of any legal principle except in distinguishing the relationship from that of husband and wife. It would be wrong to apply … the presumption of advancement …

33. The presumption of advancement • There is a presumption of advancement when purchase money is provided by a parent and the legal title is taken by a child • The key requirement is that the purchase price be provided by someone in loco parentis (in the position of a parent). As such the presump­tion can also apply to illegitimate and adopted children, as well as to other forms of familial relationship, as long as one party has acted as the parent for the other

34. The presumption of advancement • Traditionally, it was thought that the presumption of advance­ment would only arise when a father provided funds for the purchase of property for his children: Scott v Pauly (1917) 24 CLR 274 at 282, per Isaacs J. However, in more recent cases the presumption has been recognised as arising between a mother and her children: Brown v Brown (1993) 31 NSWLR 582

35. Gifts and resulting trusts • Presumptions of resulting trust and of advancement can also arise in gifts (voluntary transfers of property). For example, if A makes a gift of property to B, a presumption of resulting trust may arise that B holds the property on trust for A

36. Gifts and resulting trusts • Equity treats gifts of realty differently to gifts of personalty. Unfortunately the operation of the presumptions in gifts of land has been made problematic because of the operation of the Statute of Uses 1535. Prior to that statute, equity presumed that any interest in land given without con­sideration to a stranger (meaning someone to whom a presumption of advancement would not arise) was held on resulting use

37. Gifts and resulting trusts • After the statute the use was executed and the ownership reverted back to the grantor, leaving the transfer ineffectual • To enable people to make gifts of realty, the courts recognised the voluntary transfers if they were expressed to be given ‘unto and to the use of’ the stranger • Legislation provides that no presumption of resulting trust will arise in a voluntary transfer of realty, unless the transferor expresses an intention to create a use or a trust: Conveyancing Act 1919 (NSW), s 44

38. Gifts and resulting trusts • With regards to personalty, if a gift is made to a stranger of per­sonalty which can produce income, then a resulting trust will be presumed: Hendry v E F Hendry Pty Ltd [2003] SASC 157. Otherwise, gifts of personalty will not give rise to a resulting trust.

39. Problem • Han and Leia entered into a de facto relationship in 1975. In 1976 they had a child named Luke. In 1987 they purchased a house in Lucastown for $150,000. The purchase price was paid by Han; the money coming to Han as an inheritance from the estate of his late uncle. At the time of purchase, Han decided to have the property registered in his, Leia’s and Luke’s names as tenants in common and in equal shares.

40. Problem • In 1994, when Luke reached his majority age, with the Yavin Bank Ltd in the joint names of Han and Luke. Han told Luke that he would be making all the deposits into the account and would withdraw from the account whenever it may become necessary. However, he also said that if anything should ever happen to him (ie Han) the money then in the account would belong to Luke.

41. Problem • Two weeks ago Han and Leia died in a car accident. In his will Han left his entire estate to Beru, his daughter that he had fathered in 1972 before he had met Leia. In her will Leia left her entire estate to Luke. At the time of their deaths the Lucastown property was worth $300,000, and the bank account at Yavin Bank Ltd had a balance of $5000

42. Problem • Beru seeks your advice as to whether she has any entitlements in the Lucastown property and the bank account, and if not who is entitled and to what extent.

43. Solution • Given that the problem concerns parties who are deceased, it is not subject to any of the legislative regimes controlling de facto relationships and must be dealt with using equity

44. Solution • Dealing first with the interests in the property at Lucastown, Han, Luke and Leia each owned an equivalent tenancy in common equalling one-third of the value of the property. Tenancies in common contain no right of survivorship so at law the interests that will pass through Han’s will to Beru are her father’s one-third interest in the house. Similarly Luke will receive Leia’s one-third interest, leaving him with a two-thirds interest at common law. However, it is open to equity to adjust the beneficial interests of the parties and whatever interests equity believes were beneficially owned by Han at the time of his death will pass to Beru, via Han’s will. Similarly, any beneficial interests held by Leia will pass to Luke, via her will.

45. Solution • Given that Han provided the entirety of the purchase price, a presumption of resulting trust is raised in Han’s favour over both Leia’s one-third interest and Luke’s one-third interest • There is no pre­sumption of advancement in favour of Leia that will override the presumption of resulting trust. She is a de facto partner and, as such, no presumption of advancement can be raised in her favour

46. Solution • There does not appear to be any evidence of Han’s actual intention to rebut this presump­tion. The beneficial interest therefore belonged to Han and passes to Beru in his will • A presumption of advancement can be successfully raised in Luke’s favour • It matters not that Luke was born out of wedlock • Therefore his interest is not held on resulting trust and one-third legal title stays with him

47. Solution • In relation to the bank account, it should be noted that the pre­sumptions arise over transfers of both real and personal property • The presumptions of resulting trust and advancement apply to joint bank accounts where one party provides all the funds for that account: Russell v Scott (1936) 55 CLR 440

48. Solution • The presumption of advancement is obviously paramount here, given the relationship between Han and Luke. It does not matter that Luke was an adult when the bank account was opened: Brown v Brown (1993) 31 NSWLR 582. There is no evidence of actual intention that rebuts the presumption of advancement. Therefore the benefi­cial interest remains with Luke.