The law recognizes several kinds of trusts. Two types of trusts the law recognizes are express trusts and resulting trusts. The main difference between the two trusts is in how they are created. An express trust is intentionally created, while a resulting trust is not.
An express trust is created intentionally and purposefully. In an express trust, the creator (the “settlor”) distributes property or funds to a trustee, who will hold the property in trust for the recipient.
Express trusts must satisfy a series of requirements to be valid. These include:
- There must be a settlor (creator);
- The settlor must deliver legal title to property;
- The property, also referred to as res, corpus, or trust principal, must be delivered to a trustee;
- The trustee must hold a valid legal title to the property;
- The valid legal title must be held for the benefit of one or more trust beneficiaries;
- There must be intent to create a trust;
- The intent to create a trust must be for a lawful purpose or reason; and
- The document creating the trust must be validly executed.
The settlor must have the legal capacity to create a trust at the time of creation. Legal capacity means that the settlor must be of sound mind.
In contrast, a resulting trust, also called an implied trust, is a trust that is created by operation of the law. A court will find that a resulting trust exists when an individual has attempted to create an express trust, but the express trust either fails, or the trust does not use or exhaust all of the trust assets.
These are discussed in more detail below:
- Resulting Trust Created by Failure of an Express Trust: One way in which a resulting trust may arise is when a settlor transfers property to one (and only one) person. They essentially give that person legal title (the authorization to transfer trust property), without without the settlor intending for that person to be a beneficiary.
- Since, in this factual situation, the settlor has not given a beneficial interest to anyone else, the trust property goes back, or results, to the settlor. This is because the law requires that beneficial ownership by someone is needed at all times.
- An example of how this resulting trust may arise is when a settlor creates an express trust, naming a specific beneficiary. If, without the settlor’s knowledge, the beneficiary has died before the trust is created, the express trust has failed. Express trusts must name living beneficiaries to be valid. Since the express trust fails for lack of a beneficiary, the trustee will hold the property in a resulting trust for the settlor. The beneficial interest in the trust goes back to, or results to, the settlor.
- Resulting Trust Created by Express Trust Not Using All Trust Property: When an express trust does not exhaust (use) all of the trust property, a court will find that a resulting trust exists.
- An example of an express trust not exhausting all trust assets is when settlor transfers a sum of money into the trust. The money is to be paid to a named beneficiary during that beneficiary’s lifetime, in a fixed amount, every month. The beneficiary dies, after having received only a percentage of the sum of money. In such a case, the trustee holds the funds that remain, in a resulting trust for the settlor.
The law recognizes a specific type of resulting trust known as a purchase money trust. This kind of trust arises when one person buys and pays for property. Then, the purchaser requests that the seller deliver the deed to the purchaser with the name of a third person on the deed. The purchaser and the third person are not related.
Since, in this situation, nothing exists to express the seller’s intent that the third party should own the house, a resulting trust is created. The resulting trust is that is created is known as a purchase money resulting trust. The trust is held by the third person, for the purchaser.
The trust is held in favor of the purchaser. This is because the law presumes that a person usually does not intend to sell property without receiving something in return for it — unless the person states otherwise (such as by declaring an intention to make a gift). This presumption is strengthened when the purchaser is not related to the third person. When there is such a relation, the law presumes a gift to the third party was intended. When the purchaser and third party are strangers to each other, and there is no intention to make a gift, a resulting trust is created. The trust is held by the third person, on the purchaser’s behalf.
Issues involving trust creation and trust failure can be complicated. If you are a settlor or a trust beneficiary and you concerns about the difference between express and resulting trusts, or are involved in a dispute involving this difference, you should consult with a qualified estate lawyer immediately. The attorney can provide you with guidance, advise you as to your rights, and can represent you in court.