What are Constructive Trusts?
Last updated on January 25th, 2023
What are Constructive Trusts and What Do You Need Them For?
A constructive trust agreement, or simply constructive trust, is a passive type of arrangement where a person holds property as its nominal owner for the benefit of another party. The property can be real estate, a car, money, a painting, or any other property with value.
A constructive trust is usually implied into a situation so that the person holding the property does not benefit unjustly from the property’s beneficiaries. If no formal Trust Deed exists, an implied trust should be constructed between the parties.
Unconscionability is the key requirement for ordering constructive trust. It requires that the act done be against the norms of society, is contrary to a good conscience, involving more than just unfairness.
Why is constructive trust important?
Courts of equity adopt a constructive trust to make persons accountable in circumstances where it would be inequitable for party to escape accountability. Accountability applies to both accountability for profits gained or losses incurred and for interests in a property.
What are the liabilities imposed by constructive trusts?
Constructive trusts refer to two forms of liabilities:
- A declaration that a property is subject to a trust in favour of a person to secure a remedy attached to the said property (proprietary remedy) for the disadvantaged person.
- A declaration that someone is personally liable for gains and losses as if that person were a trustee without requiring the defendant to hold property in trust for the plaintiff.
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When will a court intervene and impose constructive trust?
A court generally imposes constructive trust in the following circumstances:
- When joint relationships end without ascribable blame
- Where parties have consolidated their resources
- Where parties work together for a joint purpose
- Mutual wills
- Where there was a common intention that the property is held for a specific purpose or according to joint contributions
- Where a person unconscionably denies another person’s contributions
What is the nature of constructive trusts?
Constructive trusts are created to stop the assertion or retention of beneficial ownership to the extent that it would become contrary to equity.
A constructive trust may be put into effect from:
- the date of a judicial decision
- the time the relationship broke down
- any other time as determined by the court
What is a common intention constructive trust?
A common intention constructive trust is created to carry out a promise or a gift. To establish the existence of constructive trust, the following elements have to be demonstrated:
- there was a common intention between the legal owner of the property and the beneficiary about the beneficiary’s beneficial ownership of the said property
- this common intention is to be concluded as factual from the conduct or words of the parties
- the beneficiary must be able to show that the legal owner has acted to their detriment on the basis of the common intention as to the beneficial ownership of the said property
- the beneficiary has committed fraud before the legal owner can assert that the beneficiary did not have a beneficial interest in their property
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