When most people hear the word trust, they picture a financial planning tool catered to the wealthy. However, in Canadian law, two special types of trusts are relevant among a wide array of individuals. These are known as constructive and resulting trusts.

Unlike traditional trusts that are planned and prepared in advance, constructive and resulting trusts are imposed by courts as remedial measures once a dispute arises. These trusts are used to ensure fairness and equity within our justice system.

Constructive Trusts

A constructive trust is ordered when the court decides that one party to an action will be unjustly enriched at the other party’s expense. For example, in Pettkus v. Becker,[1] Ms. Becker and her significant other were in a common-law relationship for nearly 20 years. During this time, Ms. Becker invested her time, effort, and own income into a beekeeping business she built with her partner. All property and assets associated with the business were in Mr. Pettkus’ name. When their relationship came to an end, the Supreme Court of Canada recognized that allowing her partner, Mr. Pettkus, to walk away with the entire business would unjustly enrich him at her expense, recognizing her significant contributions to the business. Here, the Court imposed a constructive trust as a remedy, granting Ms. Becker a proprietary share despite her name never being on title. While Ms. Becker succeeded, the Court emphasized that a constructive trust is not automatic; the claimant must satisfy a three-part test to obtain this remedy. Specifically, the claimant must prove:

1. Enrichment of the defendant;
2. Corresponding deprivation of the plaintiff; and
3. Absence of juristic reason for the enrichment.

If all of these steps are met, a claimant will have a successful argument for the court to order a constructive trust.

It is important to note that constructive trusts are not limited to situations where there has been unjust enrichment. The Supreme Court of Canada in Soulos v. Korkontzilas,[2] expanded the applicability of constructive trusts to include situations where there have been breaches of fiduciary duties. In this case, the defendant, a real estate agent, failed to disclose an offer to the property owner and instead arranged for his wife to secretly purchase the property. Although the agent was not necessarily enriched, because the property dropped in value, the Court still imposed a constructive trust to uphold “good conscience” and protect the integrity of fiduciary relationships.

In order for a constructive trust to be applied in situations of breaches of fiduciary duties, the court imposed a four-part test that must be met:

1. The defendant must have been under an equitable obligation in relation to the activities giving rise to the assets in his hands;
2. The assets in the hands of the defendant must be shown to have resulted from deemed or actual agency activities of the defendant in breach of his equitable obligation to the plaintiff;
3. The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like the defendant remain faithful to their duties and;
4. There must be no factors which would render the imposition of a constructive trust unjust in all the circumstances of the case.

If the court is satisfied that all four factors are successfully met, a constructive trust will likely be granted.

Taken together, these two cases illustrate that constructive trusts are a tool used by the courts to ensure no one unfairly profits from another’s contribution or where breaches of relevant duties are prevalent.

Resulting Trusts

Resulting trusts, though also an equitable remedy, differ slightly from constructive trusts. Resulting trusts operate on the assumption that people do not part with their property for free unless they clearly illustrate an intention to do so. More specifically, when someone transfers property without clear evidence of the property being a gift, courts will assume the transferee is holding it “in trust” for the original owner. To better illustrate resulting trusts, we can look at the Supreme Court of Canada decision in Pecore v. Pecore.[3] In Pecore, a father added his adult daughter as a joint holder of an investment account. On his death, she claimed the accounts by right of survivorship. However, her siblings argued that the funds belonged to the estate. The Court held that with transfers to adult children, the presumption of a resulting trust applies. Therefore, unless the daughter was able to show that the transfer of assets was a gift explicitly from her dad to herself, the property would revert back to the estate.

Resulting Trusts – Ongoing Uncertainty in Regard to Beneficiary Designations

The law is fairly clear when it comes to resulting trust presumptions in regard to transfers of property or joint accounts; however, the law is a little less clear with beneficiary designations on instruments like Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), Tax Free Savings Accounts (TFSAs), or life insurance policies. These are technically contractual or statutory arrangements and not necessarily “transfers” in the traditional sense. Therefore, the law has been contradictory and is unsettled as to whether the presumption of a resulting trust should apply in these situations.

For instance, in Calmusky v. Calmusky,[4] a father named one of his adult sons as the beneficiary of his RRIF. After the father’s death, his other son argued that those funds should fall to the estate, as they would if the presumption of a resulting trust were to be applied. The Court held that the presumption of the resulting trust does apply to beneficiary designations, meaning that the designated beneficiary of an account would have to adduce independent evidence of a gift to rebut the presumption that the beneficiary was intended to hold the account for the estate.

However, Mak (Estate) v. Mak,[5] departed from the Calmusky decision. Here, the dispute was over a similar beneficiary designation of an RRIF account. The Court rejected Calmusky’s approach, finding that beneficiary designations are governed by statute, specifically by Ontario’s Succession Law Reform Act.[6] The beneficiary in this scenario was directly entitled to the proceeds and, therefore, the presumption of a resulting trust was inapplicable.

Subsequent court decisions have continued to be divided on this point; there is no clear common law on the applicability of resulting trusts to beneficiary designations. This leaves great uncertainty for legal professionals and the general public alike.

 

This blog was co-authored by articling student Adriana Piccolo.

[1] [1980] 2 SCR 834.

[2] [1997] 2 SCR 217.

[3] 2007 SCC 17 [Pecore].

[4] Calmusky v. Calmusky, 2020 ONSC 1506 [Calmusky].

[5] Mak (Estate) v. Mak, 2021 ONSC 4415.

[6] Succession Law Reform Act, R.S.O. 1990, c. S.26.