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“But, We Had an Agreement!” – Understanding Implied Trusts

“But, We Had an Agreement!” – Understanding Implied Trusts

What is an “Implied” Trust?

A statutory trust is created by operation of law where a real property is held by trustees for immediate or eventual sale at their discretion. All income from the property prior to its sale, and all proceeds of its sale, is held in trust for the benefit of the trust’s beneficiaries.

statutory implied trustAn implied trust is a financial arrangement with same characteristics of a trust without the formalities establishing one. It may not be expressly defined as a trust in a will or other legal document, rather a court determines that a trust agreement exists by reviewing arrangements parties have made. Implied trusts require a party to prove that an intended relationship exists although there wasn’t an express trust agreement.

Legally, implied trusts can become fairly complicated for those who may not have a background in law. While it’s important to do individual research on key business topics, it’s equally important to recognize when to bring in a business lawyer for an expert opinion. There are actually three different types of implied trusts.

The Basics of Implied Trusts

  • Statutory Trust
    A statutory trust results when a statute, or law, creates a trust. One type is when a state’s law allows a trustee to sell a real property for a beneficiary. The trustee holds the real property until they get the best offer, such as a foreclosure on a home. The trustee holds the funds they receive from the sale in trust for the beneficiaries. Statutory trusts may involve a trustee operating a business, conducting a professional activity or managing real property.
  • Resulting Trust
    A resulting trust occurs when one party receives an asset from another without paying for it. In this case a court determines the intent was not to transfer the property, but for the receiving party to hold the asset for the benefit of the person transferring it to them.  When a court finds a resulting trust, typically they return the property to the original transferring party.
  • Constructive Trust
    A constructive trust is a remedy when a party improperly benefiting from an asset at the expense of a proper beneficiary. That can arise when a party accidentally, mistakenly or dishonestly received title to or possession of assets that belong to a beneficiary. Typically when a court recognizes that a constructive trust exists it can order the first party to give the assets and/or monies made from the assets to the beneficiary. Constructive trusts ensure beneficiaries are not deprived of assets that were intended for them.

Contact an expert business law attorney if you feel you have any implied trust rights issues or to properly arrange a trust. It’s a good idea to retain the right professional for legally difficult issues to reduce your chances of losing precious income.

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