4.12.3.51 Constructive Trusts

Date of effect

This topic has effect to constructive trusts from 1 January 2002.

Summary

This topic contains information on the following:

  • constructive trusts,
  • common intent constructive trusts, and
  • assessment of constructive trusts.

Constructive trusts

Constructive trusts are non-express trusts and can be imposed by a court irrespective of the intention of the parties. A constructive trust may be imposed by a court where the party with legal title has a fiduciary obligation to another, usually due to past events or actions by the parties. However, the most frequent constructive trust is a common intention constructive trust.

Common intention constructive trusts

A common intention constructive trust is created to enforce a promise and/or a gift. The following elements need to be demonstrated to establish the existence of a common intention constructive trust:

  • there must have been a common intention between the legal owner of the property and the beneficiary, regarding the beneficiary's beneficial ownership of the property,
  • this common intention is to be inferred as a fact from the words or conduct of the parties,
  • the beneficiary must be able to show that they have acted to their detriment on the basis of the common intention as to the beneficial ownership of the property, and
  • it must be a fraud on the beneficiary for the legal owner to assert that the beneficiary did not have the beneficial interest in the property.

Assessment of a constructive trust

Generally the private trust and companies rules are to be applied to constructive trusts. Generally, because of the nature of a constructive trust, the operation of the trusts and companies rules will not change the attribution of the property of the trust from that which would have applied in the event that the trust and companies rules did not apply, that is in most cases the beneficiary should be the 100% attributable stakeholder in regard to the assets of the trust. However, it is important to note that, notwithstanding the fact that the ultimate result may not be changed by the application of the trust and companies rules, it is still important to give effect to these rules when making a decision in regard to this sort of trust. This is irrespective of when the constructive trust was created.

Explanation: A constructive trust arises where an individual can establish that in spite of being the legal owner of an asset, that they only hold this asset on behalf of someone else.

Policy reference: SS Guide 4.12.3.50 Background to Non-Express (Implied) Trusts

Last reviewed: 21 September 2015