What is an implied trust?

An implied trust is a financial arrangement that has the characteristics of a trust without the formalities establishing one. However, an implied trust 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 looking at the nature of the arrangement the parties have made. There are three types of implied trusts: statutory trusts, resulting trusts, and constructive trusts.

Statutory Trusts

A statutory trust arises when a statute, or law, creates a trust. One type of statutory trust exists when a state’s law allows a trustee to sell real property for a beneficiary. The trustee holds the real property until they get the best offer. The trustee then holds the funds they receive from the sale in trust for the beneficiaries. A statutory trust may involve a trustee operating a business, conducting a professional activity, or managing real property. All of these generate income for the beneficiaries.

Resulting Trusts

A resulting trust occurs when one party receives an asset from another without paying for it, and a court determines the intent was not to transfer the property, but to have the receiving party simply hold the asset for the benefit of the person transferring it to them.  If a court finds a resulting trust, it will typically return the property to the original transferring party.

Constructive Trusts

A constructive trust is a remedy to a party improperly benefiting from an asset at the expense of a proper beneficiary that arises when a party has accidentally, mistakenly, or dishonestly received title to or possession of assets that belong to a beneficiary. Typically, a court recognizes that a constructive trust exists so it can order the first party to give the assets and any monies made from the assets to the beneficiary.  For example, say a father gives his daughter a real property to sell for the benefit of his grandson, but the daughter does not sell the property for 10 years because she cannot get a good price for it and eventually decides to keep the property for herself and rent it out for profit. If the grandson takes his mother to court, the court would likely find that the property and the rental profit was being held in a constructive trust for the grandson despite no mention of that type of distribution from the father’s original intent.  Constructive trusts exist to ensure beneficiaries are not deprived of assets intended for them.

Implied trusts require a party to prove a intended relationship exists without having an express trust agreement.  To argue an implied trust exists, consult with an experienced estate planning attorney.

Case Studies: Navigating Insurance Coverage in Implied Trust Scenarios

Case Study 1: Professional Liability Insurance for Estate Planning Attorney, SecureTrust Insurance

SecureTrust Insurance specializes in providing professional liability insurance for attorneys. In a recent case, an estate planning attorney, working with an elderly client, unintentionally created an implied trust due to a lack of clarity in the estate planning documents. The client’s family members disputed the intended distribution of assets, leading to a lawsuit against the attorney for negligence.

Fortunately, the attorney had professional liability insurance coverage from SecureTrust Insurance. This coverage protected the attorney by covering legal defense costs and any potential damages awarded to the client’s family, ensuring the attorney’s professional reputation and financial stability.

Case Study 2: Directors and Officers Liability Insurance for Statutory Trust Corporation, TrustGuard Insurance Company

TrustGuard Insurance Company offers Directors and Officers (D&O) liability insurance tailored for statutory trust corporations. In a recent case, a statutory trust corporation faced a lawsuit from beneficiaries who alleged mismanagement of trust funds. The beneficiaries claimed that the corporation breached its fiduciary duties and negligently handled the administration of the trust.

Fortunately, the statutory trust corporation had D&O liability insurance from TrustGuard Insurance. This insurance coverage protected the corporation’s directors and officers by covering legal defense costs and any potential damages awarded to the beneficiaries, safeguarding the corporation’s financial stability and reputation.

Case Study 3: Errors and Omissions Insurance for Estate Administration Firm, InsurePro

InsurePro specializes in offering errors and omissions (E&O) insurance for estate administration firms. In a recent case, an estate administration firm inadvertently created a resulting trust by mishandling the transfer of assets to beneficiaries. The beneficiaries filed a lawsuit, alleging negligence and seeking restitution for their losses.

Fortunately, the estate administration firm had E&O insurance coverage from InsurePro. This insurance protected the firm by covering legal defense costs and any potential damages awarded to the beneficiaries, ensuring the firm’s financial security and client trust.