Resulting and Constructive Trusts; Will Substitutes

Resulting Trusts

Trusts that involve reversionary interests and are based on the presumed intent of the settlor. There are three types: (1) purchase money resulting trusts; (2) resulting trusts arising on failure of an express trust; and (3) resulting trusts arising from an incomplete disposition of trust assets

Beneficiaries of Resulting Trusts

The settlor is the beneficiary of a resulting trust. If the settlor is deceased, the settlor’s successor in interest are the beneficiaries

Creation of Resulting trust arising from failure of express trust

A resulting trust arises where a settlor has conveyed property to a trustee under an express trust and (1) the trust is void or unenforceable or (2) the beneficiary is dead or cannot be located. This can also occur in a charitable trust where cy pres is not applicable.

Circumstances Not Giving Rise to Resulting Trust After Failure of Express Trust

A resulting trust will not be implied where: (1) the trust instrument specifically or implicitly provides for disposition of trust property when the trust has failed or been completed; (2) the settlor was given consideration for their original transfer in trust; (3) the settlor created the trust for an illegal purpose; or (4) cy pres is applicable to a charitable trust

Resulting Trust Implied from Excess Corpus

A resulting trust in favor of the settlor also arises when the trust purpose is fully satisfied and some trust property remains. There could be a resulting trust of part of the corpus even before the trust is terminated if it is clear that there is excess trust corpus

Purchase Money Resulting Trusts

A purchase money resulting trust is presumed whenever X (the beneficiary) furnishes consideration for the acquisition of real or personal property, but with X’s consent, title is taken in the name of Y. This occurs with the settlor/beneficiary of a PMRT and the trustee of a PMRT; a donor and a donee; and a creditor and a debtor

PMRT: Form of Consideration

The consideration paid by X must be for purchase of the property. Sums paid by X to make improvements on the property or to pay taxes on it do not give rise to a trust. The actual form of the consideration is immaterial

PMRT: Timing of Furnishment of Consideration

The consideration must be supplied at or before the time Y takes title

PMRT: Burden of Proof

The burden of proof is on X, the settlor/beneficiary, to prove by clear and convincing evidence that they supplied the consideration

PMRT: Rebuttable Presumption of Resulting Trust

Once X proves that they supplied consideration, a resulting trust is presumed, but Y can rebut by showing that no trust was intended (payment was a gift, loan, or satisfaction of debt). Recitals as to who paid consideration are not conclusive

PMRT: Actually a Loan

If X, the person providing the consideration, expects to be reimbursed, the relationship is a loan rather than a PMRT. In a PMRT, X expects to receive an interest in the property, not return of the consideration

PMRT Exceptions

No presumption of a trust: (1) when X and Y have a close personal relationship (parent, grandparent, spouse); (2) if X and Y take title for an illegal purpose (modern take is that the PMRT is still proper where X’s misconduct is slight compared to the unjust enrichment of Y if permitted to keep the property); and (3) where the transferee obtained title wrongfully, although a constructive trust may be imposed

PMRT Pro Rata Resulting Trust

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

Constructive Trust Basic Principles

Not really a trust but rather a flexible equitable remedy to prevent unjust enrichment resulting from wrongful conduct. Equity turns the holder of legal title into a trustee, whose only duty is to convey the property to the person who should own it. A constructive trust must be requested as a remedy

Constructive Trust Burden of Proof

The person seeking the remedy must prove the necessary facts by clear and convincing evidence

Constructive Trust Property Particularity

P must be able to identify particular property as the trust res. Mere proof of wrongdoing and assets that could be used to satisfy the claim is not sufficient

Constructive Trust Arising from Theft or Conversion

If Y steals property from X, title remains in X, and there is no need to imply a trust. But if Y uses X’s property to acquire other items, Y takes title to those items and holds them in constructive trust for X

Constructive Trust Arising from Fraud, Duress, etc.

Where Y acquires property from X by fraud, duress, mistake of fact, or breach of fiduciary duty owed to X, Y holds the property in a constructive trust for X’s benefit. If property is conveyed to a third party that is not a BFP, the third party can be declared a constructive trustee. If Y takes property under a forged or fraudulent will, Y holds it in constructive trust for its rightful inheritor, even if Y is innocent

Constructive Trust Arising from Homicide

In states with no slayer statute, courts will often impose a constructive trust for the same situation. Where the victim and killer held property in joint tenancy, the killer may be trustee of only a one-half interest and own the balance free of trust, or may hold the whole interest in constructive trust less the killer’s life estate in one-half.

