A trust is a tool used in estate planning which creates a relationship at the direction of an individual known as a trustor or settlor. A trust directs one or more individuals, called trustees, to hold the property of the trustor subject to certain duties and to use and protect that property for the benefit of other individuals, known as beneficiaries.
Trusts may be created for a wide variety of reasons, including for:
- The financial benefit of the individual who created the trust;
- Financial support for their surviving spouse or minor children; or
- For a charitable purpose.
The process used to create a trust is relatively simple. There are, however, several requirements that must be satisfied to create a valid trust, including:
- Intent: The trustor must have intended to create the trust at the time it was created;
- Trustee: There must be an individual who is placed in charge of managing the trust for the benefit of the beneficiary or beneficiaries and transferring the assets to the beneficiary or beneficiaries. If a specific individual is not designated, the court may appoint a trustee;
- Beneficiary: The trust must state who is to receive the assets of the trust;
- Purpose: There must be a specific purpose for the trust which does not involve furthering illegal activity; and
- Assets: The trust is required to have assets, including money or property, in it. A trust cannot exist if there are no assets to put into the trust.
What is an Implied Trust?
An implied trust is a unique type of trust which is best understood by knowing what an express trust is. In express trusts, individuals called grantors provide real or personal property to trustees.
The trustees hold the legal title to the property, which is in the trust. The trustees manage the assets in the trust on behalf of one or more beneficiaries named in the trust. The beneficiary or beneficiaries have an equitable interest in the trust.
This means they have the right to use and enjoy the trust at some point. Certain actions must be taken to create a trust.
Generally, trust documents must be in writing and signed by the grantor. Trust documents must provide information on the assets and who will receive them.
The trust must name the specific beneficiaries and what they are supposed to receive. In order for a trust to be valid, the grantor must have the intent to create it, as noted above.
In some cases, the intent to transfer assets is present, but one of these other requirements is not satisfied. In these instances, an express trust is not created.
In the interest of equity or the principles of fairness, a court may determine that an implied trust was created. Implied trusts are trusts the law deems to have been formed by an implication.
If the grantor, by their words or conduct, intended to create a trust, the court may create an implied trust in favor of the beneficiaries.
What are the Kinds of Implied Trusts?
There are two forms of implied trusts: constructive and resulting. In each type of implied trust, the trust is passive, meaning the trustee has no actual duties to perform.
With a resulting trust, the trust property is ordered to be returned to the grantor because the trust was incomplete for some reason. With a constructive trust, the beneficiaries hold both legal and equitable title and may ask the court to have trust assets transferred to them.
What is a Resulting Trust?
Courts will impose a resulting trust under certain conditions. Courts will impose resulting trusts when express trusts, or trusts in which the trustee holds and administers assets for the beneficiaries, fail.
Reasons an express trust may fail include a failure to identify a beneficiary or the grantor completely disposing of the assets in the express trust. Incompletely disposed means that a grantor named a beneficiary for at least some portion of the trust assets.
A resulting trust is issued primarily in cases where the beneficiaries have not been properly named in the trust document or where the beneficiaries have passed away before the property is distributed. In a resulting trust, the court corrects that failure by ordering the property to be returned to the grantor.
What is a Constructive Trust?
Constructive trusts are imposed by courts as an equitable remedy as a matter of fairness. The court will impose the trust to ensure that the individual to whom the grantor intended to give the trust property receives it.
A trustee has no actual duties. The only obligation of the trustee is to transfer the title and possession to the intended beneficiary or beneficiaries.
An intended beneficiary is an individual who would have received the assets in the trust were it not for the wrongful conduct of another individual. A court will issue a constructive trust to ensure that wrongful conduct does not confer a benefit that may unjustly enrich an individual at the expense of the intended beneficiary.
Unjust enrichment may occur if a trustee has stolen trust assets that belonged to a beneficiary. Unjust enrichment may also occur when a beneficiary, a trustee, or another individual coerces the grantor into awarding assets the grantor intended to provide to another individual.
This type of coercion is called exerting undue influence. If the court finds there was sufficient evidence of wrongdoing, it may impose a constructive trust and order that the intended beneficiary be given the trust assets.
Are There any Defenses to Implied Trusts?
An implied trust is a type of equitable remedy. When the court orders an equitable remedy, it will consider any evidence of wrongdoing on the part of both the plaintiff and the defendant.
For example, if the plaintiff has also committed a wrongdoing, such as by exerting their own undue influence on the grantor, the court may order that the plaintiff will recover nothing. The legal principle which is the basis for these determinations is called the doctrine of unclean hands.
An individual whose hands are also dirty should not recover something from another individual with dirty hands, so to speak. An equitable remedy may also apply when a prospective plaintiff takes too much time to file their lawsuit.
If the court determines that the plaintiff has waited too long to bring their claim, it may deny the imposing of a constructive trust based on the legal doctrine of laches. Laches occurs when, due to the plaintiff taking too much time to file their lawsuit, the defendant is unfairly prejudiced.
When this occurs, fairness concerns dictate that a plaintiff should not be awarded the remedy of a constructive trust.
Do I Need the Help of a Lawyer With an Implied Trust Issue?
If you are seeking an implied trust or if an implied trust has been issued as a result of any alleged wrongdoing on your part, it may be helpful to consult with a trust lawyer. Trust laws can be complex, but an attorney can help answer any questions you might have about your situation.
Your trust lawyer can advise you of the laws of your state, your rights related to the trust, and how to proceed, as well as represent you when you appear in court.