Common errors about resulting trusts

This post has been contributed by Professor Robert Chambers, Module Convenor for Equity and trusts.

As the new calendar year begins, most students of Equity and trusts begin to study resulting trusts. They were introduced to them early in the module and now learn in more detail when and why they arise. Perhaps the most difficult part of this topic is understanding the role of the presumptions of resulting trust and advancement. At any rate, this seems to be a common source of errors that examiners encounter in answers to questions about resulting trusts. The purpose of this post is to help you recognise and avoid those errors.

The presumptions are rebutted by evidence of intention

Students sometimes say that the presumption of resulting trust is rebutted by the presumption of advancement, or vice versa, but that is incorrect. A presumption arises when a transaction looks superficially like a gift, but we do not know whether a gift was intended. The relationship between the parties will determine which presumption applies. The presumption of advancement applies if the apparent donor is the father of, or standing in loco parentis to, the recipient. It might also apply if she is the recipient’s mother, but that is not clearly established in English law. While it also applies to apparent gifts from husbands to wives, that is complicated when it comes to co-ownership of the family home (which you study in LA3003 Property Law).

Once the appropriate presumption is selected, we then look for any evidence whether a gift was intended or not. Evidence of an intention to give will rebut the presumption of resulting trust, while evidence that no gift was intended will rebut the presumption of advancement. It is the evidence of intention that rebuts the presumption, not the choice of a different presumption.

The same problem occurs with respect to s.60(3) of the Law of Property Act 1925. If that subsection prevents the presumption of resulting trust from arising (as discussed below), this does not rebut the presumption. It simply means that we have a situation in which the presumption does not apply.

Subsection 60(3) of the Law of Property Act 1925 applies only to gratuitous transfers of land

As discussed in another blog post, it is an interesting question whether s.60(3) of the Law of Property Act 1925 has had any effect on the presumption of resulting trust. There is much that could be said about this topic in an examination. Whatever its effect, it is important to remember that s.60(3) only applies to gratuitous transfers of land, which occur when apparent donors transfer their land to apparent donees. It does not apply to personal property (like goods or company shares) nor it does not apply to cases where land is purchased by the apparent donor in the apparent donee’s name. Failing to distinguish between transfers and purchases of land is a fairly common error. There is no point discussing the effect of s.60(3) in a case where it has no possible application.

Section 199 of the Equality Act 2010 is not in force

If s.199 of the Equality Act 2010 ever comes into force, it will abolish the presumption of advancement with respect to unexplained transactions that take place after that date. It is not yet in force (and may never be). While it might be relevant to mention the existence of s.199 when criticising the unequal application of the presumptions to men and women, that section provides no assistance whatsoever when applying the law to a problem question in which the presumption of advancement might arise.

The presumption of resulting trust does not apply to testamentary gifts

A testamentary gift is a gift made in a will. It is not an unexplained transaction and there is no room for the presumption of resulting trust to operate. We assume that people who make gifts in wills intend to make those gifts.

The presumption of resulting trust is different from the resulting trust

The presumptions of resulting trust and advancement only operate in the absence of admissible evidence of the apparent donor’s intention. If we have evidence that proves that a gift was intended, then there is no resulting trust and it does not matter which presumption applied initially. The outcome is based on proof of intention and not on any presumption of intention.

Conversely, if we have evidence that proves that the apparent donor did not intend to make a gift, then a resulting trust will arise by operation of law in response to the proven facts: Hodgson v Marks [1971] EWCA Civ 8, [1971] Ch 892. The presumptions are irrelevant. As Lamm J stated in Mackowik v Kansas City (1906) 94 SW 256 at 262, “Presumptions may be looked on as the bats of the law, flitting in the twilight but disappearing in the sunshine of actual facts.”

When dealing with a question involving the presumptions of resulting trust and advancement, you should determine which presumption applies and then consider whether there is evidence of intention that can rebut or displace it. In most reported cases, the presumptions of resulting trust and advancement are rarely needed because courts are willing to decide what the parties probably intended based on minimal circumstantial evidence: Lohia v Lohia [2001] EWCA Civ 1691.