To understand a Constructive Trust, we must first understand that a constructive trust is not a trust, in the typical sense. Typically a trust is an estate-planning tool into which the grantor has titled their assets, and an appointed trustee has duties of administration enduring for a substantial period of time. A Constructive Trust is not that; it is generally the result of litigation over misused assets or assets that have been absconded with. In a constructive trust the defendant breaches a duty owed to the plaintiff. The most common such breach is a breach of fiduciary duty. A Constructive Trust is a passive, temporary arrangement, in which the trustee’s sole duty is to transfer the title and possession to the beneficiary.
A Constructive Trust is a temporary, equitable remedy that is imposed by a court to benefit a party that has been wrongfully deprived of its rights due to either a person obtaining or holding legal right to property that they should not possess.
How did the person “obtaining or holding legal right to property that they should not possess” come to possess the property in the first place? There are a number of ways. Some of the ways a person can obtain or hold legal right to property that they should not possess include property obtained by:
- Breach of trust
- Breach of duty (by executor) in dealing directly with the beneficiary
- Fraudulent misrepresentation
- Gift (by Will, Trust, or Intestacy, based upon misrepresentation, fraud, concealment, a broken promise, disloyalty, or breach of trust)
- Undue influence
The plaintiff (or “aggrieved party”) typically is afforded a choice between a Constructive Trust or another legal remedy, oftentimes simply the recovery of the assets which were absconded with. The plaintiff is able to select one legal remedy or the other; they are not entitled both types of relief. When a Constructive Trust is assigned, it is done so as one form of legal remedy.
From a legal standpoint, a Constructive Trust, must rule over specifically-named property; it can’t be hypothetical in nature, based upon speculative “property,” but, rather the specific property must be named. A Constructive Trust does not apply in cases of breach of contract where no actual ownership of property is involved. Due to the very unique constructs and applications of a Constructive Trust, many debate whether a Constructive Trust is, in fact, a trust at all.
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