What is a Constructive Trust?

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What is a Constructive Trust?

A constructive trust differs from a typical estate trust, where a person establishes a trust to hold assets for themselves or other beneficiaries. Instead, a constructive trust is created by the court as an equitable remedy in circumstances when the legal title to property has been obtained through fraud or other wrongdoing.

The purpose of a constructive trust is to right the wrong that has been done to the property owner. Thus, the plaintiff must trace the wrong to his or her interest in the specific property.

For example, assume that an executive or other insider embezzles $50,000 from a company, which he uses to purchase a boat. The title of the boat is in the insider’s name. The company could sue the insider for the tort of conversion, seek damages in the amount of $50,000, and ask for a constructive trust in the boat. The plaintiff company will have traced the wrong (the conversion of the company’s $50,000) to specific property (the boat). The court could adjudicate that the company has a constructive trust in the boat despite the insider’s legal title. The insider, therefore, would hold the boat in trust for the company, so that the insider is no longer the true owner. The court has a lot of discretion here. If the insider repays the stolen money, the court may dissolve the trust. Otherwise, the company could obtain an order for the transfer of legal title to the company.

Constructive trusts can either be temporary or ongoing. A temporary trust will protect the property until it is restored to its rightful owner. If an asset has been converted into something that is not easily transferrable back to its rightful owner, then an ongoing trust is established to ensure the rightful owner can obtain the benefits of the asset.

When you are facing any type of business dispute, you need an experienced Arizona trial attorney to obtain the best possible result. Contact Williams Mestaz, L.L.P., at (602) 256-9400 to speak with us about your case.

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