What is a Resulting Trust?
Resulting trusts are a fiction of the law that arises where property is transferred or acquired by one under facts and circumstances which indicate that the beneficial interest is not intended to be enjoyed by the holder of legal title.
A case some readers may have read about in recent newspaper headlines involved a legal theory based on a resulting trust remedy. In City of Boston v. Roxbury Action Program, Inc., 68 Mass. 1101, 865 N.E2d 1140 (2007) the city of Boston became aware that a landowner, which was obligated to convey land to the city due to an inability to obtain a government commitment for housing development on property. The City went to Court claiming that the landowner was holding the property for the City under a resulting trust, since it wasn’t, in the city’s view, the parties’ intention for the landowner to hold the beneficial interest in the property. Unfortunately for the city, the court held that this awareness (of six years) repudiated any resulting trust more than six years before city brought action seeking conveyance of the property such that the statute of limitations barred resulting trust claim; any claim for resulting trust arising through city’s act in providing purchase monies for the property was inseparable from the rest of the dealings between the parties, including landowner’s obligation to re-convey the property on the date specified by agreement, and pursuant to the city’s contract with landowner, the city was to be updated monthly on landowner’s activities related to the development of the property.
Resulting trusts are ordered by Courts using its “equitable” powers. Basically, when a court exercises its “equitable” power, it is using its inherent power to order anything that isn’t prohibited by a statute or constitution. As you might guess, this category of power is rather wide ranging and includes almost anything that otherwise is specifically prohibited by law.
The most critical factor for a court in determining whether to impose a resulting trust from the facts and circumstances is the intent of the parties involved. Resulting trusts arise in typically three situations:
(1) purchase money trusts; (2) instances where an express trust does not exhaust the property given to the trustee; and (3) where an express trust fails, in whole or in part.
The Uniform Trust Code, (the “UTC”) a model for states to adopt (Florida adopted the UTC in 2007) provides several scenarios where a resulting trust may be imposed by a Court of equity when consistent and necessary to carry out the parties’ intent. For example, the UTC validates trusts that do not have any ascertainable beneficiaries but limits the period during which they may be enforced to 21 years. See, Uniform Trust Code §409(1).
Another situation in which a resulting trust arises is if a settlor purports to create a testamentary trust for an indefinite class of beneficiaries (e.g., “friends”). The common law rule was that the trust failed for lack of anyone to enforce it, and the assets passed by resulting trust through the settlor’s estate to his or her heirs or devisees. See, Allen Newman, Elder Law: The Intention of the Settlor-Who’s Property Is It Anyway? 38 AKRON L.REV. 649 (2005).
There are more scenarios than just the three categories detailed above. For example, one court case involved a beneficiary of an insurance policy who forfeited his rights to the benefits of the policy by murdering the insured member. Similarly, other court cases have held that in the case of an ordinary life insurance policy, murder of the insured causes a resulting trust to arise in favor of the insured’s estate.
I have handled some cases where courts have imposed a presumption of a resulting trust. This presumption is unique to Florida and arises when a person takes legal title to property that was paid for by someone else. The presumption under these circumstances is that the parties intended that the person holding legal title holds it in trust for the payor. If the person who paid for the property can provide proof of payment, the burden then shifts to the transferee to provide evidence that the purchase money was a gift of loan. See, Maliski v. Maliski, 664 So.2d 341 (Fla. 5th DCA 1995); Abreu v. Amaro, 534 So.2d 771 (Fla. 3d DCA 1988).
Other situations involve the failure of an express trust. Here, a trustee will hold property as a resulting trust for the settlor or his heirs or next of kin, where:
(1) there is a failure of designation of beneficiaries; (2) the beneficiary named dies before his testator; (3) there is a deed in trust for a beneficiary who was dead at the time of the conveyance; and (4) the beneficiary disclaims, or the trust fails for indefiniteness.
I have also seen cases where a will contains a residuary clause and the court has ruled that any property held on a resulting trust for the testator’s estate will be disposed of pursuant to such provision even where it is already party of the residue. See, Annotation: Disposition of property of inter vivos trust failing in after death of settlor, who left a will making no express disposition of the trust property. 30 ALR3d 1318.
A resulting trust arises in favor of a settlor or his heirs or next of kin where an express trust or a conveyance without consideration fails because of illegality. For example, if an express trust is void because it is in violation of the rule against perpetuities, a resulting trust arises for the benefit of the heir’s next of kin of the testator.
But Wait…There’s More
The Court’s authority to impose a resulting trust is an exercise of its equitable power and is in addition to the statutory authority granted under the Florida Trust Code, which was recently amended in 2007. The new Florida Trust Code has several sections which allow courts to reform and modify trusts to better effectuate the settlor’s intent. Section 736.4013 is a codification of the common law cy pres doctrine applicable to charitable trusts. Section 736.4015 permits reformations to cure mistakes. The latter section, in particular, is an expansion of existing law in that reformation under Code § 736.4015 is available for both mistakes of law and of fact, whether in the expression or in the inducement, and whether or not the terms of the trust are ambiguous.