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Establishing a beneficial interest in property.
An express trust is generally the most common way a beneficial interest in a property will be evident. An express trust involves the legal owner (the trustee) signing a trust deed or written agreement acknowledging the beneficial interest. This deed defines the shares of the beneficial interest of the property and may set out terms for the sale of the property and the sharing of the proceeds of sale. As it relates to property, the trust must be in writing and signed and witnessed to be legally binding.
For instance, a father could sign a declaration of trust to say that he holds the property for his son. In doing this, the father would hold legal ownership of the property and the son, as the beneficiary, would hold a beneficial interest.
In order for an express trust to be valid, it requires the following legal formalities:
- There was an intention to create a trust (i.e., as in the example, intent of the father to hold the property on trust for his son);
- Clear definition of the subject matter of the trust (i.e., confirming that the property and no other assets form part of the trust);
- Certainty of the person to benefit from the trust (i.e., the son).
A resulting trust arises when the law presumes that a beneficial interest exists. There are two types of resulting trust. The first is through a financial contribution to the purchase price of the property. A resulting trust is a reflection of this contribution.
For example, a mother may pay 50% of the purchase price of a property registered in her daughter’s name. This contribution to the purchase price of the property would entitle the mother to a 50% beneficial interest in the property.
The second type of resulting trust is where someone has given away a property but failed to do so fully or properly, which means that the ownership of the reverts back to the person who attempted to give it away in the first place.
This could occur if the owner of a property held in an express trust to allow a beneficiary to occupy the property and then the beneficiary dies without any provision for anyone else to benefit from the property itself. This can also happen when someone attempts to create an express trust over the property but the legal formalities are not followed properly.
A constructive trust will arise when the court assumes that an individual has a beneficial interest in a property, despite not contributing to the purchase price.
For example, if an individual moves in with their partner and contributes toward the mortgage, they would then have an entitlement to a beneficial interest as it would be unfair to deny them a beneficial interest. This would also extend to financing renovations that would add value to the property at the expense of the person paying.
Can you transfer a beneficial interest in property?
It is important to keep written records of all financial contributions towards a property as it can be complicated to prove these at a later date.