What is a Constructive Trust? In certain situations there is a trust like relationship when there is no formal trust set up. The courts can declare a trust in these situations. The word “constructive” comes from the verb to construe, not from construct in these situations. A constructive trust is said to be a ‘remedy’ because it is used to right wrongs. Constructive trusts (and all trusts) come under a branch of law known as ‘equity’. Example 1 X steals money from Y and gives it to his mum who buys a house with it. Court can declare that mum is holding that house on trust for Y. Example 2 Dad dies and mum is getting old. She wants to sell up and move to a smaller home. Daughter convinces mum to sell and use her funds to construct a granny flat on daughter’s property. Daughter later has a dispute with mum and kicks her out. Title is in daughter’s name. Since mum use her money to build the granny flat and to improve the daughter’s property the courts will remedy the situation by declaring the mum has a constructive trust over the daughter’s property – a certain percentage or amount. The daughter can either pay mum out or the property be sold and mum paid out of the proceeds. Example 3 As above but daughter gets a divorce or goes bankrupt. Similar principles will apply. Example 4 Alan causes his wife to buy the main residence as he is a risky business man. He earns all the money and pays the loan. He later goes bankrupt. The trustee in bankruptcy (creditors) will go for half of the wife’s house and the courts may declare she is holding 50% under a constructive trust for Alan (and/or resulting trust). The concept of ‘constructive trusts’ has important implications for asset protection, estate planning and other areas of law.