Definition
The term constructive trust refers to a court-imposed, implied trust that benefits a party that has been harmed in some way or wrongfully deprived of assets. Constructive trusts are not actual trusts; they are legal remedies used to correct the unjust enrichment of one party.
Explanation
One of the ways a court of law can correct unjust enrichment is through a constructive trust. Unlike a true trust, a constructive trust is not freely established by a settlor / donor. Instead, the "donor" of a constructive trust is typically a party that has unlawfully realized a gain in assets. This can happen when a party holds the rights to a property they should not own, or has realized a monetary gain through nefarious means.
Imposed by a court to benefit the harmed party, a constructive trust typically does not include a trustee. Instead, the unjustly enriched party would be ordered to transfer the assets to a party that has been wrongfully deprived of the assets. Through this mechanism, the deprived party becomes the beneficiary of the constructive trust.
There are a large number of harms that could result in a constructive trust, including: breach of fiduciary duty, payment of compensatory or punitive damages, equitable remedies, payment of legal costs, cases of fraud, and the return of life insurance proceeds obtained through illegal means.
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