Property Law Update - When parents buy a house for their child, can a resulting trust arise?

Commercial Law Property Law
Gc 0017
By

In the current housing market, it is nigh on impossible for young adults to buy their first homes without assistance. Increasingly, parents with means are helping their children to make those acquisitions. Some parents are even buying property when their children are young and transferring title at the appropriate time. 

But what happens when the parents want to retain or claim some equitable interest in that property? Specifically, can parents buy property, transfer it to their children, and have their children hold that property on resulting trust for them?

As a general proposition, if a purchaser buys property and voluntarily directs the transfer of the property into the name of another person, equity presumes that the owner holds that property on resulting trust for the purchaser.[1] This ‘presumption of resulting trust’ rests on a presumed intention having arisen at the time of the transaction.[2]

However, where a parent buys a property and transfers it to a child, or otherwise provides purchase funds to that child, equity does not presume that there was an intention to create a resulting trust. Instead, equity presumes that any purchase or contribution was intended to be a gift by way of advancement.[3] This ‘presumption of advancement’ prevails over the presumption of resulting trust with the effect that the legal and equitable estates remain where they lie.[4]

It makes no difference to the presumption of advancement that the child has independent means.[5] Similarly, it makes no difference if the child was an adult at the time the property was acquired.[6]

Where the presumption of advancement arises, the onus falls to the parent to displace it.[7] It can only be rebutted with evidence of the purchaser’s intention at the time of the transfer.[8] Subsequent acts and declarations of the parent are not evidence to support the claim to a trust because they are self-serving.[9] Such acts and declarations can only be used against the party asserting the equitable interest.[10]

In Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353, the High Court said at 365-6:

The presumption can be rebutted or qualified by evidence which manifests an intention to the contrary. Apart from admissions the only evidence that is relevant and admissible comprises the acts and declarations of the parties before or at the time of the purchase (in this case before or at the time of the acquisition of the shares by allotment) or so immediately thereafter as to constitute a part of the transaction… Subsequent statements or acts by the donor could only be evidence not for but against him so far as they were admissions that the plaintiffs were the beneficial owners of the shares.


In Wilkins v Wilkins [2007] VSC 100, Kaye J said at [15]:

…evidence of subsequent declarations as to intention by the donor, unconnected in time with the purchase of the property, is inadmissible if it is adduced to prove the truth of those declarations.

The property rights ascertained at the time of acquisition cannot be altered by later events unless they involve an enforceable agreement or conveyance.[11]

In certain situations, it will be close to impossible for a parent to rebut the presumption of advancement. Those situations classically arise where there is evidence of an intention to gift the property (including a gift that is conditional) or where the purchase monies were provided as a loan.[12] Whether or not the loan has been repaid in full or at all is immaterial.[13]

Also inconsistent with the presumption of resulting trust is where a parent transfers a property to his or her child as a means of minimising or circumventing tax obligations. The reason why there can be no resulting trust in favour of the parent is fairly self-evident: the parent’s objective cannot be achieved without vesting both the legal and beneficial interest in the transferred property in the child.[14]

In Yard v Yardoo Pty Ltd [2007] VSCA 35, a father transferred properties to Yardoo Pty Ltd, a company of which he, his wife, his son and his daughter-in-law were shareholders. The father claimed that the company held the properties on resulting trust for him. The trial judge had dismissed that claim. The father appealed. In dismissing the appeal, Justice Nettle (Buchanan and Ashley JJA agreeing) observed that the object of the transfers to the company was “plainly to avoid death duty. But, as a matter of law, the purpose of the transfers was to vest the legal and beneficial interest in the transferred properties to Yardoo Pty Ltd.”[15] His Honour went on to hold at [74]:

The transfers were intended to and did vest the full beneficial interest in Yardoo Pty Ltd. Despite the motivation of avoiding death duty which lay behind that intention… there is no room for a resulting trust where what has been achieved is what was intended.

In short, if you are buying a property that you intend to transfer to your child, or otherwise are providing funds to your child for the purchase of a property, but want the property held on resulting trust for you, you should document that matter in clear terms at the time of acquisition. If, some time later, you claim that the property is held on resulting trust for you, be aware that you carry the burden of proving the relevant intention at the relevant time.




[1] Napier v Public Trustee (WA) (1980) 32 ALR 153.

[2] DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431 at 463-464; Buffrey v Buffrey [2006] NSWSC 1349 (Buffrey) at [14].

[3] Nelson v Nelson (1995) 184 CLR 538 (Nelson) at 548-9, 576, 585-6 and 601.

[4] Martin v Martin (1959) 110 CLR 297 (Martin) at 303-4; Calverley v Green (1984) 155 CLR 242 (Calverley v Green) at 264-5, 267; Brown v Brown (1993) 31 NSWLR 582 (Brown) at 589-590.

[5] Nelson; Callaghan v Callaghan (1995) 64 SASR 396 at 405; Smith v Smith [2007] NTSC 31 at [29].

[6] Nelson at 548-9, 576, 585-6 and 601; Brown; Sellers v Siemianowski [2008] NSWSC 538; Sleboda v Sleboda [2008] NSWCA 122; Dearing v Dearing [2009] NSWSC 1394 at [32].

[7] Vadisanis v Vadisanis [2014] FamCAFC 97 at [42]-[43]; Calverley v Green at 252, 262, 269-70; Martin at 304.

[8] Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353 (Charles Marshall) at 364-365; Calverley v Green at 251-2, 262, 269; Martin at 251, 305; cf. Brown at 591.

[9] Shephard v Cartwright (1955) AC 431 (Shephard v Cartwright) at 445-6; Charles Marshall at 363-364; Kawada v Kawada [2012] FamCa 273 (Kawada) at [39]; Buffrey at [14].

[10] Buffrey at [14]; Australian Building and Technical Solutions Pty Ltd v Boumelhem [2009] NSWSC 460 at [133]; Calverley v Green at 262; Shephard v Cartwright at 445.

[11] Calverley v Green at 262; Martin at 304; Shepherd v Doolan [2005] NSWSC 42 at [23].

[12] Russell v Scott (1936) 55 CLR 440; Public Trustee v Gray-Masters [1977] VR 154; Calverley v Green at 246; Brown.

[13] Yardoo v Yardoo Pty Ltd [2007] VSCA 35 (Yardoo) at [75]-[76] per Nettle JA (Buchanan and Ashley JJA agreeing); Buffrey at [14]; Kawada at [40].

[14] Martin at 305.

[15] Yardoo at [69].


Gc 0017
By

Gabi Crafti practises in commercial litigation, including insurance law, building and construction law, trade practices and corporate insolvency.

Share on