A trust exists whenever someone holds property for the benefit of another. Normally this is done through an express written document where the person creating the trust (the settlor) transfers property to a trustee. Such trusts are common in estate planning, where a person might transfer her house to a trustee with instructions to distribute the property to named beneficiaries after the settlor's death.
There is a related concept in New York law known as a “constructive trust.” This is not a trust in the classic sense, but rather a court-ordered remedy designed to compensate someone wrongfully deprived of property. For example, if you steal $100,000 from someone and use that money to buy real property, a court may declare the house is held in “constructive trust” for your victim, even if the deed to the property is in your name. As the New York Court of Appeals explained in a 1919 decision, a constructive trust is appropriate whenever “property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest.”
Diaz v. Diaz
Here is an illustration of how constructive trusts work in practice. This is from a recent case decided by the Appellate Division, Second Department. The case involves three sisters who live together in a single-family home in Queens. The sisters purchased the property together in 1994. Each sister contributed $13,000 towards the down payment on the house, and they equally divided all subsequent mortgage payments and maintenance costs on the property.
Only two of the sisters were named on the deed, however. The third sister was intentionally kept out of the formal purchase process due to her poor credit history. Nevertheless, the excluded sister operated under the assumption—supported by one of her sisters—that she was a co-owner of the property and would be added to the deed at some future date. But the other sister disavowed any such agreement, leading the other two to file a lawsuit in Queens Supreme Court.
In 2014, a judge sided with the excluded sister and imposed a constructive trust on the property for her benefit. The Second Department affirmed the constructive trust in a July 1 order. As the appeals court explained, the excluded sister met all the requirements for establishing a constructive trust. First, there was a “fiduciary or confidential relationship” between the plaintiff and her sisters; second, there was an “express or implied promise” to transfer one-third ownership of the house to her; third, the plaintiff transferred thousands of dollars to her sisters “in reliance on the promise”; and finally, her sisters gained “unjust enrichment” as a result.
Of particular importance here, the appeals court said the plaintiff proved the second required element—an express or implied promise—through the testimony of her other sister and a family friend, as well as “documentary evidence” proving there was an agreement.
If you find yourself in a situation where you have been wrongfully deprived of your interest in valuable property through the broken promises of others, it is important you receive legal advice from an experienced New York real estate attorney. Contact our office today if you need to speak with someone right away.