Legal Tip 106: Resulting Trusts

Discussion in 'Legal Issues' started by Terry_w, 3rd Dec, 2015.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Where A provides money for a property purchased in the name of B it will be presumed that B holds the property in trust for A. This is known as a “resulting trust”. It is an implied trust because equity presumes there was an intention to create a trust. This is a rebuttable assumption which can be rebutted by evidence – such as a loan agreement between A and B etc.


    This has important implications in the area of asset protection.

    For example
    A buys a property from Mr X and directs Mr X transfer the title into B’s name, it will be presumed that spouse B holds the property on trust for A.

    Another example
    Dr Tom wants to ‘own’ property in a discretionary trust for asset protection reasons. Tom is in a high risk area of work – he could be sued. So Tom goes out and negotiates on a property signs a contract as 'Dr Tom and/or nominee', pays the deposit and then nominates the trustee company as owner. Tom has just ruined all the ‘asset protection’ he almost achieved as it could be presumed that the trustee company owns the property as trustee for Tom.


    And this doesn't just apply to real property such as land and houses, it can apply to all sorts of property including bank accounts, including joint accounts. It can apply to joint purchases of property where only 1 has provided the funds. However where husband and wife are involved it may be presumed that where funds came from just one of them it was by way of a gift of 50% to the other, but this is also a rebuttable presumption.

    How could Dr Tom avoided this problem above? Firstly not signing the contract himself, but have the trustee company sign (him as director). And secondly having a written loan agreement in place before the deposit money changes hands is also important to rebutt the presumption of resulting trust..
     
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  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    58 A freezing order is also sought against Mrs Huang under r 7.35(5). It relates only to the Mosman property. The Deputy Commissioner submitted that she has a reasonably arguable case that Mr Huang has a beneficial interest in the Mosman property on a resulting trust, where there is a proper basis to infer that Mr Huang contributed a significant part (in excess of $6 million) of the monies used by Mrs Huang to purchase the Mosman property. The basis for the argument is that the Mosman property was purchased unencumbered in the sum of $12,800,000. Yet Mrs Huang described her occupation as “housewife” and her declared annual income at the time of purchase was less than $100,000.

    59 Where a husband makes a purchase in the name of his wife, there is a presumption that a resulting trust arises in his favour: Calverley v Green (1984) 155 CLR 242 at 247 (Gibbs CJ). Where both husband and wife contribute to the purchase, then in the absence of evidence to the contrary it is presumed that they intended to be joint beneficial owners, regardless of whether the purchase is in their joint names or the name of one only. This is an application of the same principle: see Pettitt v Pettitt [1970] AC 777 at 815 (Lord Upjohn), cited with approval by Mason and Brennan JJ in Calverley at 259.

    60 Furthermore, in Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278 at [71] the High Court accepted the following proposition:

    Where a husband and wife purchase a matrimonial home, each contributing to the purchase price and title is taken in the name of one of them, it may be inferred that it was intended that each of the spouses should have a one-half interest in the property, regardless of the amounts contributed by them.

    From a recent case
    Deputy Commissioner of Taxation v Huang [2019] FCA 1537
    Deputy Commissioner of Taxation v Huang [2019] FCA 1537
     
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  3. JohnPropChat

    JohnPropChat Well-Known Member

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    How bad is this for the average investor without 6million to spare?

    Could the husband have gifted the money to the wife?
     
  4. Trainee

    Trainee Well-Known Member

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    This is more about the old idea of buying the ppor in one spouse’s name as asset protection for the other?

    ie just buying in one name doesnt automatically mean asset protection but may need additional documents confirming gift or loan?

    Clawback period?
     
  5. JohnPropChat

    JohnPropChat Well-Known Member

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    Not just asset protection, possible taxation issues because of resulting beneficial interest?
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Yes stamp duty free transfers as well as CGT free when going from a trustee to a beneficiary.
     
  7. JohnPropChat

    JohnPropChat Well-Known Member

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    But beneficiary has to pay CGT even though the low income spouse was supposed to capture that but couldn't because the spouse is considered a trustee.
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    An absolutely entitled beneficiary will be the one that pays CGT when sold, not the trustee.