Constructive Trusts Can Catch Wayward Trust Assets

by Downey Brand LLP

Businessman running with butterfly net chasing money which is flying in the air. Finance business concept.Trustees in California trust disputes should not overlook the power of the constructive trust remedy as a way to recover errant trust assets.  That’s a takeaway from Higgins v. Higgins (2017) __ Cal.App.5th __, an opinion in a trust litigation case published last week by the California Court of Appeal.

A Los Angeles Superior Court trial judge found a “clear moral obligation” on the part of Lupe Higgins to return several hundred thousand dollars to the Higgins Family Trust, but could not find a legal obligation, so the judge apologized to the Higgins family for being powerless to restore the funds.  The appellate court did not like the sound of that music and came to the rescue, ruling that the trial court had discretion to compel Lupe to transfer the money to the trustee of the Trust.

How Did Maria’s Money Almost Go Astray?

California trusts often go off the rails when accounts are not properly titled in the name of the trustees of the trust.  Estate planners counsel clients to “fund” their trusts by specifically titling accounts to establish that they are held in trust.  Even if clients initially follow such instructions, as the years pass there is often a failure to maintain trust designations, risking the loss of funds.

The Higgins case illustrates this problem.  Maria and Bartlett Higgins created an estate plan in 1994 that included the Higgins Family Trust.  Bartlett died a year later.  By 2007, Maria (then age 91) was complaining about problems with her short-term memory and her doctor prescribed medication for patients with Alzheimer’s disease.  In 2009, as Maria’s mental capacity continued to decline, she executed new signature cards that added her step-son Clive as a joint account holder to her checking and savings accounts.  (Instead, she should have named Clive in his trustee capacity as the account holder.)

As bad luck would have it, Clive was diagnosed with cancer in 2012.  He became completely dependent on his wife Lupe and care from hospice.  He could no longer attend to Maria’s finances.  Accordingly, he closed Maria’s checking, savings and CD accounts, and he opened new ones, titling the accounts as Clive and Lupe “ITF: Maria Lopez Higgins.”  Lupe signed the signature cards with the understanding that the funds were “for Maria to take care of Maria.”  The accounts held about $400,000.

The account agreements permitted the accounts to be designated as (1) Totten trusts, (2) subject to a trust under a separate agreement, or (3) subject to a pay on death designation, but none of these boxes were checked.  Lupe should not have been listed as an account holder because she was not a trustee of the Higgins Family Trust – presumably, Clive failed to get legal advice in this regard.

After Clive died, Lupe went to the bank and put the checking/savings accounts in her name as the sole account holder.  Maria died a few months later.  Lupe paid for Maria’s funeral expenses and distributed out $10,000 each to Maria’s eight grandchildren, all using funds from the checking account in Lupe’s name.

Lupe treated the remaining funds as her own, which led the successor trustee of the Higgins Family Trust (Clive’s brother Arthur) to sue her to recover the money.  In trial testimony, Lupe testified that she thought the funds in the accounts transferred to her when Maria died, though she acknowledged that she had given $80,000 to Maria’s grandchildren because it was Maria’s money.

Lupe’s counsel argued that a claim did not run against Lupe because there was no evidence of fraud or undue influence by her with respect to Maria.

The trial judge concluded that since Clive made Lupe a joint account holder she had the right to do as she pleased with respect to the funds in the accounts, and thus ruled in favor of Lupe.

So, How Do You Solve a Problem Like Maria?

“For every wrong there’s a remedy.”  So goes a maxim of jurisprudence, enshrined in California Civil Code section 3523, which is not always true in practice.  In this case, the appellate court was able to chart a path to the equitable result.

Under California law, as codified in Civil Code sections 2223 and 2224, a judge may impose a constructive trust to transfer a property interest to whom it rightfully belongs.  The plaintiff must show: (1) a specific, identifiable property interest, (2) the plaintiff’s right to the property interest, and (3) the defendant’s acquisition or detention of the interest by some wrongful act.

Disagreeing with the trial judge, the appellate court found that a constructive trust could be imposed because Lupe had repudiated her agreement to hold funds in trust for Maria.  When Clive transferred funds to accounts in trust for (“ITF”) Maria, Lupe consented to the terms of that trusts by executing the signature cards.  A constructive trust was appropriate to prevent unjust enrichment to Maria.

The clear and convincing evidence at trial showed that Clive and Lupe intended to create irrevocable trust accounts in which Maria had a present beneficial interest in the funds on deposit.  The accounts could not be deemed Totten trust accounts because there was nothing tentative about the commitment to hold Maria’s funds in trust for Maria.   (When creating a Totten trust account, the depositor retains the power to withdraw funds during the depositor’s lifetime.)

Since Clive and Lupe effectively held legal title to the accounts as co-trustees, Clive’s death had no effect on Maria’s beneficial ownership of the accounts.  Lupe continued to hold the funds in trust for Maria after Clive’s death so Lupe could not use the funds for her own purposes.  Lupe’s repudiation of the trust was a wrongful act that warranted a constructive trust.

Under California Probate Code section 16460, Arthur as successor trustee had three years from the date that Lupe repudiated her trust obligations to bring his action for constructive trust.  Per Maria’s will, her property at death was to be added to the Higgins Family Trust and administered under its terms.  Accordingly, Arthur could seek to recover Maria’s interest in the accounts for the beneficiaries of the Trust.

A Happy Ending, But the Drama Could Have Been Avoided

Clive should not have put his wife Lupe’s name on the accounts because she was not a trustee.  Still, since he indicated that the accounts were held in trust for Maria, there was enough linkage to Maria to preserve her beneficial interest in the funds.

The Higgins case offers two lessons, as well as an occasion to riff on The Sound of Music.  First, by carefully titling assets in their trusts, those who create and administer trusts can ensure that funds pass smoothly to the proper beneficiaries, thereby avoiding uncertain and expensive litigation over entitlement to the funds.  The Higgins family beneficiaries should not have had to traverse the legal Alps to receive Maria’s money.  Second, if there are supporting facts, a judge may employ the constructive trust theory to get funds to the trust where they belong.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Downey Brand LLP | Attorney Advertising

Written by:

Downey Brand LLP

Downey Brand LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.