What is a Constructive Trust?

A constructive trust can be used to resolve unfairness. If you have been wrongfully deprived of property, a constructive trust may be the solution to right the wrong in your favour.

Constructive trusts are a powerful, flexible legal tool that can be used to resolve all kinds of disputes, including estate litigation  and family law matters.

Let’s have a look at the law of constructive trusts, including how they are created, and how they differ from other types of trusts.

Constructive Trust Basics

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 wronged through misconduct such as 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.

When a person owns property or an asset that they obtained through some sort of unfair or dishonest means, a constructive trust may arise. 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 property interests of the rightful owner (i.e., the person truly entitled to the property). Once imposed by the courts, 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 benefits from the property going forward, including any appreciation in value and a share of the proceeds if the property is sold.

How is a constructive trust different from an express trust?

Constructive trusts are imposed by the courts or by 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 written 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 lifetime of the settlor (these are called inter vivos trusts) or it can be created on death, typically within the Will of the deceased (these are called 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 a variety of 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 which 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:

To remedy estate disputes.

A constructive trust might be used if there is an argument over how a property should be distributed following the death of the owner of the property. For example:

A disappointed beneficiary such as a disinherited child can bring a wills variation claim. If successful, a constructive trust may be imposed over certain property (e.g., a home, a cottage). The constructive trust protects the child’s interest in the property and if the property is sold, the child will be entitled to a share of the proceeds of sale.

A constructive trust may be imposed if a mutual will agreement is not honoured (i.e., an agreement between spouses to dispose of their estates in a certain way and to not 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. The gift of shares in the family business was not completed during his father’s lifetime, but the evidence was clear that his parents intended to gift the shares to any child of theirs who had committed him or herself to the family business.

To remedy unjust enrichment.

When a person has made contributions towards the accumulation or increase in value of property, and another person has been unjustly enriched by holding a disproportionate share of the property, the wronged person can ask the court for an order that a remedial constructive trust be imposed over the whole or part of the property in their favour.

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 the accumulation of these assets.

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 that case, Knowles v. LeBlanc, 2021 BCSC 482, the designated beneficiary (the estranged wife) would have been unjustly enriched if she was allowed to keep the insurance proceeds that the common law spouse had contributed to throughout her relationship with the deceased.

To remedy breach 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 this 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 the property. 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

There are several requirements that must be met to succeed in a constructive trust claim. The property in question must be clearly 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, 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 the enrichment). If each element is established, the burden then falls to the defendant to provide evidence to support their defence.

In all constructive trust claims, it will be necessary to provide evidence to support the value of the constructive trust claim. The court must also be satisfied that monetary damages (i.e., money) will not be adequate to compensate you.

Does your situation warrant a constructive trust?

You should speak to an experienced lawyer if you believe you have a constructive trust claim. These types of claims can be highly complex and you need to know the implications of a constructive trust vs. other types of legal remedies. Your lawyer can advise you of your legal rights, help decide if a constructive trust claim is warranted, and gather evidence to support your case.

At Onyx Law Group, we believe in our clients. Our dedication to justice includes helping those who have given of themselves for the benefit of others to receive what they are owed. We take the time to listen to our clients and understand what their goals are in seeking legal advice. We then offer efficient and practical legal solutions to achieve their goals.

We believe it’s important to know your legal rights and obligations before making any decisions. That’s why we offer a free 30-minute consultation to give you the opportunity to discuss your matter with a passionate and knowledgeable lawyer who can advise you on the best steps forward.