Resulting Trusts
What are Resulting Trusts?
A resulting trust is a type of implied trust. It arises in the absence of a valid express trust. When property is held on resulting trust, it is held by the trustee on trust for the person who transferred title to them in the first place.
Types of Resulting Trust
Resulting trusts arise in a variety of situations. These are the most common:
- Automatic Resulting Trusts: these arise where the settlor voluntarily transfers property to another attempting to make an express trust, but the trust failed – Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669.
- Presumed Resulting Trusts: these arise when a person contributes to the purchase price of property – Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669.
- Trusts of Surplus Benefits: these arise where property is transferred on trust but proves excessive to settle the beneficiary’s claims – Re Guinness’s Settlement [1966] 1 WLR 1355.
- ‘Quistclose’ Trusts: these arise in some circumstances when money is transferred for a specific and exclusive purpose, often as a loan – Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567.
Automatic Resulting Trusts
Establishing the Trust
An automatic resulting trust happens whenever a person transfers property on trust, but the trust fails: Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669.
Exception: The Doctrine of Acceleration
Some express trusts set up successive interests. For example, a trust might give assets ‘on trust for X during his life time, and Y in remainder’. Y’s interest is essentially postponed by X’s interest. The intention is that X gets the benefit of the property in their lifetime, and once they die it will be held on trust for Y.
These trusts can be vulnerable to failure by offending the certainty or perpetuity rules. If they do fail for this reason, the assets will not necessarily be held on resulting trust for the original settlor. The doctrine of acceleration usually means that the benefit of the property passes to Y instead. However, the doctrine will not apply if:
- Y’s interest is contingent (e.g., ‘on trust for X during his lifetime, remainder to Y provided Y is married);
- There is any reason not to presume that the settlor intended the benefit of the property to be accelerated to Y: Re Flower’s Settlement Trusts [1957] 1 All ER 462.
Presumed Resulting Trusts
Establishing the Presumption
Where a person makes a contribution to the purchase price of property, there is a presumption that the transferee then holds that property on resulting trust for the contributor: Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669. The equitable title is held in proportion to each beneficiary’s contribution.
For example, T buys a house, and the legal title is transferred solely into T’s name. S1 contributed 40% of the purchase price, while S2 contributed 60%. T contributed nothing. There is a presumption that T holds the legal title on resulting trust for S1 (who owns 40% of the equitable title) and S2 (who owns 60% of the equitable title).
Contributions other than to the purchase price will not raise the presumption:
- Indirect contributions, such as to household expenses, will not count: Burns v Burns [1984] Ch 317
- Applying a discount to the purchase price will count: Springette v Defoe [1992] 2 FLR 388; Laskar v Laskar [2008] EWCA Civ 347.
- Contributing a gift given to the contributor by a third party will count: Midland Bank v Cooke [1995] 4 All ER 562.
- There is no consensus on whether contributing to the mortgage after purchase will count – contrast Cowcher v Cowcher [1972] WLR 425, Curley v Parkes [2004] EWCA Civ 1515 and Stack v Dowden [2007] 2 AC 432.
For family homes, the courts prefer to apply constructive trusts. The presumption of resulting trust is unlikely to arise in this context. Where legal title of a family home is transferred into joint names, the presumption of resulting trust does not apply: Stack v Dowden [2007] 2 AC 432.
Rebutting the Presumption
The presumption of resulting trust is rebutted by showing that the contribution was intended as a gift or a loan: Fowkes v Pascoe (1875) LR 10 Ch App 343.
Where the ‘counter-presumption of advancement’ applies, the courts assume that the contribution was intended as a gift unless proven otherwise. The counter-presumption of advancement tends to involve contributions by male family members. It applies to gifts from:
Fathers to children: Re Roberts [1946] Ch 1.
Husbands to wives: Gascoigne v Gascoigne [1918] 1 KB 223. Also, male fiancés to female fiancés: Moate v Moate [1948] 2 All ER 486. But not wives to husbands: Heseltine v Heseltine [1971] 1 WLR 342.
