What Is a Constructive Trust?

A constructive trust is a legal remedy that courts in British Columbia use to address situations where one person holds property that should belong to someone else. Unlike an express trust, which is intentionally created, a constructive trust is imposed by the court to prevent unjust enrichment or wrongful gain. If you have been wrongfully deprived of property, a constructive trust may be the solution to right the wrong in your favor.

At Onyx Law Group, our experienced British Columbia estate lawyers understand how complex and emotionally charged constructive trust claims can be, especially when they arise in family law matters. Our team, with its deep understanding of the law and more than a decade of hands-on experience, is committed to protecting your rights and interests. If you believe you have a constructive trust claim or are facing one, contact us today for trusted guidance and effective representation.

In this blog, we’ll delve into the concept of constructive trust, explore its origins, discuss why courts use it to resolve cases of unjust enrichment, and explain how it can safeguard your rights in complicated property or relationship disputes.

Constructive Trust Basics

Understanding constructive trusts is key to knowing how courts address unfair property disputes in British Columbia. They help ensure that individuals who have contributed to or have a rightful claim over property are not unfairly deprived of their interests.

What Is a Constructive Trust?

A trust exists when property is held by someone, called a trustee, for the benefit of another person. A constructive trust is imposed by law to remedy a situation in which someone has been unfairly deprived of property or suffered harm due to another’s misconduct. Constructive trust examples include situations involving fraud, misrepresentation, or a breach of fiduciary duty in relation to specific property or assets. This type of trust comes into existence to uphold equitable property interests, regardless of whether the parties intended to create a trust relationship.

In British Columbia, the Family Law Act says that constructive trusts often come up in family law cases to recognize one partner’s contributions to property that the other partner legally owns. It may arise when a person owns property or an asset that they obtained through unfair or dishonest means. When the court determines that a constructive trust is needed to remedy that unfairness or wrongful conduct, the effect is that the legal owner of the property is no longer the legal owner. Ownership of the property or asset is changed to benefit the person who was wronged by the legal owner’s conduct.

A constructive trust protects the property interests of the rightful owner (i.e., the person truly entitled to the property). Once imposed by the High Court, a constructive trust means the wrongdoer is no longer the sole legal owner; instead, that person is a trustee holding the property in trust on behalf of the rightful owner. The rightful owner has a proprietary right to the specific property and will benefit from any future appreciation in value and a share of the proceeds if it is sold.

How Is a Constructive Trust Different From an Express Trust?

Constructive trusts are imposed by the courts or the operation of law. They don’t require the consent of the owner of the property or assets. In contrast, express trusts are created intentionally by the owner of the property or assets (the “settlor”).

The settlor of the trust creates a trust deed that sets out the terms of the express trust. The settlor transfers the property or assets to the trustee to hold on behalf of one or more “beneficiaries.” The trustee is responsible for managing the trust property or assets for the benefit of the beneficiaries, in accordance with the terms of the written trust document.

Express trusts can be a valuable part of any estate plan. An express trust can be created during the settlor’s life (inter vivos trusts) or after death (testamentary trusts). Common examples of express trusts are alter ego trusts, joint partner trusts, and disability trusts, which can be used to benefit and protect disabled loved ones.

When Is a Constructive Trust Imposed?

Constructive trusts can be imposed in various situations, including when a person has been deprived of an interest in property through fraud, misrepresentation, undue influence, breach of fiduciary duty, or unjust enrichment. A constructive trust can also be imposed as an equitable remedy to hold people in different situations to high standards of trust and integrity and prevent them from retaining property that, in good conscience, they should not be allowed to retain.

Situations Where a Constructive Trust May Arise:

Here are some common scenarios where constructive trust may arise:

1. To Remedy Estate Disputes

If a property owner dies and there is a dispute over how to distribute the property, a constructive trust may be used. For example: A disappointed beneficiary, such as a disinherited child, can bring a claim for a variation of a will. If successful, a constructive trust may be imposed over certain properties (e.g., a home, a cottage). The constructive trust protects the child’s interest in the property, and if it is sold, the child will be entitled to a share of the proceeds.

A constructive trust may be imposed if a mutual will agreement is broken (i.e., an agreement between spouses to dispose of their estates in a certain way and not to revoke their wills). If the surviving spouse later breaks the agreement, a constructive trust can be imposed to hold the property in trust for the intended beneficiaries under the mutual wills.

A constructive trust can also be placed over assets such as shares in a company. We recently discussed a case in which a son succeeded in having a constructive trust imposed over shares in a family business owned by his father. The son had worked for the company his whole life. During his father’s lifetime, the gift of shares in the family business remained incomplete. Still, the evidence was clear that his parents intended to gift the shares to any child of theirs who had committed themselves to the family business.

2. To Remedy Unjust Enrichment

When a person has made contributions, such as mortgage payments, improvements, or other investments, toward the accumulation or increase in value of property, and another person has been unjustly enriched by holding legal ownership of a disproportionate share, the wronged party can ask the court to impose a remedial constructive trust over all or part of the property in their favor. In these cases, the court assesses the suitability of a constructive trust as a remedy to fairly acknowledge the contributor’s interest and avert unjust enrichment.

