Trusts Arising Automatically

General

Trusts were developed by the Courts of Equity. The essence of a trust is that it is a personal obligation imposed on an individual, the trustee, in order to protect the interests of the beneficiaries.  This is a unique feature in the so-called common law jurisdictions, generally equivalent to the English speaking world.

The trust is at the heart of the concept of beneficial ownership.  A person may be the legal owner of a property, in the sense of being the registered owner but may have personal obligations to deal with it on behalf of third-party beneficiaries who are thereby beneficial owners.  The third parties may enforce the obligation against the trustee by way of action for breach of trust.

There are a number of scenarios in which trusts arise automatically.  In these cases, the law deems a trust to be created, notwithstanding that it is not formally created by the person who owns the assets concerned.  In such cases, the trust is a mechanism by which justice and fairness are achieved.

It is an important principle that equity will not generally complete a gift.  If a person wishes to make a gift he needs to do all necessary to transfer the assets in accordance with the type of property.  Therefore in the case of land, it would need to be formally conveyed and registered.  In the case of goods, it would need to be delivered.  Equity will not complete an uncompleted gift.

The article deals with resulting trusts. Constructive trusts are dealt with in another article. A constructive trust is akin to a remedial court order.  It is trust imposed by the Courts regardless of the intention of the parties to a transaction.  Its purpose is to do justice in order to prevent one person from committing fraud or unfair advantage to the detriment of another.

Resulting Trust for Failed Trust

A so-called resulting trust is based on the presumed intention of parties to a transaction.  A trust is created in order to reflect these presumed intentions.  There are a number of different scenarios in which a trust is presumed to arise. There is no requirement to follow the formalities for the creation of a trust.

Where a trust is created but fails for some unanticipated reason, there is generally a deemed or resulting trust in favour of the person who attempted to create it.  If, for example, a person creates a trust which is too vague or uncertain or for purposes which cannot be carried out or breach rules, the trustee to whom the assets are transferred for such purpose, will hold them on trust for the person who attempted to create the trust.

In the above circumstances, it would be patently unjust and unintended if the persons to whom the property were transferred as a mere trustee, were thereby to obtain a windfall and become the beneficial owner of the assets.  The Courts of Equity, therefore, imposes the “resulting” trust on the trustee to hold the property on trust for the person who attempted to create the trust,

The same principle will apply where a trust is being created for a certain purpose.  If the purpose no longer exists or has been fulfilled, (e.g. maintenance of a person while underage, not of full age) and the trust deed does not then make provision for what is to happen to the assets, the Courts of equity will look at the intention of the person creating the trust.

If the intention was to achieve a particular purpose or benefit a particular person for a period without specifying what should happen when this objective is achieved, then a resulting trust is presumed to arise in favour of the person creating the trust.  The unneeded funds are refunded.

Transfers without Payment

Where assets are transferred to another without any consideration (i.e. payment in money, in kind or otherwise) being paid in return, an implied trust in favour of the transferor arises unless a gift is inferred.  This is the presumption unless the contrary is shown.  In many circumstances, it will be possible to infer an intention to create a gift.  Where the transferor and transferee are related, a gift will be presumed.  Certain circumstances may also tend to point to a gift.

The principle applies to any class of assets.  It is commonly inferred in the case of real property (land and buildings) and bank accounts.  The surrounding circumstances are considered by the court in determining the presumed intention of the transferor.  For example, an asset may be transferred into another’s name for the convenience of dealing.  This may happen where an elderly person places in an account in joint names to facilitate transactions, but without the intention of passing ownership.

Although there may be a presumption of resulting trust in favour of the person transferring the asset, this may be overridden,  where an intention to benefit or make a gift can be inferred.  For example, where a bank account is opened, the terms of the mandate may make clear what “the intention” was.

Purchase in the name of another

Where a person purchases property in the name of another, it is presumed that the other holds the property or asset on trust for him.  A person may wish to buy property without disclosing that he is true owner.

The general rule is that where A provides the purchase money, but the legal title is taken in B’s name, the presumption is that B holds on trust for A. A will be the beneficial owner from the tax and other perspectives.  However, B may have obligations under tax law as a nominee, to make certain returns on behalf of A and account for monies received.

