The K-Zone: Automatic resulting trust

In general, an automatic ResultingTrust arises when a settlor transfers property to be held on trust but, for some reason or another, the BeneficialInterest cannot be assigned properly to the beneficiaries. The beneficial interest therefore `rebounds' or `results' back to the settlor, there being nowhere else to put it.

The term `automatic resulting trust' was popularised by the decision of Megarry J in ReVandervellNo21974. In that case he described how a trust would come into existence because the circumstances of the settlor's actions separated the legal and equitable title, but did not properly dispose of the equitable title to the beneficiaries. No particular motive or intention was necessary for the creation of the resulting trust, hence the designation `automatic'.

The decision of the HouseOfLords in WestdeutscheVIslinton1996 casts doubts on Megarry's analysis; in particular, the House doubted that any trust could arise `automatically'. A key feature in any trust obligation was conscience -- the intended trustee would have at least to be aware that he was entering into a trust obligation before it was equitable to impose one on him. As a result, some earlier cases in which a resulting trust was found have to be regarded as incorrectly decided or, at least, incorrectly analysed -- see `TheoreticalBasisForResultingTrusts' for a discussion of this point.

The cases in which a resulting trust has been found (which would have been interpreted as an automatic resulting trust prior to Westdeutsche) fall into a number of discrete groups.

Failure to specify the beneficiaries with sufficient precision (see CertaintyOfObjects). For example, in VandervellVIRC1966 the settlor created a trust of his company's shares, but made it a condition that the beneficiary grant an option to purchase the shares back to the trustee company. Since it was clear that the beneficial interest in the shares was not intended to go to the trustees, and there was nobody else it could be ascribed to, it came back to the settlor as a resulting trust.

Failure to specify how the beneficial interest is to be shared between the beneficiaries (e.g., BoyceVBoyce1849)

Completion of the trust purpose (e.g., ReGillinghamBusDisasterFund1958, ReAbbott1900)

Dissolution of an UnincorporatedAssociation (e.g., AirJamaicaVCharlton1999, WestSussexConstabularyWidowsFund1971)

Advancement of a loan to fulfill a certain commercial objective (e.g., BarclaysBankVQuistclose1970)

The last two categories in particular may have to be reviewed in the light of Westdeutsche, since in many of the cases there was no expressed intention to create a trust.

Even where cases seem to fall into one of these categories, and don't offend against the requirements of Westdeutsche, certain circumstances may lead the court to deny the existence of a resulting trust.

The trust would be unworkable. In West Sussex_, specific donations made by bequest were held to give rise to resulting trust, but money donated in public collections did not. Although there is little difference, if any, between these circumstances, it would be extremely difficult to manage a trust with a large number of unknown beneficiaries.

The settlor's intention survives the completion of the trust purpose. In a TrustOfImperfectObligation, the express purpose is deemed to be subsidiary to the settlor's intention to benefit the beneficiary in a general sense. Consequently, the courts may find it preferable to maintain the trust for the beneficiary, rather than finding a resulting trust (see ReOsaba1979).

TrustLaw