A resulting trust arises when a settlor conveys property to a trustee, but the trust either does not succeed or the beneficial interest is not entirely allocated. In these situations, the trust property “returns” to the settlor, indicating that the trustee holds the property on trust for the settlor or their estate. This represents a form of automatic resulting trust, where the trust is created by legal operation due to the failure of a stated trust.

It differs from express trusts, which the transferor explicitly creates. The presumption of resulting trust can be rebutted if evidence shows the transferor intended the recipient to have full ownership. Additionally, the presumption of advancement applies in certain relationships (e.g., between spouses or parents and children) where transfers are typically seen as gifts. Resulting trusts help resolve discrepancies between legal title and the parties’ intentions in property transactions.

In Bosanac v Commissioner of Taxation [2022] HCA 34, the High Court rejected reliance on the traditional presumptions of resulting trust and advancement in determining ownership of matrimonial property, instead focusing on inferring the parties’ objective intentions from the facts. Ms Bosanac had purchased the matrimonial home solely in her name using joint loans, and the High Court found, based on the couple’s asset arrangements and conduct, that she was intended to be the sole beneficial owner. The Court criticised the Full Federal Court for misapplying the facts. It emphasised that the presumptions are now weak and outdated and should only be applied when the evidence leaves the parties’ intentions genuinely unclear.

Background

The recent death of Gail Thelen (the deceased) sparked a series of significant legal developments, culminating in several Supreme Court decisions, with the potential for more.

Gainer Associates Pty Ltd (Gainer) was the corporate trustee of the Werner Thelen Family Trust (the Trust), but the original trust deed had been lost. The only remaining evidence of the Trust’s existence was a document referencing its creation in 1982, naming Narelle Mayes, Werner Thelen’s assistant, as the settlor.

Resulting Trust

Gainer applied for judicial advice under s 63 of the Trustee Act 1925 (NSW) in Application by Gainer Associates Pty Ltd [2024] NSWSC 1437 (Kunc J) concerning the Trust.

The Trust deed for the Trust established for the late Werner Thelen and the deceased (his wife) was lost, leading to uncertainties about additional beneficiaries.

Kunc J found that Gainer Associates Pty Ltd held the trust assets on the resulting Trust (from the Latin word resultare, which means to bounce back) for Werner Thelen’s (the deceased’s husband) estate. The Court’s findings show that Gainer holds the Trust’s assets on resulting trust for Werner’s estate. However, Werner’s estate has otherwise been fully administered, and its executor (Mr John Lakos, Werner’s solicitor) has since died.

Given that circumstance and the fact that the deceased was the sole beneficiary of Werner’s estate, the Court determined that Gainer is justified in paying its proper expenses out of the Trust assets and then paying the balance directly to the deceased’s estate by its interim administrator, NSW Trustee and Guardian (NSWTG).

SMSF

In Gainer Associates Pty Limited [2024], NSWSC 1138 (Rees J) considered the deceased’s self-managed superannuation fund (SMSF), which the deceased had been managing independently and housed valuable assets amounting to $7 million. The deceased established a binding death benefit nomination (BDBN), directing her death benefit to her legal personal representative (LPR), which in this case was her estate. Unfortunately, despite having her solicitor as a witness, the nomination did not meet the trustee requirements and was ultimately deemed non-binding.

In response, NSWTG was appointed interim administrator of the deceased’s estate. As NSWTG replaced the deceased as the sole shareholder of the corporate trustee, it decided not to act as the SMSF’s trustee. As the deceased was the only director, NSWTG faced limitations in taking that role.

In light of this, the Court appointed a liquidator to manage the corporate trustee, inadvertently breaching s17a (3) of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act). Section 17a states that the deceased member’s LPR must serve as the trustee’s director, and such a violation could categorise the superannuation fund as non-complying, putting its concessional tax benefits at risk.

Additionally, the situation was complicated by the potential for conflict with s17a(2)(d) of the SIS Act, as compensation for a director under the liquidator’s direction could create further issues, given the Trust’s stipulations on trustee payment. Despite these challenges, the trustee and NSWTG communicated with the Commissioner of Taxation regarding the breaches and secured an agreement not to issue a non-compliance notice.

This is an approach considered in Williams v Williams [2023] QSC 90 concerning the validity of a BDBN made by the trustee of a self-managed superannuation fund. Although the BDBN was signed per the fund’s trust deed, it was not communicated to co-trustee Paul Williams, which was required for validity. The court found that giving notice to only one trustee contradicted the trust deed’s provisions, leading to the conclusion that the BDBN was invalid.

Meanwhile, the deceased’s de facto partner, Steve Bone, claimed he was the deceased’s sole dependent and entitled to the SMSF death benefit. In parallel, NSWTG made its claim as LPR of the deceased estate. The trustee proposed a distribution plan allocating one-third of the death benefit to Bone and two-thirds to NSWTG. Bone’s disagreement with this plan led the trustee to seek judicial guidance In the matter of Gainer Associates Pty Limited [2024] NSWSC 1138. Despite Bone’s objections, the Court ultimately approved the proposed payout structure.

