Many people think that trusts are distant from everyday life, often only appearing in media about wealthy families. In reality, trusts are all around us. This article briefly introduces some of the most common types of trusts in the lives of ordinary people.
A presumptive trust typically refers to a situation where a trust is presumed to exist based on certain facts or conduct, even though no formal declaration of trust was made. These trusts arise under common law and equitable principles, and they are often created by implication from circumstances or relationships between the parties, without the need for an explicit trust document.
Here are examples of situations where a presumptive trust may arise:
- Joint Bank Accounts
- When two people hold a joint bank account, it might be presumed that they are holding the account in trust for one another or for a third party, depending on the intention of the parties. For instance, if a parent and an adult child open a joint account, the court may presume that the parent did not intend for the child to take full ownership of the account balance but rather to hold it in trust for the parent’s benefit or the benefit of other heirs.
- Property Transfers Without Clear Intent
- If one person transfers property to another but there is no clear explanation for the transfer (for example, no sale or gift), the court may presume that the property is being held in trust for the original owner. This typically happens when one party provides funds for a property purchase, but the title is put in another person’s name. The court might presume a trust exists, requiring the titleholder to hold the property for the benefit of the person who provided the funds.
- Family Transactions
- In family transactions where one party transfers assets to another without clear documentation of intent, a court may presume a trust. For instance, if parents transfer property to an adult child without clearly stating whether it was a gift, sale, or loan, the court may presume that the child holds the property in trust for the parents or other beneficiaries, depending on the circumstances.
How Presumptive Trusts are Created:
A presumptive trust arises based on the legal presumption of the parties’ intentions, inferred from their actions or relationship, and can be triggered under these common circumstances:
- Lack of Intent for Absolute Ownership:
- When it is unclear whether the recipient of an asset is intended to take full ownership, courts may presume a trust to align with equitable principles
- Contribution of Funds by Non-Owner:
- If someone contributes significant funds for the purchase of an asset but the asset is registered in another person’s name, a presumptive trust may arise, assuming the actual owner holds it in trust for the contributor.
- Equitable Principles:
- Presumptive trusts are often created based on equity, ensuring that one party does not unfairly benefit from the contributions or actions of another without fulfilling their implied fiduciary duty.
In each case, the presumption can be rebutted if clear evidence shows that the intention was not to create a trust, such as by providing evidence that the transfer was intended as a gift or a sale. Courts will assess the facts and circumstances to determine whether a trust should be implied or presumed.
A constructive trust is an equitable remedy imposed by courts to address situations where it would be unjust for one party to retain property or assets that they have acquired through improper means. Unlike express trusts, constructive trusts are not based on the parties’ intentions or agreements; instead, they are imposed by law to prevent unjust enrichment or wrongdoing. Below are examples of constructive trusts and how they can be created.
- Breach of Fiduciary Duty
- If a person in a fiduciary relationship (such as a trustee, lawyer, or agent) breaches their duty and benefits personally from the breach, the court may impose a constructive trust on the property or profit gained from that breach. For example, if a trustee misuses trust assets to purchase property in their own name, the court can impose a constructive trust on the property, requiring the trustee to hold it for the benefit of the trust.
- Unjust Enrichment
- A constructive trust may be imposed to prevent unjust enrichment when one party benefits at the expense of another without a valid legal reason. For example, if someone is mistakenly paid a large sum of money that was not intended for them, and they refuse to return it, a court may impose a constructive trust on the funds, forcing the recipient to hold the money in trust for the rightful owner.
- Fraud or Dishonest Conduct
- Constructive trusts can be created when someone acquires property through fraud, misrepresentation, or other dishonest means. For example, if a person fraudulently induces another to transfer property or assets to them, the court may impose a constructive trust to ensure that the fraudster holds the property for the benefit of the original owner.
- Commingling of Funds
- When someone wrongfully mixes their funds with another person’s money or assets, a constructive trust may be imposed to separate and protect the rightful owner’s share. For example, if a business partner misappropriates company funds for personal use and mixes them with their own money, the court may impose a constructive trust on the commingled funds to recover the company’s portion.
