Implied trust

What is implied trust?

An implied trust is one of the characters or elements of trust law and refers to a trust that has not been expressly stated by the settlor/true owner. The implied trust will get the shape of an un-expressive and assumed intentions (that is inferred from the conduct, language, or relationships of the trustor’s), or is enforced by a court by looking at the nature of arrangement the parties have made shows the existence of an implied trust.

For example, if 'P' purchases property in the name of 'Q', there is a presumed intention that 'P' holds that property in trust for 'Q.'

X transfers his property to Z without any consideration. Also, there is no expressive declaration or intention established from his side that X wants to convey a beneficial interest in B. No trust is mentioned in such a situation as ‘a trust results from a transaction.’ Thus the above transaction would have been an express or implied trust had X transferred his property to Y so that B holds his property in trust for the benefit of X.

In English law, if a person buys a property in the name of his/her ‘spouse’ or ‘children’ it is assumed that he/she is intended to convey the beneficial interest in his/her favor, no matter if it is truly intended or not. But no such presumption exists in the Indian law. In India, such transactions are called ‘benami’ transactions i.e. transactions made without a name.

Classification of implied trust:

The implied trust is further classified into three kinds, namely

• Constructive,
• Resulting, and
• Statutory trusts

Constructive Trust: A constructive trust is created when a person instead of being a ‘trustee’ for the property holds the same for his/her personal benefit. In such cases, a fraud is not mandatory to prove the widespread presence of a constructive trust, mere conflicts of interests between the owner and the trustee are sufficient to prove. The constructive trust is a legal remedy to a party who fraudulently benefitting from the asset at the expense of the original beneficiary. This arises when the party has mistakenly, accidentally, or dishonestly obtained the title or possession of assets that belong to the beneficiary.

Typically, once the court recognizes the existence of constructive trust, it can order the corresponding party to return the assets and any money made from the assets to the beneficiary.

For Example:

A father has given property to his daughter for the welfare or benefit of the grandson, but the daughter has not sold the property for certain years because she cannot get an affordable price for it, and finally decided to retain the property for herself and rent it out for a profit.

Suppose if the grandson takes his mother to court, the court will conclude that the property and rental profit was being held in a constructive trust for the grandson even though this was not explicitly mentioned in the father’s original intent.

So constructive trusts are established to satisfy the demands of justice and prevent unjust enrichment and also to ensure that the actual beneficiaries are not deprived of assets intended for their benefit.

Resulting Trusts: The resulting trust arises when one party obtains an asset from the other without paying for it, and a court ascertains that the intent was not to transfer property but to hold the property for the benefit of the person transferring it to them. In case, if the court found out the existence of resulting trust, it will order to revert the property to the original transferred party.

Statutory Trusts: Statutory Trust is a Trust created by operation of law where the original property is held by trustees for sudden or eventual sale at their discretion.

Statutory trust can be further classified into

Simple trusts: In the case of a simple trust, a trustee is empowered with protecting the trust for the interest of the beneficiary but has no active role to perform for the same.

Special trusts: In case of a specified trust, whereas the trustee, has a specified role to play for protecting the interest of the beneficiary in the trust.

Executed trusts: In case, if the declaration is clearly stated, the trusts formed are known as executed trusts.

Executory trusts: In cases, where the testator does not establish his intention & leaves it to the discretion of the court to decide, the trusts formed through such transactions are known as executory trusts.

Benefits of an Implied trust

• Despite the fraudulent activities of the trustee, the property can be restored to the original beneficiary.
• Implied trust, without having the express trust agreement, proves the existence of the intended relationship between the parties.
• As the existence of the implied trust can be determined by the court, the beneficiary will have legal protection to the property, which is assigned to him by the settlor/true owner.
• The beneficiary himself can approach the court and get legal remedy in case of any misunderstanding or dispute between the trustee and beneficiary.
• The beneficiary has the right to get back all privileges, rents, and other profits risen from the property of the trustee. Similarly, he/she has the right to examine the accounts.

Checklist Requirements for Trustees of an Implied Trust

• The trustee should deal with the trust property with reasonable care and precaution.
• The trustee must maintain the proper accounts about the activities made through the property.
• To compensate for any losses which had occurred due to breach of trust on the part of the trustee
• In case, if the liability of trustees is co-joint, one can ask his co-trustee to compensate for the losses in cases of breach.
• The trustee is responsible for acting following the government orders where the property of the beneficiary has been forfeited to the government.

Implied Trust Registration process:

As there is no separate registration for implied trust, it can be registered as a general trust with the following procedures.

• The trust deed must disclose the name of the trust, trust address, the character of the trust (i.e charitable or religious), the settlor name, and two trustees of the trust as well as the property type, i.e., either movable or immovable property.

Documents required:

• Details of all trustees along with their address and PAN.
• Certified true copies of the registration certificate of the institute’s
• Photocopy of income tax registration certificate.
• Last 3 years audit report of balance sheet and income & expenditure.
• The original copy of the trust deed as proof of the creation of the Trust.

FAQs on Implied trust

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