What is a Resulting Trust?

Disclaimer: This article on the concept of a resulting trust is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

When many people plan their estates, they are thinking of their beneficiaries. How can you create a simple estate plan that does not leave your children with a complicated mess?

Some people choose to pass property to their beneficiaries while they are still alive. However, it is more complicated than simply gifting your home or another asset. There are legal principles that apply, and ignoring these could create arguments and disagreements after you pass.

In this article, we will outline the different types of ownership and the different types of trusts that apply to passing property to your heirs. Then, we will outline how the courts will determine if the property was given as a gift and how you can make your actual intention clear.

Of course, when it comes to estate planning, we encourage our clients to make sure they have a plan that is designed for them and is unique to their circumstances and wishes. Reach out to us today to make sure your estate plan fits your needs.

Types of Ownership: Legal Ownership versus Beneficial Ownership

It may come as a surprise to you, but there are different types of ownership. Let’s define and contrast these two: legal ownership and beneficial ownership.

Legal ownership is  what you probably think of when you hear the word “ownership.” It is what is written on the title of your home or car. When you purchase a property, the transfer is recorded at the land registry office and you become the legal owner.

Beneficial ownership is different. Even though somebody else may be the legal owner, you may receive the benefits of that property, making you the beneficial owner.

So, for the purposes of estate law, when an elderly person passes the legal ownership to an adult child, while still residing in the home, the adult child is the legal owner and the parent is the beneficial owner.

When that happens, a resulting trust is created.

What is presumption of resulting trust?

A resulting trust is created when the legal ownership of a property is transferred from a person to their adult child.

The presumption under law is that because the adult child did not give any value or pay for the property, then it will be returned to the original owner (the parent).

So let’s continue our example of a parent transferring legal ownership of a property to their child. Was the transfer a gift or a resulting trust? The answer is important once the parent passes away. Will the property become part of the estate and subject to probate tax? Or does it now belong to the adult child?

Again, the presumption is that the transfer was not a gift. If you choose to transfer property to your heirs you want to make sure that there is evidence to support that it was, in fact, a gift.  

A note about spouses

The transfer of a property to spouses upon the breakdown of a marriage (including death) is covered under the Family Law Act and will not be considered in this article. If you have any questions about this scenario, please reach out to our office.

Resulting trust versus gift

Since the presumption under law is that the property was transferred to create a resulting trust, the onus is on the recipient (or adult child) to prove – on a balance of probabilities – that the transfer was intended to be a gift.

In the example of adding an adult child to the title of a property, this typically means a gift agreement or a trust agreement.  In the absence of clear, persuasive evidence, your beneficiaries could end up in court arguing over what you intended.

We strongly recommend that you do not leave these issues to chance. Again, a well-designed estate plan will consider exactly what your intentions are and make sure that those are communicated clearly and accurately to your heirs.

Retain an estate lawyer that sees the whole picture

At Beeksma Law, we practice estate law that encompasses both planning your estate and estate litigation, that is, handling any issues and disagreements that arise.

Our comprehensive style of practice allows us to be more proactive when preparing your estate. We see the issues that may arise and can draft language that will prevent or resolve those issues.

We also understand what the court will be looking for if your estate ends up in litigation and can help you build a strong case for what you intended.

If you have any questions about resulting trusts, gifts, or any other estate law issue, please reach out to our office. We would be happy to help.

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