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
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.