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Invesco Tax & Estate team | January 16, 2020

Resulting Trusts & Joint Accounts

One way of classifying trusts is to divide them into express trusts and trusts arising by operation of law. An express trust is created with the settlor’s intention – for example, when a parent creates a trust for a child to provide ongoing financial support into the child’s adulthood. The intention can be clearly expressed by the settlor or implied by his or her words and conduct, although the latter is a question of fact and may require sufficient evidence to prove the intention. On the other hand, a trust arising by operation of law is not established with intention, but is found by a court to exist even if the settlor did not intend to create it.

A resulting trust is one type of trust arising by operation of law. It is a common law concept, and is found by a court in certain situations where property should go back to the settlor. Essentially, in these situations, the person who holds legal title to a property may not be the actual beneficial owner of that property, but merely a trustee since he or she is holding the property on a resulting trust for another person (i.e., the settlor). Resulting trusts can be either automatic resulting trusts or presumed resulting trusts.

As a refresher, there are three parties in a trust arrangement:

  • The settlor transfers property to another person to be held in trust
  • The trustee holds legal title to the property in trust for the benefit of other persons
  • The beneficiary benefits from the property held in trust

Automatic resulting trusts

One situation in which an automatic resulting trust may arise is when an intended trust was not created successfully, meaning that one or more of the “three certainties” to create a trust was not met. For example, consider the situation where a purported settlor describes the beneficiaries who should benefit from the property in trust as “my friends” and subsequently transfers the property to the alleged trustee. In this case, the trust may not be valid and the alleged trustee may be deemed to hold the property in an automatic resulting trust for the settlor, since the beneficiaries (the “friends”) cannot be clearly defined or identified.

The three certainties required for the creation of a valid trust are:

  • Certainty of intention
  • Certainty of subject matter
  • Certainty of objects

Another situation where an automatic resulting trust could arise is when a settlor fails to dispose of his or her entire interest in the property. For instance, if a settlor transfers property to a trustee to provide lifetime benefits for a beneficiary but does not indicate what would happen to the remainder interest in the property upon the death of that lifetime beneficiary, the remainder interest that has not been disposed of by the settlor would be held on resulting trust by the trustee for the settlor (or the settlor’s estate if the settlor is deceased).

Note that in the case of an automatic resulting trust, the trust arises even if the settlor does not wish the property to “result” back to him or her.

Presumed resulting trusts

Presumed resulting trusts may arise when there is a mismatch between the person who funds the purchase of a property and the person who takes the legal title on that property. As an example, suppose A provides all the funds to purchase shares of XYZ Inc., but the title of the shares is registered in B’s name only, or jointly between A and B. In either scenario, the presumption is that A does not intend to gift the funds or the shares to B, and therefore B is presumed to hold the shares under his or her name on resulting trust for A. Alternatively, suppose A and B each provide 50% of the funds to purchase shares of XYZ Inc.; however, the title is held in B’s name only.

Similarly, it is presumed that A does not intend to gift his 50% contribution to B and, as a result, B is holding 50% of the shares on resulting trust for A.

The second situation in which a presumed resulting trust may arise is on a voluntary transfer of property from one individual to another without consideration. In these situations, it is also presumed that the transferor does not intend to gift the property to the transferee; therefore, the transferee holds the property on resulting trust for the transferor.

It is important to note that the presumption of resulting trust can be rebutted. If the person who takes the title on the property or to whom the property was transferred can prove with sufficient evidence that a gift was intended, the presumption may be rebutted. Consequently, this person would be the true beneficial owner of that property. Furthermore, the presumption of resulting trust does not apply in certain situations such as a loan or an agency arrangement.

Presumption of advancement

Presumption of advancement is a common law concept that is opposite to the presumption of resulting trust. The word “advancement” generally refers to an early transfer or distribution of property that would otherwise happen upon death. Under the presumption of advancement,

it is presumed that a gift is intended.

Historically, this presumption arose when property was transferred from a husband to a wife or from a father to his child. Today, there are usually two scenarios where presumption of advancement would apply instead of presumption of resulting trust. Note that provincial legislations dictate the application of the presumptions; therefore, the rules may differ from one province to another.

In most provinces, presumption of advancement applies to property held between spouses under joint tenants with right of survivorship (JTWROS) or in joint bank accounts. In other words, spouses are presumed to share legal and beneficial interest in the above-mentioned properties. The other situation where presumption of advancement would apply is when property is transferred from a parent (or an individual taking on a parent’s functions and responsibilities) to a minor child. It is important to note that a transfer from a parent to an adult child is generally subject to the presumption of resulting trust, not the presumption of advancement.

Presumption of advancement may also be rebutted by proving that a trust was intended.

Presumption of resulting trust and joint accounts

There are two types of joint ownership in common law: JTWROS and tenants in common (TIC). JTWROS involves two or more owners of property where each owner has undivided and identical interest in the property. Upon the death of one owner, his or her share is automatically passed on equally to the surviving owner(s) under the right of survivorship. For more information on joint ownership, please contact us to obtain our Tax & Estate InfoPage “Joint accounts.”

It is not uncommon for an elderly parent to add an adult child as a joint accountholder on his or her own financial account, typically to make account administration more convenient and/or to avoid probate. From an estate planning perspective, how would the presumption of resulting trust affect this type of joint arrangement?

Consider the following example. Mariam had three adult children: Ken, Joyce and Richard. She added Ken, her eldest son, as a joint accountholder on her non-registered account, which was registered under JTWROS. Mariam contributed 100% of the assets to the joint account and kept the funds for her own use during her lifetime. Mariam later passed away without mentioning this joint account in her will or in any other documents. Ken wants to transfer the account to his own name under the “right of survivorship” provision. Joyce and Richard argue that Ken should return the joint account assets to the estate, under which Joyce and Richard are beneficiaries. From Joyce and Richard’s perspective, Mariam only added Ken as a joint accountholder because Ken was capable of helping Mariam manage her financial affairs, not because she wanted to gift the account to Ken upon her death.

Under the presumption of resulting trust, Ken may be presumed to hold the assets in the joint account in trust for Mariam’s estate (it would be a resulting trust for Mariam during her lifetime), unless the presumption can be rebutted. If Ken can provide evidence that Mariam intended to gift the asset to him upon her death, the presumption of resulting trust may be rebutted and he may be able to keep the assets for himself.

Whether the presumption of resulting trust is rebutted would depend on the particular facts in each case, including the evidence that can be provided to support the claim. It is therefore important, for estate planning purposes, to make one’s intention clear on how one’s property should be treated and distributed upon death. One option to add clarity is to document the intention in a declaration of trust, sometimes referred to as a “side document,” which typically needs to be drafted with a lawyer.

Seek expert opinions when necessary

Trusts can be complicated. Information in this article has been simplified to highlight only some aspects of resulting trusts. You may wish to consult a lawyer and other professionals as needed for a complete review of your client’s specific situation.

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The information provided is general in nature and may not be relied upon nor considered to be the rendering of tax, legal, accounting or professional advice. Readers should consult with their own accountants, lawyers and/or other professionals for advice on their specific circumstances before taking any action. The information contained herein is from sources believed to be reliable, but accuracy cannot be guaranteed.