Constructive trusts refer to relief which Courts grant through imposition of a “trust” over property to prevent a person (usually the owner) from retaining the full benefit, typically in circumstances where another person has made financial or non-financial contributions toward the property. The RMB Lawyers Wills & Estates & Disputed Wills division explains.
As an example of constructive trusts, Mr Smith may be the legal owner of a property, but the court can determine that it is unconscionable for him to retain full ownership because of contributions made to the value of the property by Mr Jones. A declaration can be made that Mr Smith must hold a portion or the entirety of the property on trust for the benefit of Mr Jones.
To establish a constructive trust, an applicant generally must demonstrate “unconscionable” conduct by the property owner.
Australian Courts have considered constructive trusts in a number of cases over the years. In Muschinski v Dodds (1985) the High Court considered the question of unconscionability.
Ms Musckinski and Mr Dodds were in a de facto relationship. In 1976, they purchased a property in Picton as tenants in common, for a future development.
Ms Muchinski paid the purchase price, while Mr Dodds’ contribution would be to renovate the cottage, pay for the erection of a kit house and to run the property as an arts and crafts centre.
However, the couple separated and the planned development did not proceed. Ms Muschinski commenced proceedings in the Supreme Court of NSW seeking a declaration that she was the sole owner of the Picton property.
Mr Dodds made a cross claim for the property to instead be sold and the proceeds divided equally. Ultimately, the matter made its way to the High Court of Australia which found in favour of Ms Muschinski. The majority held that in the circumstances it would be entirely unconscionable for Mr Dodds to retain a beneficial interest in the property.
A constructive trust was therefore imposed in favour of Ms Muschinski, enabling her to transfer the property in to her sole name, denying Mr Dodds the ability to receive any funds from the future sale of the property.
Constructive trusts can be relevant in deceased estate disputes. If a property owner dies without leaving any benefit to a person who has made contribution(s) to the property, the court may impose a constructive trust to ensure they receive some form of reward from the estate for their contribution.
If you or your family have further questions about Constructive trusts or a deceased estate dispute, your first step should be to contact our office to arrange a free consultation. You can contact us by by phone or our 'Ask a Question' tool on our website.