A leading example of this type of constructive trust is found in Pettkus v. Becker, [1980] 2 S.C.R. 834, where a wife supported her husband while he accumulated capital, and later she helped him in constructing a home and developing a business. All of the assets were in the husband’s name. When the spouses separated, the Supreme Court of Canada imposed a remedial constructive trust over the husband’s assets to benefit the wife and recognize her direct and indirect contributions to their accumulation.

Another recent example from the BC Supreme Court: a constructive trust was imposed over life insurance proceeds. There were competing claims over entitlement to the proceeds between the deceased’s estranged wife and new common-law spouse. In the case of Knowles v. LeBlanc, 2021 BCSC 482, the estranged wife (the designated beneficiary) would have unfairly benefited if she were allowed to keep the insurance money that the common-law spouse had helped pay for during her relationship with the deceased.

3. To Remedy Breaches of Fiduciary Duty

A constructive trust can be imposed to hold fiduciaries and people in positions of trust to the high standards of trust and integrity that commercial and other social institutions require if they are to function effectively.

The Supreme Court of Canada’s decision in Soulos v. Korkontzilas [1997], 2 S.C.R. 217, is significant in this regard because the Court concluded that even where there is no unjust enrichment in the traditional sense, on some occasions, “good conscience” requires the imposition of a constructive trust to address wrongful conduct.

In the Soulos case, a real estate agent bought himself a property for which he had been negotiating on behalf of his client. The agent paid fair market value for the property. By the time the client discovered the transaction and sued, the value of the property had declined, so it could not be said that the agent had been “enriched.” Despite the decrease in property value, the client maintained his desire to own it. The court imposed a constructive trust over the property to right the agent’s breach of fiduciary duty.

Requirements to Make a Constructive Trust Claim

A constructive trust claim must meet several requirements to succeed. The property in question must be identified, and it must be shown that the person who owns the property subject to the claim obtained it through improper or unfair means. The person claiming entitlement to some or all of the property must provide evidence of unjust enrichment or some other legal grounds to support their claim (e.g., fraud, misrepresentation, or breach of duty where there is a fiduciary or confidential relationship between the parties).

For example, if your claim is based on unjust enrichment, you must provide evidence to the court to satisfy each element of this legal test:

• There was an enrichment or benefit received by the defendant.
• You suffered a loss directly related to the defendant’s enrichment; and
• There was no juristic reason for the enrichment (e.g., no contractual obligation or other legal requirement to justify it). If each element is established, the burden then falls to the defendant to provide evidence to support his or her defense.

In all common intention constructive trust claims, you must provide evidence to support the value of your claim. The court must also be satisfied that monetary damages alone would not adequately compensate you.

Does Your Situation Warrant a Constructive Trust?

A constructive trust remedy may be the appropriate legal solution when one party has been unjustly enriched at another’s expense. This allows courts in British Columbia to assign beneficial interests in property in a fair manner. Judges consider factors such as contributions to property, unjust enrichment, and the link between those contributions and the disputed asset.

Often arising in estate and family law disputes, constructive trusts ensure that individuals who have fairly earned a beneficial interest in property are not left without a remedy. Because these claims can be complex and fact-specific, seeking legal advice from an experienced trust litigation lawyer is essential. A skilled lawyer can evaluate your situation, explain your legal options, and help you build a strong case for a constructive trust remedy.

At Onyx Law Group, we’re committed to helping you understand and assert your rights when it comes to constructive trust claims. Our experienced British Columbia lawyers are passionate about ensuring fairness for those who have contributed to property or relationships without proper recognition. Find clarity and confidence in under 30 minutes. Contact us for a free consultation to discuss your constructive trust matter and learn the best steps forward.

Frequently Asked Questions

If you’re wondering what constructive trust is and how it applies in British Columbia, this FAQ can answer some of the questions you might have. Learn when courts impose constructive trusts, what it means for property rights, and how it can affect your legal claims.

What Are the Three Requirements of a Constructive Trust?

A constructive trust typically requires three elements: the enrichment of one party, the deprivation of another, and the absence of a legal reason (or “juristic reason”) for the enrichment. In some cases, courts may also consider whether there was a wrongful act, such as breach of trust or unjust conduct, leading to the enrichment.

What Is the Difference Between a Trust and a Constructive Trust?

A traditional trust is intentionally created by a person (the settlor) who transfers property to a trustee to hold for the benefit of someone else. A constructive trust, on the other hand, is imposed by the court to prevent unjust enrichment or address wrongful conduct, even when no formal trust was intended.

What Are the Four Elements of a Constructive Trust?

The four elements of a constructive trust are:

• (1) an enrichment of the defendant,
• (2) a corresponding deprivation of the plaintiff,
• (3) no juristic reason for the enrichment, and
• (4) a causal link between the property and the unjust enrichment.

These elements allow the court to recognize the plaintiff’s equitable interest in the property to prevent unfair gain.

How Do You Prove a Constructive Trust?

To prove a constructive trust requires that you must show that one party was unjustly enriched at the expense of another and that there’s no legal reason for that enrichment. You must also demonstrate a clear connection between the disputed property and the unjust enrichment, justifying the court’s recognition of an equitable interest.