A purchase money trust or “purchase money resulting trust” is created when a person purchases property, but instructs the seller to transfer the property or title to a different person. It generally arises as a matter of course when an item of property is purchased using the money of another person.
As a trust, the buyer becomes the beneficiary, while the person holding the title is considered the trustee. The trustee will eventually transfer title to the buyer, after some time or after the fulfillment of specified conditions.
Laws governing purchase money trusts can be different from state to state. In some states, purchase money trusts aren’t allowed, or have been abolished in favor of more modern approaches to trust creation.
It may seem like it’s against common sense to utilize a purchase money trust. Most people would consider it easier to simply purchase property in your own name. However, there may be several different reasons why a purchase money resulting trust may be implemented.
One of the main reasons why a purchase money might be used has to do with inheritance rights. For instance, in a domestic partnership, the couple might choose to purchase property using the funds of one partner, but put the other partner’s name on the title. Upon the death of the title holding partner, the property will be transferred to the other party, since they paid consideration (i.e., supplied the money) for the property.
Thus, in the absence of a statute that grants property rights to domestic partners, a purchase money trust might be one way to help ensure that the other partner receives rights to the property in the event of a death.
Another reason to use a purchase money resulting trust is that one or both parties may experience certain tax advantages from the property. For instance, not having your name on the title can help keep your estate smaller, which may result in fewer estate taxes in the long run.
One of the things with purchase money trusts is that they might arise automatically from the sale transaction, without the use of a formal trust document. As a “resulting trust”, the trust arrangement arises simply due to the nature of the transaction, and according to state laws.
However there are certain instances where a purchase money trust will not automatically result from a sale. These may include:
- State law prohibits a resulting trust from being created
- The party that paid the purchase price clearly indicates (usually in writing) that they do not wish for a purchase money trust to arise
- The purchase money transfer is made in order to complete an illegal objective
Thus, the legal analysis can sometimes get very complicated when it comes to a dispute over a purchase money resulting trust. In most cases, it’s necessary to hire a lawyer if there’s a dispute over a purchase money trust, especially if the transfer involved a very valuable property item, or if it involved large amounts of monetary funds.
As with any issue in trusts and estates, it may be necessary to hire an estate lawyer for assistance. The laws governing purchase money resulting trusts can be very different from state to state (in fact, some states don’t allow them). Thus, you may need to hire a lawyer near you if you have any questions regarding the sale of property, and its connection with trusts laws. Your attorney can help explain your rights under the law, and can represent you during a lawsuit if needed.