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What is a Constructive Trust?

Constructive trusts are a form of equitable relief wherein the court creates a trust 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 incurred due to abuses of trust funds. 

A constructive trust is a type of implied trust. Normally, a trust is created by a settlor for the purpose of transferring property to a trustee, who will then distribute the assets to beneficiaries. However, in an implied trust, the trust is not formally created by a settlor but rather is imposed by a court based on the facts and circumstances surrounding the trust matters. 

As an equitable remedy, constructive trusts may not be available when the plaintiff has previously filed for monetary damages. 

In what Situations are Constructive Trusts Enforced?

Constructive trusts are most commonly imposed in situations where the trustee has abused their responsibilities when administering trust assets. Other situations where a constructive trust may be enforced include:

  • Unjust enrichment: The defendant would be receive an unfair advantage if the constructive trust is not imposed
  • Interference: The defendant or another party has interfered with trust matters
  • Secret trusts: If part or all of the trust agreement was not disclosed to all of the parties, a constructive trust may be imposed to reestablish the parties’ rights
  • Issues with trust formation: If there were defects regarding the trust’s creation, the court may issue a constructive trust to cure the defects. Defects may be found if the trust contained mistakes in the documents, or if it was created under situations involving undue influence, duress, fraud, or coercion.  

Also, constructive trusts may be imposed on a plaintiff, though this is fairly rare. For example, the trustee may have initiated improvements on the trust property. In this case the court may require the settlor to reimburse the trustee for the improvements, so long as they were made in a reasonable manner.

What Types of Relief can be obtained through a Constructive Trust?

The actions required by a constructive trust depend largely on what type of offense was committed. For example, if the trustee abused their financial duties, the constructive trust may require the trustee to make reimbursements. 

Or, if the trustee is holding property title in an unlawful manner, the constructive trust may order them to transfer the title to its rightful owner. If the trustee completely abandoned their role, the constructive trust may appoint a new trustee and assign them new duties. Other parties besides the trustee may be subject to constructive trusts, such as persons who interfere in trust matters. 

In other words, as an equitable remedy, a judge can tailor a constructive trust in a manner that best fits the type of transgression involved. In this sense, a constructive trust is sometimes not seen as a trust in the full legal meaning of the word. A traditional trust grants the trustee several powers of administration over a set period of time. In contrast, constructive trusts are seen as temporary, passive arrangements in which the trustee’s duties correspond to the offense they may have committed.

Are there any Defenses to Constructive Trusts?

Since constructive trusts are equitable remedies, all defenses available against equitable relief may apply. Some of these defenses include:

  • Laches: The constructive trusts should not be granted because the plaintiff unreasonably delayed in filing. The delay must result in harm or loss to the defendant
  • Unclean hands: The plaintiff engaged in a similar type of wrongdoing as the defendant. This would disqualify them from obtaining a constructive trust
  • Unconscionable agreement: A constructive trust will be denied if the trust was unconscionable at the time of its formation (i.e., requiring the defendant to act illegally or unreasonably).

Thus, although constructive trusts are issued by a court, there may be several defenses available. Consult with an attorney for more information on the various types of equitable defenses. 

Do I need a Lawyer for Constructive Trust issues?

Constructive trusts are only available under certain circumstances under state laws. If you have established a trust and need equitable relief, a trusts lawyer can help you file your request for a constructive trust. Or, if a constructive trust has been filed against you, an experienced attorney will assist in drafting arguments in your defense. Trust laws vary by state, so be sure to contact an attorney if you are unsure of your state’s laws. 

Photo of page author Ken LaMance

, LegalMatch Law Library Managing Editor and Attorney at Law

Last Modified: 01-10-2013 03:22 PM PST

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