Laura Abbott, Principal Associate in the Disputed Wills and Trusts team at Shoosmiths, explains the difference between a resulting trust and a constructive trust.

What is a trust?

A trust is a legal arrangement where one party (the trustee) owns title to an asset (money, property or possession) on behalf of and for the benefit of another party (the beneficiary). There are numerous types of trust which can be made during lifetime or on death (created by will), and these are expressly formed by the trustee.

However, trusts can also arise by operation of law and the two types of trust which arise in this way are:

• resulting trusts
• constructive trusts

What is a resulting trust?

A resulting trust arises where title to a property, or another asset such as a bank account, is held in the name of X but the true owner of all or part of it is Y due to the contribution that Y made to the purchase of it. In this case, X is the notional trustee and Y the beneficiary.

The presumption is of intention to create a trust over the asset. In other words, the contribution made by Y ‘results’ back to Y. The presumption of a resulting trust arises unless there is evidence of intention by Y to make a gift or loan to X. 

In the event of a dispute, usually resulting trusts are quite straightforward to establish because the financial trail can be evidenced, and the court will calculate the extent of Y’s interest in the asset by reference to the extent of the contribution.

Where money or property is advanced to a recipient for a specified purpose and on terms that it is not to be used for any other purpose, the recipient holds the money or property on resulting trust (known as a Quistclose trust) for the payer if the specified purpose cannot be achieved.

What is a constructive trust?

A constructive trust is a similar concept, but more complex, and arises in circumstances where it would not be conscionable for the legal title holder to a property or asset to deny the interest of another, as otherwise they would be unjustly enriched, or the other person would be unjustly deprived. 

It is based on the intentions of the parties which can either be express (for example, by a declaration of trust) or assumed or inferred through conduct. The burden is on the person seeking to show that the parties did intend their beneficial interests to be different from their legal interests, and in what way.

For example, if X owns a property in his sole name and Y contributes to the mortgage repayments or pays for substantial improvements to the property, the court may infer a common intention between the parties to share the property because Y has acted to their detriment in providing such substantial monetary contributions. This is a constructive trust. The court will deem that each party is entitled to a share in the property, the extent of which is what the court considers fair having regard to the whole course of dealing between them in relation to the property. 

Section 14 of the Trusts of Land and Appointment of Trustees Act 1996 gives the Court power to declare the nature or extent of a cohabitee's interest in a property. The court must have regard to the matters set out in section 15 of the Act which are:

(a)         the intentions of the person or persons (if any) who created the trust,

(b)         the purposes for which the property subject to the trust is held,

(c)          the welfare of any minor who occupies or might reasonably be expected to occupy any land subject to the trust as his home, and

(d)         the interests of any secured creditor of any beneficiary.

Case law

Most claims or disputes arise on a surviving owner’s death or in the event of relationship breakdown. The leading case law in relation to constructive trusts involves relationship breakdown in the cases of Stack v Dowden and Jones v Kernott. 

• In Stack v Dowden [2007] UKHL 17 an unmarried couple had lived together for many years. Each had contributed financially to the purchase of the property but there was no express declaration of trust. The starting point here in the case of the family home is not that of a resulting trust but that that equity follows law. Therefore, it is presumed that the beneficial shares are also jointly held and are consequently equal. A constructive trust argument ensued. The House of Lords inferred a common intention that the beneficial shares were unequal. This was based on the much higher financial contribution made by Miss Dowden and the unusual degree of separation between the parties' financial arrangements.
• In Jones v Kernott [2011] UKSC 53 the couple had separated and 13 years later Mr Kernott decided to seek repayment from Ms Jones for his perceived share of the property. She sought to argue she held a greater share by virtue of a constructive trust. It was originally held (and ultimately agreed by the Supreme Court after various stages of appeal) that Mr Kernott was entitled to just 10% of the property value because the property was no longer required to be the family home it was initially intended to be. In addition, Mr Kernott’s interest in the property was held to have ceased when he bought his own house during the time in which they were separated.

Constructive trusts also arise in situations where a person becomes the legal owner of an asset but is not entitled to it beneficially. For example, if they hold an asset by mistake or by reason of fraud, or in the context of a deceased person’s estate in the scenario of forfeiture or where there is a mutual will.

About the author

Laura Abbott is a Principal Associate in the in the Disputed Wills and Trusts team at Shoosmiths and is a member of the Society of Trust and Estate Practitioners (STEP).

See also

What is a mutual will?

What you need to know about promissory estoppel

What is a proprietary estoppel claim?

Find out more

Trusts of Land and Appointment of Trustees Act 1996 (Legislation)

Stack v Dowden [2007] UKHL 17 (BAILII)

Jones v Kernott [2011] UKSC 53 (Supreme Court)

Image: Getty Images

Publication date: 17 October 2022

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.