Resulting and Constructive Trusts

Question 1

What are constructive and resulting trusts?

Answer 1

Trusts implied by law or imposed by courts

Question 2

What is the consequence of a resulting trust?

Answer 2

They involve reversionary interests and are based in the presumed intent of the settlor

Question 3

When is a constructive trust used?

Answer 3

To prevent unjust enrichment

Question 4

What are the three types of resulting trust?

Answer 4

(1) Purchase money resulting trusts
(2) Resulting trusts arising from the failure of an express trusts
(3) Resulting trusts arising from an incomplete disposition of trust assets

Question 5

What are purchase money resulting trusts?

Answer 5

A purchase money resulting trusts are presumed wherever the beneficiary furnishes consideration for the acquisition of real or personal property but a trustee takes title

Question 6

What are the consideration rules for purchase money resulting trusts?

Answer 6

Form is immaterial, but it must be supplied at or before the time the trustee takes title

Question 7

Who bears the burden of proof in establishing a purchase money resulting trust?

Answer 7

The burden is on the party claiming to be the trust beneficiary to prove by clear and convincing evidence that they supplied the consideration

Question 8

When is a purchase money resulting trust not presumed?

Answer 8

(1) Where there is a close personal relationship between the ostensible beneficiary and ostensible trustee, a gift is presumed rather than a trust (this is rebuttable and doesn’t apply where the beneficiary is an aunts/uncles, sibling, child, or grandchild).
(2) If title is taken for an illegal purpose (unless the beneficiary’s misconduct is slight compared to the unjust enrichment to Y)
(3) The transferee wrongfully obtained title

Question 9

What is a pro rata resulting trust?

Answer 9

Where the “beneficiary” provided only part of the consideration the resulting trust is in a pro rata portion of the property

Question 10

When does a resulting trust arise from the failure of an express trust?

Answer 10

Where a settlor has conveyed property to a trustee under an express trust and (1) it is void or unenforceable, or (2) the beneficiary is dead or unfindable. It will arise under the failure of a charitable trust if the cy pres doctrine is inapplicable. A resulting trust in favor of the settlor arises.

Question 11

When does a resulting trust not arise from the failure of an express trust?

Answer 11

(1) Where the trust instrument specifically or implicitly provides for disposition of trust property upon failure
(2) The settlor was given consideration for the original transfer in trust
(3) The settlor created the trust for an illegal purpose
(4) For a charitable trust, cy pres is applicable

Question 12

When does a resulting trust arise from an excess corpus?

Answer 12

A resulting trust arises in favor of the settlor where the trust purpose is fully satisfied and some trust property remains.

Question 13

What is a constructive trust?

Answer 13

Not really a trust but a flexible equitable remedy to prevent unjust enrichment resulting wrongful conduct like fraud, undue influence or breach of fiduciary duty

Question 14

What is a constructive trustee’s duty?

Answer 14

To convey the property to the person who would have owned it but for the wrongful conduct

Question 15

What proof is necessary to establish a constructive trust?

Answer 15

Clear and convincing evidence

Question 16

How does a constructive trust arise from theft or conversion?

Answer 16

When Y steals from X, but X retains title, no constructive trust is necessary. If Y sells the property and acquires other items, those are held in constructive trust for X.

Question 17

How does a constructive trust arise from fraud or duress?

Answer 17

Where Y acquires property from X by fraud, etc, Y holds it in constructive trust for X’s benefit. If Y conveys the property to a 3rd party, they may be declared a trustee if not a bona fide purchaser. If taken under a fraudulent will, it will be held in trust for the rightful inheritor.

Question 18

How does a constructive trust arise from breach of fiduciary duty?

Answer 18

A constructive trust imposed in favor of the person to whom they owe the duty.

Question 19

How does a constructive trust arise from homicide?

Answer 19

If Y kills X and is convicted of either murder or manslaughter, Y holds any property acquired from X by will or intestacy as trustee in favor of the person who would have inherited if Y had predeceased X

Question 20

How does a constructive trust arise from breach of promise?

Answer 20

As a general rule, the mere breach of a promise will not raise a constructive trust.

Exceptions: A constructive trust will be imposed where

(1) The promise was fraudulent (no intent to ever keep it)
(2) The breach was by one in a confidential relationship
(3) The breach of promise by a decedent’s devisee or heir to hold property for the benefit of a third person
(4) Breach of promise by a decedent to devise property to one rendering services in reliance if damages inadequate
(5) Breach of promise to a debtor by buyer at a foreclosure sale to hold property for the debtor, causing the buyer to forego bidding at the sale, if damages inadequate

Question 21

What are the obligations of constructive or resulting trustees?

Answer 21

These are passive trusts, so the only duty is to convey title to the beneficiary. The trustee must also accounts for profits from the time of the occurrences giving rise to the implied trust