I have recently encountered many issues stemming from whether assets are held by one person in trust for another. Below is a discussion of the various trusts recognized in California.
First, there are two basic categories of trusts: express trusts and implied trusts. An express trust exists when there is “an explicit declaration of trust followed by an actual conveyance or transfer of property to the trustee.” Bainbridge v. Stoner, 16 Cal. 2d 423, 428 (1940) (citations omitted).
Implied trusts can be either constructive trusts or resulting trusts. Implied trusts “need not be evidenced by writing or even by an express declaration.” Calistoga Civic Club v. City of Calistoga, 143 Cal. App. 3d 111, 118 (1983). A constructive trust (one type of implied trust) requires “the existence of a res (property or some interest in property), the plaintiff’s right to that res, and the defendant’s gain of the res by fraud, accident, mistake, undue influence, the violation of a trust or other wrongful act.” Kraus v. Willow Park Pub. Golf Course, 73 Cal. App. 3d 354, 373 (1977); see also, Cal. Civ. Code §2224. A resulting trust (the other type of implied trust) is a trust implied in law that can arise when property is conveyed to one person and the consideration for the transfer is paid by another or when there is a failed express trust. Rowland v. Clark, 91 Cal. App. 2d 880, 882-83, 26 P.2d 59 (1949); Restatement 3d Trusts § 7, comments b and c (2003). “One who claims a resulting trust in land must establish clearly, convincingly and unambiguously, the precise amount or proportion of the consideration furnished by him” otherwise “the presumption of ownership arising from the legal title is not overcome.” Lloyds Bank California v. Wells Fargo Bank, 187 Cal. App. 3d 1038, 1044-45 (1986); see also Gomez v. Cecena, 15 Cal. 2d 363, 366-67 (1940) (“one who claims a resulting trust in property has the burden of proving the facts establishing his [or her] beneficial interest by clear and convincing evidence.”).
For example, when a transfer of property is made to one person and the purchase price is paid by or for another, courts have imposed a resulting trust in favor of the paying person. See, e.g., McNeil v. Dow, 89 Cal. App. 2d 370, 372 (1948); Emden v. Verdi, 124 Cal. App. 2d 555, 558 (1954). A resulting trust occurs when the person claiming the benefit of the trust pays the consideration as part of the original transaction of purchase. See Neusted v. Skernswell, 69 Cal. App. 2d 361, 364 (1945). Payment of the consideration at the time of the conveyance is distinguished from a mere subsequent contribution of funds by the claimant to enable the grantee to complete installment payments or to make improvements on property after the grantee has already acquired title. In the latter situation no resulting trust arises. Lloyds Bank of California 187 Cal. App. 3d at 1044-45. A resulting trust can also occur “when, because of some invalidity such as lack of a definite purpose or legality, an express trust fails.” Bainbridge, 16 Cal. 2d at 428. In the case of a resulting trust which is the product of a failed express trust as to real property, the parties must ensure there is a writing to satisfy the statute of frauds.
If the issue of whether assets are held in trust arises in litigation, parties should clearly state which trust theory is applicable and be able to provide evidence supporting the requisite elements for the particular type of trust that party asserts exists.