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What is a Constructive Trust?

Estate Planners | Monday, January 17th, 2011

One type of trust that no one wants to be involved in is the constructive trust. The constructive trust is basically a legal concept that has been created by the courts against someone who – through wrongdoing, fraud, or other unconscionable act, obtains or holds legal rights to property that he or she is not entitled to keep or enjoy. A constructive trust is often used to prevent undue enrichment, and undue enrichment is present in almost all cases where a constructive trust has been imposed. Nonetheless, it is not a requirement that a court of law finds that the person whose property or assets is subjected to a constructive trust has acted wrongly. A constructive trust may be created after a finding of undue enrichment arises from other circumstances when the court so determines that a person does not have a right to retain particular property or assets.

Restores Assets and Property to Rightful Parties

Preventing undue enrichment or unlawful gain is the basis for the creation of a constructive trust. This usually happens when a person disposes of property of another person knowingly when the disposition is wrongful. In the event that the property becomes more valuable than the property that was used to acquire it, the profit that is made by the wrongdoer cannot be given to him, but to the person whose property was initially used in making the profit. In a nutshell, the constructive trust can be thought of as a trust that is created by the court to benefit a party that has been wrongfully deprived of its rights.

The following instances may cause a court to order that assets and/or property are placed in a constructive trust:

* A mistake, duress, or undue influence. Mistakes like conveying property to the wrong person or receiving property or being unjustly enriched due to being unduly influenced (by threat, violence, threats of violence and so on) can merit the creation of a constructive trust.

* Fraudulent misrepresentation or concealment. This might happen when someone pledges to use an asset for one purpose but fails to do so.

* Property obtained by murder. This is the case in instances where property is obtained by will or through intestacy when the decedent who originally owned the property or asset was intentionally and wrongfully killed by the heir or beneficiary.

* Gifts by will or via intestacy that are based on a broken promise. If a grantor believed that a beneficiary would perform a certain act as a condition of being given property or assets when the grantor dies, but the beneficiary fails to do so, a constructive trust may be ordered. This may be the case when a decedent was encouraged or persuaded to die without a will and was relying on an oral agreement with his heirs and beneficiaries to execute his wishes.

This is by no means an all-inclusive list. There is a broad range of reason and numerous acts that may qualify for the establishment of a constructive trust action.

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