Estate Planning Newsletter

Constructive Trusts

Trusts are sometimes classified by the intent, if any, of the settlor to create a trust. This article discusses the kind of trust for which the settlor's intent is irrelevant: the constructive trust.

Defined

When, to remedy an injustice, a trust is created by a court, the trust is known as a constructive trust. A constructive trust is a temporary trust. A constructive trust is a passive trust.

Reasons For Creation - Duress, Fraud, Mistake, or Undue Influence

A constructive trust may be created by a court where legal title to property has been unjustly taken by duress, fraud, mistake, or undue influence. Suppose, for example, that property is distributed under a will later found to have been made under undue influence. A court may order the remaining distributed property held in a constructive trust for the appropriate heirs or beneficiaries.

If person X illegally tricks person Y into transferring legal title to her property to person X, person X may have legal title to the property, but the property will, in justice, belong to person Y. As a remedy to person X's fraud and deceit, a court can order person X to safeguard person Y's property and return the property to person Y as soon as possible.

Reason For Creation - Statute of Frauds and Detrimental Reliance

A constructive trust may be created by a court where the Statute of Frauds, a law requiring certain contracts to be memorialized in writing, has been violated, but someone reasonably relied on the contract and thereby suffered a detriment. A court may order property held in a constructive trust for the person who reasonably relied on the contract.

Reason For Creation - Violation of Fiduciary Duties

A constructive trust may be created where a person takes property from a fiduciary and knows, or should have known, the fiduciary was violating his or her fiduciary duties. A court may order the property held in a construct trust for the person that the fiduciary was suppose to protect.

Not a Reason For Creation - Conversion or Theft

A construct trust cannot be created as a remedy for conversion or theft. Technically, a converter or thief does not acquire legal title to the property taken by conversion or theft. In such a case, the remedy is damages and/or restitution.