In reviewing the trustee’s actions, the Court noted that the governing legislation and established case law do not inherently require prioritisation of a dependent over the estate. The ultimate decision is contingent upon the specific context faced by the trustee and the provisions laid out in the trust deed.

Bone argued that receiving part of the death benefit would relieve him and the trustee from incurring income tax. At the same time, he contended that if NSWTG received any sum, it would create tax liabilities for amounts benefiting other estate beneficiaries. He estimated this potential tax burden to be around $500,000. While the Court acknowledged this point, it determined that it was not sufficiently compelling for the trustee to relinquish the plan to divide the death benefit between Bone and the estate, even in light of potential tax implications.

The Court also highlighted that considering the reasonable steps taken by the trustee to manage compliance issues stemming from compensating the director, justifying the decision to pay the liquidator from the fund.

Key Legal Reasoning

Gainer Associates Pty Limited underscores the critical importance of preserving trust deeds. Without them, a trust may be deemed invalid, leading to unintended estate outcomes and possible tax consequences. It’s a stark reminder of the need for meticulous record-keeping in estate planning.

 Petith v New South Wales Trustee & Guardian; Bone v New South Wales Trustee & Guardian [2024] NSWSC 1503 (Pike J), concerning the validity of the deceased’s Wills, having created several legal documents throughout her life: a Will in April 2021, another in December 2019, a codicil in May 2019, a Will in June 2018, and another in October 2014. The Court examined the validity of all but the oldest Will. Notably, the total value of the deceased estate exceeded $18 million, with her primary asset (her home) valued at $12 million. 

The Wills followed a consistent structure: they provided specific gifts, established a testamentary trust, and directed that the remaining estate (after the trust vested ) be distributed to various charities. The main changes across the codicil, the 2019 Will, and the 2021 Will were the increasing benefits to Steven Bone—first a $1 million legacy, then one-third of the income from the testamentary trust, and finally, a portable life estate in the home.

From early 2020, the deceased showed poor results in several cognitive assessments, including the Mini-Cog and Montreal Cognitive Assessments. However, the Court noted that these tests are primarily screening tools and, while they can indicate memory issues, they do not definitively establish the presence or severity of cognitive impairment (at [363]).

The Court was critical of the solicitor who prepared the 2021 Will, finding significant shortcomings. He failed to keep detailed notes of his steps to assess the deceased’s testamentary capacity. He appeared to consider the issue only on 15 April 2021, when instructions were given—not when the Will was signed on 20 April. His notes did not properly engage with the Banks v Goodfellow criteria, and although he acknowledged a thorough assessment was necessary, none was undertaken. He also did not consult a medical practitioner. At best, the solicitor merely read the new provisions to Gail—an approach that the courts have consistently disapproved of (at [371]).

The Court found that significant shortcomings in the solicitor’s conduct—combined with his inability to give further evidence due to his death—made it “difficult, if not impossible”, to be confident that he correctly assessed the deceased’s testamentary capacity when making the 2021 Will. There was minimal supporting evidence of the deceased’s capacity at the relevant time and substantial evidence casting doubt on it (at [372]).

No persuasive or probative evidence demonstrated that the deceased had testamentary capacity when she gave instructions for or signed the 2021 Will. On the related question of whether she had knowledge and approval of the Will’s contents, the Court noted the deceased was seriously ill, depressed, and affected by long-term alcohol use. The changes to the deceased’s Will were primarily driven by Bone, who stood to benefit significantly. He was present at the Will’s execution—just as he had improperly been during the 2019 Will’s signing. Notably, there was no evidence that the deceased read the 2021 Will (at [392]). The Court was not satisfied the deceased understood or approved its terms.

The situation differed from the 2019 Will, which the deceased had carefully read which was admitted to probate in solemn form.

Costs

Concerning costs, the Court addressed the parties’ conduct in the proceedings. In Petith v New South Wales Trustee and Guardian; Bone v New South Wales Trustee and Guardian [2024] NSWSC 1503, the deceased’s brother, Paul Petith, and Bone had each supported the Will most favourable to themselves—Bone, for example, propounded the 2021 Will, but was unsuccessful in that claim. The subsequent issue was who should bear the costs.

In Petith v NSW Trustee and Guardian; Bone v NSW Trustee and Guardian (No 2) [2024] NSWSC 1662, the Court confirmed that under rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW), costs generally follow the event—even in probate litigation (at [25]–[26]).

However, two exceptions are recognised:

(1) where the testator is the cause of the litigation, or

(2) where the circumstances justify an inquiry into the will’s validity (at [27]).

Concerning Petith’s failed claim of testamentary undue influence, the Court referred to authority stating that unsuccessful claims of undue influence or fraud usually attract adverse costs orders (at [28]). However, such a party may be spared if there were reasonable grounds for the allegation (at [29]).

The Court found that neither Bone nor Petith acted unreasonably or improperly in bringing their claims or conducting the proceedings. As a result, their legal costs were ordered c to be paid from the estate on the usual (party/party) basis.

The post  Resulting Trust from the Latin “resultare,” meaning “to spring back” or “to revert.” appeared first on heirs & successes.