Constructive trusts (“CT”) are created to prevent unjust enrichment of a wrong-doer. Under California Civil Code §2223, “one who wrongfully detains a thing is the involuntary trustee thereof, for the benefit of the owner.” California Civil Code §2224 further provides that the person who gains something by “fraud, accident, mistake, undue influence, the violation of a trust, or other wrongful act” would be the involuntary trustee of the property to be held for the benefit of the person that has been wronged. If you are in need of trust attorneys give us a call toll free at 1-877-963-9543 to schedule a free consultation.
The wrong-doer is therefore the involuntary trustee with this type of trust. This is different than the other revocable or irrevocable trusts due to the involuntary nature of the trust. The theory behind a CT is that assets in the trust were gained by some sort of wrongdoing on the part of the involuntary trustee and justice demands that the wrong-doer not be able to keep that asset. CT’s do not require formalities to be observed in its creation unlike revocable or irrevocable trusts. Since a CT is an equitable remedy, the person that has been wronged may choose between the constructive trust or other relief, but cannot choose both. The person that is wronged cannot have their cake and eat it too. One example is if the wrong-doer steals $100,000 from someone to buy a house. Once the house was purchased the house has appreciated in value by $75,000. The person that was wronged can choose to either take the house or have the wrong-doer return the $100,000. Of course, if the house appreciated in value, it would be smarter to have the house be conveyed to them. If the house depreciated in value by the same amount it would probably be smarter to have the wrong-doer give back the $100,000.
Some CT’s may arise not by the wrong doing of another party, but maybe simply from ignorance or mistake. CT’s are highly litigated and there may be huge costs associated with constructive trusts. Since CT’s are an equitable remedy in nature, the alleged wrong-doer may raise all available defenses like unclean hands, laches, detrimental reliance, and undue hardship. The best way to avoid a CT is to do no wrong and make sure all agreements are in writing. The writing must be representative of both party’s terms. Call one of our trust lawyers today at 877-963-9543 to schedule a free consultation.
