What is a Constructive Trust?

Author: Lorna Elliott

Trusts and other ‘equitable remedies’ are often misunderstood and are considered to be a complex area of the law. That said, there is a clear need for constructive trusts. A constructive trust is not a true ‘trust’ in the literal sense, which is where there are trustees who manage the trust on behalf of beneficiaries.

One Person Must Unjustly Benefit From Another Person's Act

A constructive trust is a passive, temporary type of arrangement after which the trustee has to pass the property over to the beneficiary. If a person has been wrongfully deprived of their rights by someone who has obtained a legal right to property which they should not have, this can amount to a constructive trust. In essence, if a person has acted to their detriment so that someone else unjustly benefits from that action, this may be a situation in which a constructive trust has been created.

Example of a Constructive Trust

The best way to explain this concept is by way of example. An unmarried couple, Rachel, lived in a house together for many years. The property was in Rachel’s sole name, as her partner Steve moved in with her. She was a dedicated career woman and despite having two children did not take more than a couple of weeks off after having each of the couple’s two children. Steve was a part-time photographer and as such had a low income, but was content to be the main carer of the children and used all his money for the benefit of the family.

The End of the Relationship

Each day, Steve did the school runs, ran and cleaned the household, went to all the children’s school events, cooked all the meals and generally supported his partner while her career went from strength to strength. One day, after Christmas, Rachel told him she was having an affair and wanted him to move out. Steve was heartbroken but moved out and went to go and see his solicitor immediately. He was advised to move back into the property, as he had equitable rights in the property, that Rachel held on trust for him.

What Steve Did

Things would get very complicated if Rachel then were to move her new boyfriend in, so although he didn’t feel comfortable moving back in, he did to preserve his rights and in order to continue to look after the children. Steve managed to get a job and began to earn a good salary. Eventually Rachel got so annoyed with having to share the home with him that she moved in with her new partner, and Steve bought her share of the home. All of the years that Steve had spent with Rachel, contributing to the family income and bringing up the children had created a constructive trust. While Steve’s name was not on the title deeds, he did have a claim to a proportion of the family home.

If the Case Had Gone to Court

Of course, if Rachel had refused to move out it may have been necessary for Steve to have taken the issue to court. Steve’s lawyer would have asked the court to recognise the existence of a constructive trust and order that Rachel paid him money to compensate him for his share of the ownership that he had in the family home.

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John 11 Jan 2016

My mother in law passed away and my wife is her only surviving child. My brother in law who had taken care of his and my wife's mothers financial holdings since 1965, died in an automobile accident. My wife's nephew was in business with his father as a financial adviser through a national firm. Five weeks after my wife's brothers death, the son(nephew) told his grandmother he would be unable to assist her unless she signed some papers for him giving him the ability to oversee her affairs. She was eighth grade educated and panicked at the thought of managing a very complex investment portfolio. The nephew (grandson) invited my mother in law to attend church services with he and his family and after church, and at the conclusion of the service she was approached by an atty who presented four documents to be signed. He had her sign a general POA, a financial POA, an advanced directive and a new will naming he and his sister as primary beneficiaries to her estate. My mother in laws wealth was gained from my wife's father who passed away when she was a minor. My wife's brother signed over his portion of his father's estate for the benefit of his mother and minor sister. My wife upon marriage to her first husband at age 18 signed over joint assets to her mother to enable her to not go through a lifestyle change. Her mother's will was established in 1987, and left everything to her two children to be equally divided, and all was to go to the remaining sibling in the event one predeceased the other. This will was among her brother's papers when he was killed. The nephew destroyed the original and presented the new will shortly after his father's death. My wife was unaware of the change until the reading of the will. Since she did not agree with the terms of the new will or it's legitimacy, he being executor and his sister removed all the things specifically listed in the will that was to go to the surviving daughter and has held them until she agrees to process the will under the new terms. The jewelry, silver, coin collections and other assets that were removed from the grandmothers home have a huge worth amount. The home she lived was left to her daughter in the original will, was converted to a life estate for her, and after a year she has not been able to reside there. The home when she passes ultimately will go to the two grandchildren fee simple. We have discovered that since this is considered a civil matter, no crime has been committed, or is chargeable, even though the estate has been liquidated into cash, she is disabled and on a very low fixed income. I am also disabled and we have exhausted savings and other assets to fight a fight apparently we will not win. Does this qualify as unjust enrichment and what remedy can we use to go back to court ? Please help!!

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