What is a Constructive Trust?

A constructive trust example

For example, say Larry stole $5,000 from Ahmed and used that money to buy a used car. Ahmed, understandably, is upset and sues Larry for the money, and the judge agrees with Ahmed. The used car can be placed in a constructive trust so that Larry is no longer its true owner.

Once the trust is created, Larry is holding the car for Ahmed and must protect the property for him. The court could require Larry to turn the car over to Ahmed or pay him back the funds. The trust protects the car and preserves it for Ahmed, since it was bought with Ahmed's money. Once it's transferred back or the money is repaid, the constructive trust ends.

Temporary or ongoing

A constructive trust can be either a temporary measure designed to protect the property until the defendant transfers it back to the real owner or an ongoing trust, so that if the defendant converted the other person's property into something that can't be easily transferred back, the true owner can obtain the benefits of the property.

An example would be if Karen stole money from Lee and used it to buy a life insurance policy. The insurance policy can't be transferred to Lee, but a constructive trust can be established that makes Lee the beneficiary of the policy.

Constructive trust vs. resulting trust

A resulting trust differs from a constructive trust because it is a trust that is set up based on a person's intentions.

For example, if Maria gives Tom $1,000 and asks him to buy her a painting at an auction he is going to, but Tom buys the painting in his own name, a resulting trust occurs where Tom is holding the painting for Maria. The difference from a constructive trust is that here, Maria gave Tom the money with instructions to buy the painting for her. If Tom had stolen the money from Maria and then bought the painting with it, a constructive trust would be the result.