Historical cases declined to apply it between mothers and dependent children: Bennet v Bennet (1879) 10 Ch D 474. However, see now Musson v Bonner [2010] WTLR 1369.
The presumption does not appear to apply between siblings: Noack v Noack [1959] VR 137.
s.199 of the Equality Act 2010 would abolish the counter-presumption of advancement. However, it has yet to be brought into force. The counter-presumption has received considerable criticism in the courts: see Pettit v Pettitt [1970] AC 777.
S.60 of the Law of Property Act 1925
s.60 of the Law of Property Act 1925 states that:
(1) A conveyance of freehold land to any person without words of limitation, or any equivalent expression, shall pass to the grantee the fee simple or other the whole interest which the grantor had power to convey in such land, unless a contrary intention appears in the conveyance.
A literal interpretation of this provision seems to abolish the presumption of resulting trust for land transfers. This has never been settled by the courts, though there is some dicta stating that this is not the provision’s effect: e.g. National Crime Agency v Dong [2017] EWHC 3116; Ali v Dinc [2020] EWHC 3055. There have been some cases involving presumed resulting trusts of land which do not even mention it, such as Prest v Petrodel Resources Ltd [2013] 2 AC 415.
Trusts of Surplus Benefits
Where a person transfers property to satisfy a claim, but the property proves greater than necessary, a resulting trust will arise. The resulting trust attaches to the ‘surplus’ aspect of what was transferred: Re Guinness’s Settlement [1966] 1 WLR 1355.
A common example is where S transfers assets to T on trust for B’s use as long as B lives. If there is still property left when B dies, the remainder of the property will be held by T on a resulting trust for S.
This does not apply to absolute gifts, since there will be no surplus. For example, take a trust ‘for the benefit of T’s children in their university education’: Re Andrew’s Trust [1905] 2 Ch 48.
- If the courts construe this as a gift solely for use in educating the children, anything left once the children have been educated will be held on resulting trust for the original settlor.
- If, by contrast, the courts construe this as an absolute gift for the children which was merely motivated by the desire to educate them, the children are entitled to the full fund. No resulting trust arises.
If there is no one who can be the beneficiary of the resulting trust, absent contrary intention, the assets will be bona vacantia: Re West Sussex Constabulary’s Widows, Children and Benevolent (1930) Fund Trusts [1971] Ch 1. This means they pass to the Crown.
Quistclose Trusts
A Quistclose trust can arise where money is transferred and segregated for a specific, exclusive purpose which subsequently fails. The name arises from Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567.
Quistclose Investments made a loan to Rolls Razor. Quistclose knew the company was doing poorly financially, so it specified that the money could only be used to pay a dividend which had been declared in Rolls’ shareholders’ favour. The money was ringfenced in its own account.
Rolls’ became insolvent before the money was used. The courts were asked who was entitled to the money: Rolls’ secured creditors or Quistclose (an unsecured creditor). Normally, secured creditors have priority over unsecured creditors.
The House of Lords held that Quistclose was entitled to the money as Rolls held it on trust for them. By loaning the money, Quistclose made a primary express declaration of trust for the benefit of the shareholders. When it became impossible to fulfil that trust, a secondary trust arose in Quistclose’s favour.
The nature of the Quistclose trust is uncertain. There are three possibilities:
- The primary trust is express, and the secondary trust is a resulting trust – see Lord Wilberforce in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567.
- The primary and secondary trusts form part of one, overarching express trust (‘on trust for the shareholders’ dividends, or if that fails on trust for Quistclose’) – supported by the Australian courts in Re Australian Elizabethan Theatre Trust (1991) 102 ALR 681.
- The whole arrangement is a fiction or ‘illusory trust’. The lender always possesses the beneficial interest in the money loaned, subject to a power allowing the borrower-trustee to use the money for the specified purpose – see Lords Millet and Hoffman in Twinsectra v Yardley [2002] UKHL 12.