Constructive Trust Arising from Breach of Promise General Rule

The general rule is that a mere breach of a promise will not raise a constructive trust. There is a growing trend to impose a constructive trust where A transfers real property to B on B’s oral promise to hold it for C, and the SoF bars enforcement

Exceptions to Constructive Trust and Promises

A constructive trust will be imposed: (1) for a fraudulent promise (promisor never intended to keep it); (2) a breach of promise by one in a confidential relationship; (3) a breach of promise by the decedent;’s devisee or heir to hold property for the benefit of a third party; (4) breach of promise by the decedent to devise property to one rendering services in reliance thereon (unless damages are adequate); and (5) a breach of promise to the debtor by the buyer at the foreclosure sale to hold the property for the debtor, causing the debtor to forgo bidding at the sale (unless damages are adequate)

Obligation of Trustee in Resulting or Constructive Trusts

Constructive and resulting trusts are passive trusts. Once the court has declared the trust to exist, the sole duty of the trustee is to convey legal title to the beneficiary. The trustee must also account for profits taken from the property or fair rental value of the trustee’s use of it from the time of the occurrences raising the implied trust. No duty to invest trust property

Constructive and Resulting Trusts: Equitable Principles

Most principles of equitable actions, such as the “unclean hands” doctrine and requiring the plaintiff to “do equity” will apply. However, the “adequate remedy at law” principle does not apply except to: (1) the breach of an oral promise to make a will; or (2) breach of an oral promise to hold property purchased at a foreclosure sale for the benefit of the promisee

Inter vivos trusts vs wills

The main test for distinguishing the two is whether the transfer creates some present gift, even if that gift is of a future interest subject to divestment

Determining Whether An Interest Passes (Inter Vivos Trusts)

The tendency is to uphold trusts even where the settlor has retained great rights and powers over the trust property. If the settlor retains a life estate and the power to revoke, the trust is generally upheld. Even if the settlor is the trustee, as well as the life tenant with power to revoke, most courts will uphold the trust where the settlor notified third parties or took some action to make their intent clear

Pour-Over Gift from Will to Revocable Trust

Under the Uniform Testamentary Additions to Trusts Act, a settlor can make gifts by will to a trust, even an amendable and revocable trust, established during their lifetime. The trust may remain unfunded during the settlor’s lifetime. The trust must be clearly identified from language in the will

Life Insurance Trusts

Despite the absence of a significant res beyond the contract rights to receive proceeds when the insured dies, prior to the settlor’s death inter vivos life insurance trusts are upheld

Totten Trust Bank Account

In a Totten trust, a bank account depositor declares himself trustee of the account for a person who is to receive the money in the account when the depositor dies. The depositor retains full control of the money during their life. A Totten trust is revocable by: (1) withdrawal of funds; and (2) any lifetime act manifesting an intent to revoke, typically by following the terms of the account contract. Creditors can access the funds, and the Totten trust terminates if the beneficiary predeceases the depositor

Uniform Transfers to Minors Act (UTMA)

Property may be transferred to a person as custodian for a minor. The custodian does not hold legal title to the custodial property; legal title is in the minor subject to the custodian’s statutory power. The custodian is a fiduciary subject to the prudent person standard.

Gift Causa Mortis: Delivery and Acceptance

Delivery may be accomplished by actual delivery (donee receives dominion and control over the subject matter) or constructive delivery (the donor surrenders the means to obtain possession and control to the donee.) Symbolic delivery, which is most commonly effectuated by delivering a written instrument that evidences ownership, is not sufficient to accomplish a gift of causa mortis in most states

Revocation of Gift Causa Mortis

A gift causa mortis is revoked in the following manner: (1) by an affirmative act indicating an intent to revest ownership in the donor; (2) by operation of law if the donor recovers from the condition that put the donor in fear of impending death; or (3) by operation of law if the donee predeceases the dnor

Gift Causa Mortis Creditor Claims

A gift causa mortis is subject to the claims of creditors of the donee’s estate