Learning Outcomes
This article explains the concept of implied trusts, focusing specifically on the presumption of a resulting trust that arises when contributions are made to the purchase price of property. It covers how this presumption operates, how beneficial interests are quantified, and the circumstances in which the presumption can be rebutted, including the counter-presumption of advancement. Understanding these principles is essential for applying the correct legal rules to property ownership disputes in the SQE1 assessments, particularly in scenarios involving co-ownership or family homes where legal title does not reflect financial contributions.
SQE1 Syllabus
For SQE1, you are required to understand the principles fundamental to implied trusts, particularly resulting trusts arising from contributions to the purchase price of property. This knowledge is essential for analysing property ownership disputes and advising on beneficial interests where legal title might be misleading. You need to be able to apply these rules in practical scenarios.
Key areas relevant to this topic within the syllabus include:
- The nature and creation of implied trusts, specifically resulting trusts.
- The operation of the presumption of resulting trust in purchase money situations.
- How beneficial interests are quantified under a resulting trust.
- The requirements for rebutting the presumption of resulting trust.
- The presumption of advancement and its application (and limitations).
- Distinguishing resulting trusts from constructive trusts in the context of shared homes.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
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Under what circumstances does the presumption of a resulting trust typically arise in relation to property purchases?
- When property is transferred as an outright gift.
- When one person contributes to the purchase price of property, but legal title is held by another.
- When a trustee breaches their fiduciary duty.
- When property is held under an express declaration of trust.
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How is the beneficial interest under a purchase money resulting trust usually quantified?
- Equally between all parties involved.
- Based on the court's assessment of fairness.
- In proportion to the contribution made to the purchase price.
- According to the terms of the mortgage agreement.
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Which of the following relationships traditionally gave rise to the presumption of advancement, countering the presumption of resulting trust?
- Transfers between siblings.
- Transfers from a wife to her husband.
- Transfers from a father to his child.
- Transfers between business partners.
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True or false: Evidence of intention declared after the property transfer is generally admissible to support the transferor's claim of a resulting trust.
Introduction
When property is purchased, the legal title might be registered in the name of one person, even if another person contributed financially to the purchase. Equity may intervene in such situations to ensure fairness by implying a trust, reflecting the financial reality rather than just the legal formality. One important type of implied trust is the resulting trust, particularly the presumption that arises in purchase money situations. This article explores this presumption, its effects, and how it can be rebutted.
The Presumption of Resulting Trust
Where a person (A) provides some or all of the purchase money for property, but the legal title is transferred into the name of another person (B), equity presumes that A did not intend to make a gift of their contribution to B. Instead, it presumes that A intended to retain a beneficial interest in the property. This is known as the presumption of resulting trust.
Key Term: Resulting trust An implied trust which arises by operation of law in certain circumstances, typically where property is transferred to someone who pays nothing for it and is then implied to hold the property for the benefit of another person. The beneficial interest is said to 'result' (return) to the person who provided the property or purchase money.
The effect of this presumption is that B (the legal owner) is deemed to hold the property (or a share of it) on trust for A (the contributor).
Key Term: Presumption of resulting trust The rebuttable presumption that arises when property is purchased in the name of another, or transferred voluntarily without consideration, suggesting the recipient holds the property on trust for the provider of the funds or the transferor.
Quantifying the Beneficial Interest
If A provides the entire purchase price but the property is put in B's name, the presumption is that B holds the entire property on resulting trust for A. If A contributes only a portion of the purchase price, the presumption is that B holds the property on trust for both A and B, with their beneficial interests being proportionate to their respective contributions to the purchase price.
Worked Example 1.1
Chloe contributes £50,000 towards the £200,000 purchase price of a house. The legal title is registered in the sole name of her friend, David, who provided the remaining £150,000. There is no written agreement about ownership. What is the presumed position regarding the beneficial ownership?
Answer: Equity presumes a resulting trust. David holds the legal title on trust for himself and Chloe. Chloe's beneficial interest is presumed to be proportionate to her contribution, which is 25% (£50,000 / £200,000). David holds the remaining 75% beneficial interest.
Contributions Must Relate to Purchase Price
For the presumption to arise, the contribution must be towards the actual purchase price of the property at the time of acquisition. Payments towards general household expenses, repairs, or subsequent mortgage instalments (unless part of the initial agreement) generally do not give rise to a resulting trust, although they might be relevant to establishing a constructive trust (a different type of implied trust often used in family home disputes).
Rebutting the Presumption
The presumption of a resulting trust is rebuttable. It can be displaced by evidence showing that the contributor (A) actually intended to make a gift or a loan to the legal owner (B). The burden of proof lies on the person seeking to rebut the presumption (usually B, the legal owner) to show that a gift or loan was intended. Evidence of intention should ideally be contemporaneous with the transaction.
Worked Example 1.2
Same facts as Worked Example 1.1. However, David produces a letter written by Chloe at the time of the purchase stating, "David, please accept this £50,000 as a gift towards your new home. I don't expect anything back." How does this affect the presumption?
Answer: This letter provides clear evidence that Chloe intended her £50,000 contribution as a gift, not as the basis for claiming a beneficial interest. This evidence rebuts the presumption of resulting trust. David would hold the entire beneficial interest, and Chloe would have no claim under a resulting trust.
The Presumption of Advancement
Historically, in certain relationships, equity applied a counter-presumption called the presumption of advancement. This presumed that a transfer of property or contribution to purchase price was intended as a gift ('advancement') due to a perceived moral obligation to provide for the recipient.
Key Term: Presumption of advancement The historical, rebuttable presumption that in certain relationships (e.g., father to child, husband to wife), a transfer of property or contribution to purchase price was intended as a gift, displacing the presumption of resulting trust.
Traditionally, this presumption applied to transfers from:
- Father to child (but not mother to child).
- Husband to wife (but not wife to husband).
- Someone standing in loco parentis (in the place of a parent) to a child.
The presumption of advancement reflects outdated social views and has been heavily criticised. Section 199 of the Equality Act 2010 abolishes the presumption, but this section is not yet in force. Therefore, while its application is viewed restrictively by modern courts, it technically still exists and can be rebutted by evidence of contrary intention, just like the presumption of resulting trust.
Exam Warning
While the presumption of advancement still technically exists, its application is viewed critically by modern courts. SQE1 questions are more likely to focus on determining intention from evidence rather than relying heavily on this presumption. Be aware of its existence and traditional application but focus on evidence of actual intention where provided in a scenario. Furthermore, remember that the common intention constructive trust is often the preferred mechanism for resolving disputes over family homes between cohabiting couples, rather than relying solely on resulting trust presumptions.
Revision Tip
Focus on the evidence provided in any scenario. Does it indicate a gift, a loan, or an intention to retain an interest? The presumptions are merely starting points where evidence of actual intention is lacking. Direct evidence of intention will always override a presumption.
Key Point Checklist
This article has covered the following key knowledge points:
- Resulting trusts are a type of implied trust arising by operation of law.
- A presumption of resulting trust arises where one person contributes to the purchase price of property, but legal title is held by another.
- The contributor is presumed to retain a beneficial interest proportionate to their contribution.
- The presumption can be rebutted by evidence of intention to make a gift or loan.
- The historical presumption of advancement presumed a gift in certain relationships (e.g., father-child, husband-wife), countering the resulting trust presumption, but its relevance is diminished.
- Section 199 of the Equality Act 2010 (not yet in force) abolishes the presumption of advancement.
- Evidence of actual intention at the time of the transaction is key to determining beneficial ownership.
Key Terms and Concepts
- Resulting trust
- Presumption of resulting trust
- Presumption of advancement
