Purchase Money Resulting Trusts in Texas
Most trusts in Texas are drafted by attorneys as written documents. These written or express trusts detail the wishes of the settlor establishing the trust for the benefit of a beneficiary, and name a trustee to manage the trust in accordance with the settlor’s wishes. A resulting trust is a type of trust that is implied rather than expressly written. The terms, then, are based on the implied or presumed intent of the settlor rather than on any expressed intent evident in a trust document. A resulting trust can arise in one of two situations: (a) a purchase money resulting trust, or (b) a resulting trust upon failure or termination of an express trust. We will discuss the first instance, a purchase money resulting trust, in this article.
Creation of a Purchase Money Resulting Trust in Texas
Payment for real property in Texas is called purchase money. When one person buys land with purchase money supplied from another person and takes the deed in his own name, a trust results in favor of the person whose money was used to buy the land. If the money-supplier and the buyer whose name is on the deed are not related, the presumption is that a gift was not intended. Under the implied resulting trust, the money-supplier is the equitable owner of the land and the purchaser is considered a trustee holding the property for the benefit of the person who paid the purchase money. This means that the person who holds legal title to the real property is considered to be a resulting trustee for the benefit of the other person who provided the actual consideration for the property.
The Texas Trust Code does not apply to resulting trusts. Thus, the Statute of Frauds requiring that trusts involving interests in land to be in writing does not apply to resulting trusts. Because a resulting trust is not created by written trust documents, parol or oral evidence is admissible in court to show the circumstances giving rise to creating a resulting trust. If the intent of the parties was for a gift or loan of the property, that evidence can be presented in court to rebut the presumption of the purchase money resulting trust.
Purchase Money Resulting Trusts Are Not Favored by Texas Courts
As a precaution, Texas courts are suspicious of purchase money resulting trusts. The courts regard purchase money resulting trusts as possible instruments for depriving a person of his property by fraud and perjury. Texas courts will require one who claims the benefit of a purchase money resulting trust to prove his case by “clear and convincing” evidence and trace his or her interest and consideration given for the transfer.
Example of a Purchase Money Resulting Trust
Let’s say that Adam Scott pays $500,000 for a house in Cedar Park. His friend, Ben Crane, puts the house title in his name. Since Scott and Crane are not related but are just friends, there is a presumption that Scott did not intend to make a gift to Crane but had some other reason for allowing the transaction to be deeded this way. The presumption is that Crane holds a purchase money resulting trust for Scott. As is his right, Scott can require that Crane reconvey the property to him.
Sheehan Law, PLLC | Your Austin, TX Real Estate Experts
As you can see, the rules regarding purchase money resulting trusts can be complex, and you may need to seek the counsel of knowledgeable real estate attorneys who can help you navigate the intricacies involved. To schedule a consultation with a real estate attorney at Sheehan Law, contact us today by calling (512) 640-0588 or by filling out our convenient online contact form.