Express Trust vs. Resulting Trust

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 What Is A Trust?

A trust is an estate planning legal instrument that is used to avoid probate while providing a benefit for a specific beneficiary or group of beneficiaries. Although legal requirements for forming a trust vary by state, the following are generally necessary:

  • Settlor Capacity: In order to create a valid trust, the settlor must have the proper mental capacity to create the trust. They must intend to create a trust expressed with any necessary formalities of the state, such as the trust being in writing;
  • Identifiable Property: Trust property, or “trust res,” must be specifically identifiable. Meaning that there must be a sufficient description to know what property is to be held;
  • Identifiable Beneficiary: The beneficiary or group of beneficiaries must be sufficiently identifiable, meaning \ they must be able to be determined when the trust is formed. However, in the case of a charitable trust, this is not always a requirement; and
  • Proper Trust Purpose: Proper means that the trust cannot be created for an illegal reason. An example of this would be how a person cannot create a spendthrift trust and hold the property in their own name for their benefit to avoid creditors from reaching their assets.

Generally, all trusts in the United States are presumed to be irrevocable unless the trust instrument states that the trust is revocable.

Are There Different Types Of Trusts?

The common unifying reason and purpose for creating a trust is to hold some sort of property in the trust for the benefit of another person or party.

Some of the most common trusts that may be created include:

  • Inter Vivos or Living Trust: A trust that is created while the settlor is still alive; this trust is designed to be revocable so that the settlor can add or remove property freely during their lifetime;
  • Testamentary Trust: A testamentary trust is created by a will and generally becomes effective upon the death of the trust creator;
  • Charitable Trust: Created to transfer and designate a person’s assets or property to a charitable organization for the benefit of a particular charity or organization;
  • Discretionary Trust: A trust that allows the trustee to decide when and how the trust assets and property should be distributed to the named beneficiaries;
  • Special Needs Trust: Created to provide additional income for disabled people but still allow them to be able to receive government benefits. Special needs trust help work around the issue of a gift or inheritance being included in the calculation of the person’s income for benefits;
  • Spendthrift Trust: Created to provide for another person’s needs while also preventing the beneficiary from accessing the trust property. Spendthrift trusts protect a beneficiary from themselves by shielding them from their debts or creditors; or
  • Land Trust: Allow a trustee to hold title to a certain piece of land or property, giving the trustee the power to manage the property and make income distributions.

Numerous other trusts may be created for other purposes, such as:

A trust may also contain characteristics of multiple trusts. An example of this would be how it is not uncommon for a trust to be an irrevocable, express, inter vivos, discretionary, spendthrift trust. Before creating a trust, it is important to think carefully about the purpose for which you are creating the trust, as one or multiple trusts may be the best solution for your estate planning needs.

What Is An Express Trust?

An express trust is created intentionally and purposefully. The settlor distributes property or funds to a trustee, who will hold the property in trust for the recipient.

Express trusts must satisfy several requirements to be valid. These include, but may not be limited to:

  1. There must be a settlor (creator);
  2. The settlor must deliver legal title to property;
  3. The property, or res, corpus, or trust principal, must be delivered to a trustee;
  4. The trustee must hold a valid legal title to the property;
  5. The valid legal title must be held for the benefit of one or more trust beneficiaries;
  6. There must be intent to create a trust;
  7. The intent to create a trust must be for a lawful purpose or reason; and
  8. The document creating the trust must be validly executed.

Similar to the requirements for trusts in general, the settlor must have the legal capacity necessary to create a trust at the time of creation. Legal capacity means that the settlor must be of sound mind.

What Is A Resulting Trust?

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 a person has attempted to create an express trust, but the express trust fails, or the trust does not use or exhaust all of the trust assets.

  • Resulting Trust Created by Failure of an Express Trust: A settlor transfers property to one (and only one) person. They essentially give that person legal title (the authorization to transfer trust property) without the settlor intending for that person to be a beneficiary. Because the settlor has not given a beneficial interest to anyone else, the trust property goes back, or results, to the settlor. This is because law requires that beneficial ownership by someone is needed at all times.
    • An example is when a settlor creates an express trust, naming a specific beneficiary. If the beneficiary has died before the trust is created, without the settlor’s knowledge, the express trust has failed. This is because 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 results to the settlor.
  • Resulting Trust Created by Express Trust Not Using All Trust Property: When an express trust does not exhaust all of the trust property, a court will find that a resulting trust exists. An example is when the settlor transfers money into the trust. This money is to be paid to a named beneficiary during that beneficiary’s lifetime, in a fixed amount, every month. The beneficiary dies after receiving only a percentage of the sum of money, in which 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 the property, and 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.

Because nothing exists to express the seller’s intent that the third party should own the house, a resulting trust is created. The resulting trust that is created is known as a purchase money resulting trust. The third person holds the trust for the purchaser.

This is because the law presumes a person does not intend to sell property without receiving something in return unless the person states otherwise. An example of this would be declaring an intention to make a gift. This presumption is strengthened when the purchaser is unrelated to the third person.

However, when such a relation exists, the law presumes that a gift to the third party was intended. When the purchaser and third party are strangers to each other and have no intention to make a gift, a resulting trust is created. The trust is held by the third person on the purchaser’s behalf, as was previously mentioned.

Do I Need A Lawyer For Help With Trusts?

If you would like to create a trust or are experiencing legal issues associated with a trust, you should contact a trust lawyer immediately. Your trust attorney can help you understand your legal rights and options according to your state’s specific laws and will also be able to represent you in court, as needed, should any legal issues result.

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