Constructive Trust: Using Trusts to Remedy Estate Plans

Trust accounts are a common and useful estate planning tool. Trusts are accounts where a third party holds an asset for the specific use of a beneficiary. Typically, the beneficiary is only able to withdraw funds (or other property) from the trust account at certain time intervals or for a specific purpose. Will-writers use trust accounts to control the distribution and use of their estate assets. People commonly use trusts to hold high-value assets like land. The trustee maintains the trust and its contents. The beneficiary gets the proceeds upon sale of the asset. A constructive trust, which forms differently than a standard trust in estate planning, is another type of trust.

Constructive Trust

Regardless of the intent of the settlor (the person creates the trust), the law can impose a constructive trust. Like any other trust, a trustee holds property for the benefit of another person. Essentially, when someone owes another a legal obligation concerning property, the courts usually create a constructive trust. The law requires them to hold the property in trust for this person.Most trusts used in estate planing are express trusts, trusts created by the will-writer intentionally and explicitly.

Constructive trusts arise through application of the law in order to uphold equitable property interests. In such a trust, the rightful (title) owner keeps the title to the property, even though they have an obligation to share the benefits of the property with a beneficiary. A common example is when a parent disinherits their child. Usually, children are entitled to a portion of their parent’s estate under the Wills, Estates and Succession Act (WESA). The person who ultimately receives, for example, the parent’s home, might have a legal obligation to distribute benefit from the property to the child. In this instance, the court would impose a constructive trust, allowing the child to claim benefit from the property.

Remedial Constructive Trust

The courts can also impose a remedial constructive trust. This is similar to a constructive trust, and it provides a remedy to someone who has been wronged. Typically, the date of the wrongdoing is when a remedial constructive takes effect at law. Often times, it is only part of the full remedy the victim receives. Unjust enrichment often leads to the opening of a remedial constructive trust.

The courts order a remedial trust, which is the main difference between a constructive trust and a remedial constructive trust. The law imposes a constructive trust, but the courts do not directly or specifically order its creation to remedy a situation. A constructive trust is created when a person is lawfully entitled to a property, ensuring they receive their rightful benefit from the property. On the other hand, if a person successfully contests an issue before the courts, the courts might open a remedial trust be opened as part of the compensation package.

Unjust Enrichment and Remedy from the Courts

In the case of Haigh v. Kent (2013), the claimant argued that the defendant had been unjustly enriched by his (the defendant’s) contributions to the resort he had lived at for over 30 years. After the court considered the test for unjust enrichment, the claimant proved a valid claim for equitable benefit from the property – the defendant had unjustly gained at the claimant’s detriment. Instead of awarding a lump sum of money, the courts determined it was more equitable to give the claimant a portion of the resort.

Since joint ownership of the property would be unreasonable for the two, the courts opened a remedial constructive trust. The trust awards the claimant 25% of the resort if it sells. This way, the trust rewards the claimant for his services to the resort, but the defendant still retains ownership of the property.

Establishing Unjust Enrichment

For those who have fallen victim to unjust enrichment, remedial constructive trusts are often the solution the courts will provide. To quickly summarize, in order to have a successful unjust enrichment claim, you must prove that:

• There was an enrichment or benefit received by the defendant;
• The plaintiff suffered a loss related to the enrichment, and;
• There was no juristic reason for the enrichment.

After a successful unjust enrichment claim, the courts might order the creation of a remedial constructive trust as part of your remedy. If you feel you’ve been wronged and have a claim for a remedial constructive trust, contact an experienced estate lawyer today. We can help you to receive the assets that are rightfully yours whether that is through a remedial trust or not.

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