A constructive trust is not actually a type of trust, but rather it is a form of equitable relief that is issued by a court in order to prevent a defendant from being unjustly enriched. Constructive trusts are also used as a means to restore any losses that a plaintiff may have suffered due to the defendant’s abuse of the trust funds.
Normally, a basic trust is created by an individual (i.e., the settlor) with the intent to transfer property to another party (i.e., the trustee), who will then be responsible for distributing its contents to a third party (i.e., the beneficiaries).
In a constructive or implied trust, however, the trust is not officially formed by the settlor. Instead, the trust is imposed by a court based on the facts and circumstances surrounding the trust matter.
For instance, if a defendant trustee improperly steals trust funds for their own personal benefit, then a court can create a constructive trust as a remedy to return what was stolen to the plaintiff (usually a beneficiary).
One final important thing to know about constructive trusts is that they may not be available as a remedy in cases where a plaintiff has previously filed for relief in the form of monetary damages.
In Which Situations are Constructive Trusts Enforced?
Constructive trusts are most commonly found in situations where a trustee has abused their fiduciary duty of administering trust assets. Other situations in which a constructive or implied trust may be enforced include:
- Secret trusts: If all or parts of the trust agreement were kept a secret from other relevant parties, then the court may impose a constructive trust to reestablish the rights of the affected parties.
- Interference: This can happen when a defendant or another party has somehow interfered with trust matters, which led to a negative result.
- Issues with trust formation: A court may issue a constructive trust to cure any defects that were caused by an improperly formed trust. For instance, a trust may be defective if the documents that created it contained mistakes, or if it was set-up under certain illegal conditions, such as duress, undue influence, fraud, or coercion.
- Unjust enrichment: As previously mentioned, constructive trusts are typically used in situations where the defendant would receive an unfair advantage if a court does not impose a constructive trust for relief.
In addition, a constructive or implied trust can also be enforced against a plaintiff, but this is a rare occurrence.
For example, suppose a trustee initiates improvements to be made on a trust property. In this case, a court may require the settlor to reimburse the trustee for those improvements, so long as they were done in a reasonable manner.
What Types of Relief Can You Get by Using a Constructive Trust?
The kind of actions that a person may have to take as the result of a constructive trust will largely depend on the type of offense that was committed. For instance, if a trustee abused their financial obligations to the trust, then they may be required to reimburse a constructive trust.
Another example is if the trustee is holding property title in an unlawful manner, then the constructive trust may order them to transfer title to its rightful owner.
Additionally, if the trustee has completely abandoned their role, then the constructive trust may appoint a new trustee and assign them new duties. Also, other parties may be subject to constructive trust remedies, such as persons who interfere with trust matters.
Basically, what all of the above examples demonstrate is that constructive trusts enable a judge to tailor its requirements in a way that is best suited for the type of offense that was committed. In other words, the court considers which actions would most likely fix the wrongdoings of the defendant. Then orders the defendant to do them through a constructive trust.
Lastly, unlike a standard trust, a constructive trust only exists temporarily and does not give a trustee any power over its administration. Instead, all constructive trust obligations will be based on the offense that the trustee or defendant has supposedly committed.
Are There any Defenses to Constructive Trusts?
Since a constructive trust is a type of equitable remedy, most of the defenses that can be raised against a claim for equitable relief will most likely apply. Some of those defenses may include:
- Laches: This defense can be raised against a plaintiff who reasonably delays in filing an action against a wrongdoer. This delay must have also resulted in harm or loss to the defendant. As such, the plaintiff should not be granted relief in the form of a constructive trust.
- Unclean hands: This is another defense that would bar a plaintiff from obtaining a constructive trust. Unclean hands can be argued in a case where the plaintiff engaged in a similar type of wrongdoing as the defendant.
- Unconscionable agreement: A constructive trust will be denied if the trust agreement itself was unconscionable at the time of its creation (e.g., if it required the defendant to act illegally or unreasonably).
As is evident from the above list, a defendant may be able to raise a defense against an award of a constructive trust despite the fact that they are issued by a court. For more information about the type of defenses that may apply to a specific matter, a person should consult an attorney for advice.
Do I Need to Hire a Lawyer for Constructive Trust Issues?
As discussed above, constructive trusts are generally only available under certain circumstances and where state laws allow. Thus, if you have any questions, concerns, or need assistance with a constructive trust, then you should consider contacting a local trust lawyer for further legal guidance.
An experienced trust lawyer can help you file your request for a constructive trust and provide representation in court if necessary. Alternatively, if a constructive trust action has been filed against you, then your lawyer can determine whether there are any defenses available that you can raise against the claim.
Finally, regardless of whether you are a defendant or plaintiff to a case, you should contact a lawyer for issues involving constructive trusts. Matters can often get quite complicated and trust laws vary widely from state to state. Hiring a lawyer can help you resolve your constructive trust issues in a straightforward and less complicated manner.