- Property Acquired by a Third Party with Knowledge of Wrongdoing
- If a third party knowingly acquires property from someone who obtained it through wrongful means, the court may impose a constructive trust. For instance, if someone sells property obtained by fraud to another party who is aware of the fraud, the purchaser may be required to hold the property in trust for the original owner.
How Constructive Trusts are Created
A constructive trust is not established by a formal agreement or the intention of the parties involved. Instead, it is imposed by the court in the following scenarios:
- Breach of Fiduciary Duty:
- When a person in a position of trust violates their duty for personal gain, the court may impose a constructive trust on any assets or benefits derived from the breach.
- Unjust Enrichment:
- If one party unjustly benefits at the expense of another, the court may create a constructive trust to remedy the unfair advantage.
- Fraud, Misrepresentation, or Theft:
- When property is obtained through dishonest means, such as fraud or theft, a constructive trust can be imposed to ensure the wrongdoer holds the property for the benefit of the rightful owner.
- Knowledge of Wrongdoing:
- Even if a third party receives property, if they were aware it was wrongfully obtained, the court may impose a constructive trust to prevent further injustice.
Purpose and Scope of Constructive Trusts
- The primary purpose of a constructive trust is to rectify situations of wrongdoing or unjust enrichment. It is a remedy aimed at restoring fairness, rather than a trust created voluntarily. The courts impose this remedy to ensure that the property is used and managed in a way that aligns with equity and justice.
- Constructive trusts are often used in family law (e.g., in disputes over property division in common-law relationships), business relationships, or cases of fiduciary breaches, where courts seek to prevent wrongful gain and to ensure that wrongdoers do not profit from their actions.
A resulting trust arises when property is transferred to someone, but it is presumed that the recipient is holding the property for the benefit of the transferor (meaning the person who transferred it), rather than for their own benefit. Resulting trusts are based on the implied intentions of the parties, even though no express trust was declared. The courts impose resulting trusts in situations where it would be unfair for the recipient to keep the property outright. Here are some common examples of resulting trusts and how they can be created:
- Purchase Money Resulting Trust
- When one person provides the funds to purchase property, but the title to the property is put in another person’s name, the law may presume that the person on the title holds the property in a resulting trust for the person who provided the purchase money. For example, if A pays for a house but registers it in B’s name, a resulting trust may arise, where B is deemed to hold the property in trust for A. This trust is based on the presumption that A did not intend to gift the property to B.
- Transfer of Property Without Consideration
- If someone transfers property to another person without receiving any payment or clear intent to gift the property, the court may presume a resulting trust. For example, if a parent transfers property to an adult child without specifying that it is a gift, the law may presume that the property is held in a resulting trust for the parent, meaning the child holds it for the parent’s benefit.
- Failed Express Trust
- When someone attempts to create an express trust but does not specify all necessary details (such as beneficiaries), or if the trust fails for some reason (e.g., the purpose becomes impossible or illegal), the remaining assets may return to the original owner or their estate under a resulting trust. For example, if a trust is set up for charitable purposes and fails because the charity no longer exists, the property may revert to the settlor under a resulting trust.
- Surplus Property from a Trust
- If a trust is successfully created for a specific purpose but there is leftover property or assets once the purpose has been fulfilled, those assets may result back to the settlor or their estate under a resulting trust. For example, if a trust is set up to provide education for a child and, after the child’s education is fully paid for, some funds remain, those funds might revert to the settlor.
How Resulting Trusts Are Created? Resulting trusts typically arise in one of the following ways:
Presumed Intention:
The key feature of a resulting trust is the presumption that the person who transferred the property did not intend to make a gift or give up beneficial ownership. The law presumes that the property should “result” back to the original owner or to the person who provided the funds unless evidence clearly indicates otherwise.
Failure of Express Trust:
When an express trust fails due to incomplete terms or impossibility of the trust’s purpose, any remaining property or funds may revert to the settlor under a resulting trust.
Lack of Consideration in a Transfer:
If property is transferred without payment or an expressed intention to gift, the courts may presume a resulting trust, meaning the transferee holds the property on behalf of the transferor.
