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You've probably heard of trusts, which are legal instruments used primarily for estate planning. But have you ever heard of a constructive trust?
Unlike most other kinds of trusts, constructive trusts aren't drafted by a lawyer as part of an individual's estate plan or wealth management strategy. Instead, constructive trusts are imposed by a court in order to prevent unjust enrichment by someone who has wrongfully obtained an interest in another person's property by obligating them to return the property to its original owner.
What is a constructive trust and how does it work?
Constructive trusts are not created by the parties which are subject to them, but are implied by the facts of a case and ordered by the court. In that sense, a constructive trust is what is known as a "legal fiction": It doesn't really exist in any tangible sense, but is constructed by the court in order to ensure that justice is done.
Constructive trusts lack the legal framework common to most other types of trusts, made most readily apparent by the lack of a trustee.
In a typical trust, such as a revocable trust or a charitable trust, the trust is created when the trustor -- the person creating the trust -- transfers ownership of property to a trustee to manage the property for the benefit of another.
In a constructive trust, the defendant who wrongfully obtained title or interest in the plaintiff's property is treated as if he were a trustee acting for the benefit of the plaintiff from the date upon which he obtained the interest. The defendant must therefore hand over any profits he has obtained from his possession of the unlawful interest interest along with the interest itself to the plaintiff.
Constructive trusts are usually ordered when a defendant has obtained an interest or title to another person's property through fraud, undue influence, or other deceptive means. However, a constructive trust may also be ordered in a wide variety of other instances, including property obtained by homicide or other violent crime, theft, and even defamation.
One recent example: Former Minnesota governor and wrestling star Jessie Ventura was recently granted a constructive trust over profits of a book that included defamatory statements about Ventura. Along with $500,000 in defamation damages, Ventura recovered $1.3 million in unjust profits earned by the book through the constructive trust.
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