Trusts Arising as a Matter of Law

Question 1

Resulting Trusts - Definition

Answer 1

• involve reversionary interests + are based on presumed intent of settlor
• arise by implication from settlor’s conduct

Question 2

Constructive Trusts - Definition

Answer 2

• used to prevent unjust enrichment
• arise either when there’s no valid express declaration of trust or, frequently, when no trust was even intended

Question 3

Types of Resulting Trusts

Answer 3

• purchase money resulting trusts
• resulting trusts arising on failure of an express trust
• resulting trusts arising from an incomplete disposition of trust assets

Question 4

Beneficiaries of Resulting Trust

Answer 4

• settlor= beneficiary of a resulting trust
  -> settlors successors in interest (heirs or beneficiaries in will) if settlor deceased

Question 5

Resulting Trust on Failure of Express Trust

Answer 5

• arises where settlor has conveyed property to trustee under an express trust and
  1) trust is void or unenforceable OR
  2) beneficiary is dead or can’t be located

-may also apply on failure of charitable trust where cy pres inapplicable
- express trust terminates + settlor becomes beneficiary of resulting trust

Question 6

Failure of Express Trust - Circumstances Where Resulting Trust Not Implied

Answer 6

1) trust instrument specifically or implicitly provides for disposition of trust property when trust has failed or been completed
2) settlor was given consideration for their original transfer in trust
3) settlor created trust for an illegal purpose OR
4) cy pres is applicable in cases of charitable trusts

Question 7

Resulting Trust Implied from Excess Corpus

Answer 7

• arises when trust purpose is fully satisfied but some trust property remains

Question 8

Purchase Money Resulting Trusts

Answer 8

• presumed whenever X (“beneficiary”) furnishes consideration for acquisition of real or personal property but, w/ X’s consent, title is taken in the name of Y (“trustee”)

Question 9

PMRT - Consideration Reqs

Answer 9

• must be for purchase of the property
• form immaterial
• must be supplied at or before time Y takes title

Question 10

PMRT - Burden of Proof

Answer 10

• burden on party claiming to be beneficiary
• need to prove by clear + convincing ev they supplied the consideration
• once X proves they supplied consideration, resulting trust is presumed -> Y can rebut by showing no trust intended

Question 11

PMRT Exceptions

Answer 11

• no trust presumption where the parties are closely related (presume gift instead)
• unlawful purpose -> trust can’t be implied
• transferee obtained title wrongfully -> no resulting trust

Question 12

Pro Rata Resulting Trusts

Answer 12

• where X supplies only part of the consideration, resulting trust in their favor is only for a pro rata portion of the property

Question 13

Constructive Trust - Basic Principles

Answer 13

• flexible equitable remedy to prevent unjust enrichment resulting from wrongful conduct (fraud, undue influence, breach of fiduciary duty)
• equity turns holder of legal title into trustee when they may not in good conscience retain the beneficial interest in the property
• constructive trustee’s only duty is to convey the property to the person who would’ve owned it but for the wrongful conduct

Question 14

Requirements for Constructive Trust

Answer 14

• must be requested as a remedy in court action (not automatic)
• pl must be able to identify particular property as trust res
  -> mere proof def guilty of wrongdoing against pl + def has assets that could be used to satisfy pl’s claim not sufficient for constructive trust

Question 15

Constructive Trust Arising from Theft or Conversion

Answer 15

• if Y steals property from X, title remains in X, no need to imply trust
• But if Y uses the property to acquire other items, Y takes title to the items + holds them in constructive trust for X

Question 16

Constructive Trust Arising from Fraud, Duress, Etc

Answer 16

• where Y acquires property from X by fraud, duress, etc, Y holds property in constructive trust for X’s benefit
• if property conveyed to a third party who isn’t a BFP, third party can be declared a constructive trustee
• if Y takes property under forged or fraudulent will, Y holds it in constructive trust for rightful inheritor (even if Y is innocent)

Question 17

Constructive Trust Arising from Breach of Fiduciary Duty

Answer 17

• fiduciary’s duty forbids them from taking title to property belonging to beneficiary + from seizing for themselves an opportunity to acquire property that comes to them in their capacity as fiduciary
• if fiduciary violates this duty, courts may impose a constructive trust in favor of the person to whom they owe the duty

Question 18

Constructive Trust Arising from Homicide

Answer 18

• in states w/o slayer statute, if Y kills X + is convicted of murder or manslaughter, Y holds property acquired from X by will or intestacy as constructive trustee in favor of whomever would’ve taken the property had Y predeceased X

Question 19

Constructive Trust Arising from Breach of Promise

Answer 19

• general rule is that mere breach of promise does NOT raise constructive trust

Question 20

Constructive Trust + Breach of Promise - Exceptions

Answer 20

Constructive trust will be imposed in following cases:
- fraudulent promise (promisor never intended to keep it)
- breach of promise by one in a confidential relationship
-> ex: attorney-client, doctor patient, business partners, family, friendships
- breach of promise by decedent’s devisee or heir to hold property for benefit of a third person
- breach of promise by decedent to devise property to one rendering services in reliance thereon (no constructive trust here if damages adequate)
- breach of promise to debtor by buyer at foreclosure sale to hold property for debtor, causing debtor to forgo bidding at the sale

Question 21

Obligation of Trustee of Constructive or Resulting Trusts

Answer 21

• passive trusts -> once court has declared such a trust to exist, trustee’s sole duty is to convey legal title to beneficiary
• trustee must also account for profits taken from property or fair rental value of trustee’s use of it from time of occurrences raising the implied trust
• no duty on the trustee to invest trust property

Question 22

Application of Equitable Principles

Answer 22

• actions to impose constructive or resulting trusts are in equity -> most equitable principles are fully applicable
• rule that “an adequate remedy at law” bars equitable relief is NOT applicable - except to breach of an oral promise to make a will, or to hold property purchased at a foreclosure sale for benefit of promisee