Key Characteristics of Resulting Trusts:
No Formal Declaration:
Resulting trusts do not require a formal trust document. They arise by operation of law, based on the conduct of the parties and the circumstances of the transaction.
Rebuttable Presumption:
A resulting trust is based on a presumption that can be rebutted if the transferee can provide evidence that the transferor intended to gift the property or transfer ownership outright.
Common in Family and Commercial Settings:
Resulting trusts often arise in family relationships, where transfers of property may occur without clear documentation, and in commercial settings where one party provides funding for an asset titled in another’s name.
In summary, a resulting trust is a legal mechanism that ensures property is held and managed in accordance with the presumed intentions of the parties involved, particularly in situations where a formal trust was not established or where an express trust has failed. It allows the courts to restore property to the rightful owner or their estate, preventing unintended enrichment.
When a person dies, especially if they leave behind significant assets, a form of trust-like arrangement often arises. However, whether a formal “trust” is created depends on the specific circumstances. Let’s break it down:
1. When There Is A Will – Testamentary Trust
If the deceased person left a valid will and appointed an estate trustee (executor), the will may create a testamentary trust. A testamentary trust has been created that comes into effect upon the death of the person who created the will (the testator).
How It Works:
The estate trustee is responsible for managing the deceased’s assets according to the terms of the will. If the will specifies that certain assets are to be held in trust for beneficiaries (for example, for minor children, incapacitated individuals, or for other specific purposes), then a testamentary trust is created. The estate trustee acts as the trustee of this trust.
Example:
A parent may leave assets in a will to be held in trust for a child until they reach a certain age. The estate trustee (executor) will manage the assets until the child reaches the specified age or satisfies other conditions outlined in the will.
2. When There Is No Will – Implied Trust in Intestate Estates
When someone dies intestate (without a valid will), no formal trust is typically created in the sense of an express trust. However, certain trust-like relationships arise by operation of law.
Estate Administration:
If a person dies without a will, their estate is distributed according to intestacy laws. The court appoints an administrator, which often a family member, or a trust company if the estate is large or the asset are complex, to manage and distribute the assets. Although no formal trust document exists, the administrator holds a fiduciary duty to act in the best interests of the heirs, which can resemble a trustee’s duties in some ways.
Resulting Trust:
In some cases, where the deceased held property jointly or transferred property to others without clear intent, courts may impose a resulting trust. This could occur if assets were held by someone else on behalf of the deceased but were not meant to transfer to that person outright. The court could decide that those assets “result” back to the estate to be properly distributed.
3. When There Is A Dispute – Constructive Trust in Estates
In cases where there is a dispute over the distribution of assets, particularly when there is suspicion of fraud, misrepresentation, or other improper conduct, a court may impose a constructive trust.
How It Works:
If a beneficiary or a third party wrongfully received assets from the estate (e.g., through undue influence, fraud, or by taking advantage of a vulnerable deceased person), a court can declare that the person who received those assets holds them in a constructive trust for the rightful beneficiaries of the estate.
Example:
If someone misappropriates funds from the deceased’s estate, the court could impose a constructive trust, requiring the wrongdoer to hold those assets for the estate’s rightful beneficiaries.
4. Executor’s Fiduciary Role and Trust-Like Duties
Even if no express trust is created by a will or the law, an estate trustee (whether appointed by will or intestacy laws) has fiduciary duties similar to those of a trustee. The estate trustee holds and manages estate assets on behalf of the beneficiaries until those assets can be distributed according to the will or intestacy laws. The duties include:
- collecting assets
- paying debts
- managing the estate’s investments
- distributing the remaining assets to beneficiaries.
While not a formal “trust,” this fiduciary role bears significant resemblance to the responsibilities of a trustee.
So, while not every estate necessarily creates a formal trust, the estate administration process involves a fiduciary role that closely mirrors trust principles, especially when it comes to managing assets for beneficiaries.
Important Notice:
This blog series offers readers a basic understanding of the concept of “Trust.” It does not constitute legal advice from our firm. If you encounter any trust-related matters, it is essential to consult your lawyer. As always, it is best to leave professional matters to the professionals.