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Trusts • Trusts as a Matter of Law
TRUSTS#025
Legal Definition
When an express trust fails because the beneficiary is dead, equity creates a resulting trust in the settlor or, if the settlor is dead, the settlor's estate, and the court compels the resulting trustee to distribute the property to the settlor or the settlor's estate.
Plain English Explanation
A "resulting trust" is a trust that results from the failure or end of another trust. In other words, if a trust can no longer fulfill its intended purpose, but the trust still has money in it, the question becomes: "What do we do with this money now?" The answer is "Give it back to the person who created the trust, and if they aren't alive, give it to their estate." This method of returning property or money back to the original trust creator is called a resulting trust.
Hypothetical
Hypo 1: Bob has two children, Timmy and Junior. Bob is most proud of Timmy, so he decides to leave a majority of his wealth to Timmy via a trust. A few days after creating the trust, Timmy dies. Result: Though Bob created a valid trust for Timmy, the trust has now failed because it can no longer provide benefits to the beneficiary since the beneficiary is no longer alive to benefit. Thus, the funds left in Timmy's trust will be given back to Bob through a resulting trust and, if Bob is no longer alive, it will go back to his estate to be processed like any other property.
Hypo 2: Bob creates a trust naming his wife Amy as the beneficiary, with instructions to distribute $500,000 to Amy when Bob dies. Bob names his friend Sam as the trustee. After Bob dies, Amy also unexpectedly dies a few months later in a plane crash before the trust assets are distributed to her. Result: Since the beneficiary Amy died before receiving the trust assets, the trust fails. Because the settlor Bob is also deceased, the $500,000 would go to Bob's estate and be distributed according to his will or by intestacy laws.
Hypo 3: Bob's rich uncle promises in his will to leave $1 million to Bob in trust, with instructions to distribute the money when Bob turns 30. However, Bob dies in a car accident at age 25 before receiving any trust assets. Result: This rule only applies to express trusts actually created and funded during the settlor's lifetime. Since the uncle's trust was not created and funded before he died, it never legally came into existence at all. Therefore, the rule returning assets to the settlor would not apply.
Hypo 2: Bob creates a trust naming his wife Amy as the beneficiary, with instructions to distribute $500,000 to Amy when Bob dies. Bob names his friend Sam as the trustee. After Bob dies, Amy also unexpectedly dies a few months later in a plane crash before the trust assets are distributed to her. Result: Since the beneficiary Amy died before receiving the trust assets, the trust fails. Because the settlor Bob is also deceased, the $500,000 would go to Bob's estate and be distributed according to his will or by intestacy laws.
Hypo 3: Bob's rich uncle promises in his will to leave $1 million to Bob in trust, with instructions to distribute the money when Bob turns 30. However, Bob dies in a car accident at age 25 before receiving any trust assets. Result: This rule only applies to express trusts actually created and funded during the settlor's lifetime. Since the uncle's trust was not created and funded before he died, it never legally came into existence at all. Therefore, the rule returning assets to the settlor would not apply.
