Resulting Trusts

When a person’s trust document fails to pass the court’s test, it’s the job of the court to either cancel the trust completely and distribute the wealth or to form a resulting trust. It’s always the goal of the court to follow the wishes of the deceased person, so resulting trusts are a very common occurrence.

When a Resulting Trust May Be Necessary

The first, and most common way a resulting trust occurs is when a trustor attempts to create a living trust without drafting the proper documents or noting the trust in the will. In other words, a trustor may give property to another person with the express instructions to hold it and distribute it for the benefit of another. While this does meet the standard definition of a trust, it cannot be considered legitimate in the court because there are no written documents to verify the trustor’s intentions. So, under common law, the court would find that there is no express trust and instead give the property to the deceased person’s next of kin. However, modern judges will instead interpret the act in favor of the deceased person and establish a resulting trust. In order to solidify the resulting trust, the judge may require that an attorney draft the proper documents.

The second way a resulting trust occurs is when there was a drafted trust that did not leave enough instructions for full fund distribution. For instance, a trustor drafts a trust and funds it with $100,000 with instructions to pay his daughter $2,000 each month for the remainder of the trust’s life. While this does create an express trust, it’s missing a backup plan. Normally, an attorney will draft instructions into a trust that specify what will happen to the remainder of the money should the beneficiary die. In this case, those instructions were not given, leaving the trust to collect dust and pay no-one once the beneficiary dies. Instead, the court will infer the intent of the deceased person and determine who the remaining trust funds should be given to.

The final way a result trust occurs is when the trustor purchases property and places another person’s name on the title. The actions of the trustor are obvious, this property was intended for the beneficiary. However, there is no other official documentation that makes this clear. So, the court will fill in the intent and establish a resulting trust for the property

Case Studies: Resulting Trusts

Case Study 1: Lack of Proper Documentation

John orally instructs his friend Mike to hold his property and distribute it for the benefit of his niece, Sarah. However, John fails to create a written trust document or include it in his will. According to common law, the court would consider this arrangement invalid as there is no express trust. However, modern judges recognize John’s intent and establish a resulting trust to honor his wishes. The court may require the assistance of an attorney to draft the necessary documents to formalize the resulting trust.

Case Study 2: Insufficient Instructions for Fund Distribution

Mary creates a trust with $100,000 and specifies that her daughter, Emily, should receive monthly payments of $2,000 for the trust’s duration. However, the trust lacks instructions on what should happen to the remaining funds if Emily were to pass away. In this case, the court will infer Mary’s intent and determine the rightful recipient of the remaining trust funds.

Case Study 3: Property Ownership and Intent

Sarah purchases a property and includes her friend Alex’s name on the title. Although it’s evident that Sarah intended the property for Alex, there is no official documentation to confirm this intention. To clarify the intent and protect Alex’s rights, the court establishes a resulting trust for the property.

Getting Legal Help

Resulting trusts can only be created when there is enough evidence to warrant the inference that a trust was meant to exist. If there is no evidence of an actual existing trust, then the funds will most likely not pass the test and will instead be distributed with the rest of the estate. Estate planning law is very complex and should always be drafted and supervised by a qualified estate planning attorney. For assistance in drafting your living trusts, contact an estate planning attorney for a consultation.