Resulting trusts in English law

Where property passes between individuals, English law presumes that the relationship between them makes it an outright gift, and thus not subject to a resulting trust in the event of failure; this is the "presumption of advancement".

A presumed resulting trust occurs where the transfer fails, and there is no reason to assume it was intended as an outright gift.

With some relationships, such as property transfers between father and son and husband and wife, this presumption of advancement is applied by default, and requires strong evidence for it to be rebutted.

[4] Lord Browne-Wilkinson, in Westdeutsche Landesbank v Islington London Borough Council,[5] disagreed with Megarry's classification.

While he agreed there were two categories, he felt the dividing line was not based on intention, and the classes were "where A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested either in B alone or in the joint names of A and B" and "Where A transfers property to B on express trusts, but the trusts declared do not exhaust the whole beneficial interest", with both involving a presumption of intention.

Resulting trusts were intended to fill in the gap left by a veiled transfer, obeying the equitable maxim that "equity will not suffer a wrong to be without a remedy".

This is the idea that a resulting trust is a mix of the settlor's intention, and the trustee's knowledge that he is not intended to be the beneficiary.

As such, the contract between the association's members should be the deciding factor in how the property is to be distributed, and there is no need to involve resulting trusts.

[33][34] Where property passes between individuals, English law presumes that the relationship between them makes it an outright gift, and thus not subject to a resulting trust in the event of failure; this is the "presumption of advancement".

Where a gift is voluntary, the assumption for personal property is that it creates a resulting trust on failure, as in Re Vinogradoff.

In Hodgson v Marks,[40] it is generally agreed that a presumed resulting trust was created over a transfer of real property, although there is some dispute.

[44] Thus, where a person contributes to the purchase of the property, they will receive an equivalent equitable interest in any resulting trust that arises.

[46] It must also be demonstrated that the contribution was not made for any purpose other than acquiring an equitable interest; in Sekhon v Alissa,[47] for example, a mother transferred a house into her daughter's name to avoid capital gains tax.

The court ruled that this created a resulting trust; because tax avoidance was the main objective, the mother could not possibly have intended it to be an outright gift.

[44] The last situation where a presumed resulting trust is created is if the court can rebut the presumption of an outright gift.

Where the family member refuses to transfer it back, the taxpayer can come to court and argue it was a resulting trust.

[53] Traditionally, when a person sought to rebut presumptions but was required to rely on an illegal act to prove that a resulting trust was intended, the equitable maxim that "he who comes to equity must come with clean hands" was applied; the presumption would take effect, and no resulting trust would be created, as in Mucklestone v Brown.

Since Tinsley, the courts have been more willing to examine the intention of the parties rather than relying on the strict maxim that "he who comes to equity must come with clean hands".

It may be otherwise where the illegal purpose has been carried out and the transferee can rely on the transferor's conduct as inconsistent with his retention of a beneficial interest.

Evidence that he transferred the property in order to protect it from his creditors, therefore, does nothing by itself to rebut the presumption of advancement; it reinforces it.

It is unlikely that the court would reach such a conclusion where the transfer was made in the absence of an imminent and perceived threat from known creditors.

Section 423 of the Insolvency Act 1986 empowers to the courts to reverse any transfer which removes assets from creditors with the intention to avoid their claims.