Why a paper trail is important in establishing a trust
The High Court was tasked with determining whether a significant sum of cash held in a deceased individual’s bank account was a personal asset of the estate to be distributed under the rules of intestacy or was instead held on a bare trust for a specific, unfulfilled family purpose.
Facts:
This case concerns the disputed beneficial ownership of funds held in the bank accounts of Terence David Morgan, who died without a will on 11 April 2022. Because Terence died intestate, his legal estate devolved to his two children, Miss Morgan-Seivwright and Cassius Morgan. However, his mother, Mrs. Morgan, and his sister, Miss Msomi, brought a claim against the estate administrators alleging that £30,000 of the money, which was held in a First Direct bank account, did not belong to Terence but was held by him on trust. They contended that this money was provided in cash specifically to fund a deposit for a new home where Mrs. Morgan would live.
The financial narrative shows that in October 2021, Terence deposited approximately £30,000 in cash into a joint Santander account before moving it into a sole First Direct account with the reference “house deposit”. Mrs. Morgan claimed that she had provided £20,000 of this from cash savings she kept at home, a claim supported by text messages sent just before the deposits, while Ms. Msomi, one of the deceased’s sisters, asserted that she had provided £10,000 from a bank account belonging to her minor daughter, Khaya, who had recently received a gift from a grandmother.
The defendants, representing Terence’s children, argued that the money comprised Terence’s personal savings. Alluding to his high salary at Network Rail, they argued that the claimants lacked the financial means to have provided such large sums of cash themselves. They also suggested that Terence had expressed a desire to stop the house-hunting process due to the high costs of stamp duty and the difficulty of securing a buy-to-let mortgage for a family member.
Decision:
While the High Court dismissed Mrs. Morgan’s claim for £20,000, it found in favour of Miss Msomi’s claim for a total of £9,800 due to the persuasive “paper trail”. The Court’s reasoning was based on a factual determination of beneficial ownership—distinguishing between who physically held the money and who actually “owned” it in the eyes of the law. Since the case involved an oral agreement within a family, the Judge looked at the “balance of probabilities” and the credibility of the witnesses’ financial histories.
The Judge applied a “common sense” test to the mother’s financial situation. He found it highly improbable that a person living on state benefits, who had historically struggled to pay a mortgage and required her son to buy her present home to prevent repossession, could have saved £20,000 in cash from small gifts. While Mrs. Morgan may have physically handed the cash to Terence, the Judge concluded that she was merely storing Terence’s own money for him. Moreover, as the money was Terence’s to begin with, no trust had been created in her favour.
Unlike Mrs. Morgan, Miss Msomi provided bank statements from her daughter Khaya’s account showing a large deposit from a grandmother, followed by specific cash withdrawals. These withdrawals closely matched the dates and amounts Terence deposited into his Santander account. The Court ruled that the money was delivered on the “common understanding” that it was not Terence’s to keep but rather was intended for the specific purpose of a house deposit. When he died without buying the house, the resulting ‘bare trust’ meant that the money had to be returned to its original provider.
Implications:
The case reaffirms that oral bare trusts are legally valid for personal property (including money). In a family context, there is no need for a formal deed or the specific word “trust” to create a legal obligation. If money is handed over for a specific purpose—such as a house deposit—then the receiver is not a “beneficiary” of that money, but rather a trustee. This necessarily protects the funds from being swallowed up by the rules of intestacy or a person’s will.
The case also highlights, through the differential treatment of the two plaintiffs, the burden of proof. It is insufficient to show that money was handed over – the claimant must actually prove they were the beneficial owner. As such, this ruling effectively “shrinks” the estate. Under the rules of intestacy, the children were entitled to everything. However, by proving that a trust existed for £9,800, that money is legally removed from the estate before distribution. For administrators, the implication is that they can be held personally liable if they distribute funds while being aware of a credible trust claim.