Where the purpose is unlawful, the trust may fail on the basis of public policy. In this case, the Court may refuse to give effect to a trust.  Where, for example, a property is purchased with the intention of evading tax, the courts will not give effect to it, as the transaction is tainted with illegality.

Contribution to Purchase Price

The principle of resulting trusts may apply in respect of a part interest in an asset or property.  Where one person purchases a property from monies provided by himself and another, then that person may be obliged to hold a share on trust for himself and the other in proportion to their contributions.  This situation commonly arises in a family context and disputes may arise following marital or relationship breakdowns.

Formerly, it was common those family assets, and in particular, the family home was held in the name of one spouse, generally the husband.  Prior to the judicial separation legislation in 1989, the Courts did not have the power to transfer ownership of assets on judicial separation and/or divorce.  There are now comprehensive powers to do so.    The existence of these powers has lessened the importance of principles of resulting trusts in matrimonial breakdowns.

Where several persons have made direct contributions to the purchase price of an asset, then it is usually clear that it is to be held on trust for them in proportion to their respective contributions.  The same principle also applies to payments to redeem a mortgage.  The Courts look at this as equivalent to the purchase of the property.

Where repayments are made from a joint fund, the beneficial ownership to the extent of the initial mortgage property ratio be owned in proportion to the contributions to redeem the mortgage.

Where permanent capital improvements are carried out an entitlement to an equitable proportion of ownership may arise by way of resulting trust.  The general principle is a person who makes improvements to another’s property gains no ownership in it by reason of such improvements.

If it is specifically agreed or represented to the spouse that he or she will be compensated for improvements made he or she will be entitled to a share.  However is an exception to the general principle and is not necessarily easy to show.

Family Cases

Where the non-owing spouse has made indirect contributions to a family fund or even directly to discharge household expenses than the Courts will find that this proportionate contribution to the household expenses entitles the non-owing spouse to an equitable proportion of the beneficial ownership of the property under the principles of a resulting trust.

The Irish courts have not gone so far as to recognise the non-financial contribution of a non-working spouse as being sufficient to acquire a share of ownership on the resulting trust principles.  This has been a controversial issue in other countries.

The Oireachtas passed the Matrimonial Homes Bill, 1993 in order to give spouses automatic joint ownership of the family home.  The Bill was referred by the President to the Supreme Court which found it unconstitutional.

The concept of palimony has received a certain amount of credence in other jurisdictions.  Effectively palimony is a contract to reside together on a basis equivalent to marriage.  The Irish Courts take the view that such a contract is incompatible with the guarantee of the position of the family under the Constitution and is void and of no effect.

The concept of a resulting trust is based on the presumed intention of the person transferring the assets.  If it can be shown that person transferring the assets intended to benefit the recipient and make a gift then no trust will apply.  See the section in relation to gifts and their legal implications.

Advancement

Although the general presumption is that a transfer into another’s name for no payment or consideration needs to the trust in favour of the transferor this does not apply in the case of transfers to certain relatives.  The so-called presumption of advancement presumes that where a transfer is made to a spouse, child or person in relation to whom a person stands in a quasi-parental relationship, a gift is presumed.

In contrast, where assets are purchased and put in the name of a stranger the presumption does not apply and a resulting trust will generally be upheld.  Formerly the concept of advancement applied in the case of a gift by a husband to a wife but not vice versa.  The requirement of equality under the Constitution would require that the principle would hold equally in the case of a transfer whereby a wife to a husband.

Legality

If assets are transferred for illegal or unlawful purposes or motives the trust may not be upheld.  Commonly persons will try to make arrangements to make it appear that they do not hold assets with the intention of defrauding taxation, social welfare or other authorities.

If such an intention appears the Courts will not give effect to the trust so that the asset will be deemed to have been transferred and the person transferring it cannot recover it on the basis that the transferee is a mere nominee for him.

Where assets are transferred with the intention of defeating the claims of creditors the Courts may not uphold the trust.  A person may not have it both ways.  He may not be able to claim as against say a spouse that he is the owner of the property and that he has no entitlement to it as against his creditors that she is the owner and that they cannot claim against it to enforce judgments and debts.  He cannot have it both ways.