A constructive trust is a type of trust that is created by the operation of law, rather than by the express intent of the parties involved. It arises when one person (the trustee) holds property for the benefit of another person (the beneficiary), but there is no formal trust agreement between them.
A constructive trust can arise in a variety of situations. For example, if someone has obtained property through fraud, or has acquired property that rightfully belongs to someone else, a constructive trust may be imposed to require that person to hold the property for the true owner.
Another example of when a constructive trust may arise is in cases where a person has made a promise to hold property for another person, but then fails to do so. In this case, a constructive trust may be imposed to ensure that the property is held for the intended beneficiary.
In order to establish a constructive trust, the following elements must generally be present:
- The trustee must have obtained the property through some form of wrongdoing or breach of trust.
- The beneficiary must have a valid claim to the property, either because they are the rightful owner or because the trustee has promised to hold the property for them.
- There must be evidence to support the existence of the trust, such as written or verbal agreements, or other conduct that suggests the parties intended to create a trust relationship.
Once a constructive trust has been established, the trustee is required to hold the property for the benefit of the beneficiary, and may be required to take steps to transfer the property to the beneficiary or to pay the beneficiary the value of the property.
You can learn more about this topic and relevant case law with our Equity and Trusts notes.