The Imposition of Constructive Trusts and Other Concepts at Probate-part I

• Publication year: 1998
• Pages: 41

27 Colo.Law. 41 Colorado Lawyer 1998.

1998, December, Pg. 41. The Imposition of Constructive Trusts and Other Concepts at Probate-Part I

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41

Vol. 27, No. 12, Pg. 41

The Colorado Lawyer
December 1998
Vol. 27, No. 12 [Page 41]

Specialty Law Columns
Estate and Trust Forum
The Imposition of Constructive Trusts and Other Concepts at Probate - Part I
by David W. Kirch

Editor's Note

This is the first part of a two-part article on recovery of joint tenancy property and other lifetime transfers through the imposition of constructive trusts and other tools. Part I of this article analyzes generally how constructive trusts and other concepts operate in the probate context. Part II to be published in the January 1999 issue, will discuss the outer limits of the concept, causes of action that support it, and some tactical aspects of constructive trust litigation

In the area of probate litigation, the concept of constructive trusts has a special, but frequently overlooked, use in the commonly encountered circumstance of property being transferred outright or into joint tenancy by right of survivorship during lifetime by an elderly person, in such a way as to disinherit the natural objects of that person's bounty or otherwise change that person's existing estate plan. This happens frequently as an informal estate planning or property management device by the elderly. While the legal principles and procedures involving a will contest (usually based on fraud, undue influence, and lack of testamentary capacity) are well defined, generally clear cut and well understood, those involved in the setting aside of inter vivos transfers on similar grounds are not.1

Background

It is an extremely common practice for elderly parents to place property into joint tenancy with right of survivorship, or in the sole name of a single child or other trusted person, under the misguided belief that such an informal arrangement is the best manner in which to provide for management of assets in the event of incapacity (avoiding a conservatorship, but overlooking the better alternative of a durable power of attorney) and accomplishes the overrated objective of avoiding probate (despite the ease and inexpensive option of informal probate). The same may be true of transfers to a spouse when there are children by a prior marriage. Usually, there is the intention and implicit understanding that the person holding title will use the property for the benefit of the transferor during his or her lifetime and that it will be shared with other beneficiaries at death.

In most cases, the transferee acts in accordance with the transferor's wishes and shares the intended property with the transferor or other beneficiaries after the transferor's death. However, the transferee sometimes suffers a change of mind, decides to not honor the transferor's intentions, and asserts unrestricted claims to ownership of the transferred property. The original transfer may be, but does not necessarily have to have been, the result of undue influence, mistake, or fraud, and generally will involve a transferee with a "confidential relationship" to the transferor. There may simply have been the absence of an intent to make a gift.

After the transferor's death in such circumstances, many attorneys assume that there is little chance of remedying this situation absent substantial evidence that the transferor lacked the legal capacity to make the transfer or clearly lacked the intention to make a gift, even though such a transfer, if made under the will of the decedent, would likely have been attacked on grounds of fraud, undue influence, or lack of testamentary capacity. In the case of property titled in joint tenancy, this assumption is supported by the provisions of CRS § 15-15-212(5), requiring clear and convincing evidence to establish that joint tenancy with right of survivorship was set up as a matter of convenience only and not to vest rights of ownership in the survivor in order to bring the property back into the transferor's estate.2

However, even when the transferor cannot be shown to have lacked legal capacity or the intent to make a gift, the operation of the remedy of the imposition of a constructive trust or other concepts can be brought to bear on situations that involve confidential relationships or undue influence justifying...