My friend and colleague, Michael Hackard, with Hackard Law in Sacramento, California, approached me the other day with an intriguing and much overlooked concept to recapture lost assets from an elder abuser: “constructive trusts.” Our discussion lead to the following article that we co-drafted on the issue of constructive trusts.
THE PROBLEM: FINANCIAL ABUSE OF THE ELDERLY IN NON-PROBATE TRANSFERS. Financial abuse of the elderly takes many forms and its signs are painfully common. Abusive conduct includes: taking money or property; forging signatures; using deception, coercion or undue influence to secure property or money transfers; and falsely assuring the elderly of lifetime care in exchange for money or other assets.
Abusers might include family members with a sense of entitlement or predatory individual serial abusers. Whoever the abuser is, the financial impact of the abuse is often not evident until the elderly victim’s death.
But how do you recover assets wrongfully taken by an elder abuser? The law doesn’t allow you to walk in and take property out of the hands of the wrongdoer, but there is a legal way in which to accomplish the same result.
SOLUTIONS: CONSTRUCTIVE TRUSTS AND LIS PENDENS. Recovering assets from an elder abuser is like closing the barn door after the horse has bolted because you have to chase down those elusive assets. Constructive trust actions, however, can help to bring the “horse” back into the barn, or often times, more importantly, recover assets that were purchased with the elder’s stolen money or property.
Since the elder is usually deceased by the time the theft is detected, it is the elder’s heirs and/or beneficiaries who are left to bring suit as plaintiffs against the elder-abuser defendant. A “remedy” (which is just a legal term for the relief the Court provides in a lawsuit) for the plaintiffs includes the creation of a constructive trust against real property that was wrongfully taken by the defendant. It is interesting to note that a “constructive trust” is not a Trust at all—at least not in the legal sense. Rather it is a term used to describe the forced transfer of property from the wrongdoer (the elder abuser) to the rightful owners (the heirs and/or beneficiaries of the deceased elder). When a Court “imposes a constructive trust” over property, really the Court is just ordering the party who has legal title to that property to transfer it to the plaintiffs. This can be a powerful tool in recovering stolen property.
In fact, Courts have found the remedy appropriate even in those circumstances where the money obtained from the elderly victim was later used to buy new property. Not only is the wrongfully taken property subject to a constructive trust, so is any subsequent property purchased with those assets by the elder abuser. Now that’s a horse of a different color. But whatever the color of the horse (or cow, or chicken or whatever the wrongdoer bought), it can all be returned to the rightful owners through use of a constructive trust.
An equally powerful mechanism, however, is stopping further property transfers from occurring in the first place. The law has a mechanism to stop the further transfer of wrongfully obtained property—referred to as a “lis pendens.”
LIS PENDENS: CRACKING THE REAL ESTATE TRANSFER. A lis pendens allows a party “to an action asserting a real property claim . . . (to) record a notice of pendency of action in which that real property claim is alleged.” (Cal. Civ. Proc. Code § 405.20). In its simplest terms a lis pendens is a lien on the property that puts all third parties on notice that someone other than the title holder has asserted a claim against the property. The claim is based on the premise that “[o]ne who gains a thing by fraud, accident, mistake, undue influence, the violation of a trust, or other wrongful act, is . . . an involuntary trustee of the thing gained, for the benefit of the person who would otherwise have had it.” (Cal. Civ. Code § 2224).
A lis pendens can only be filed after a legal action has begun in Court. But once a lawsuit has been filed, a lis pendens can be recorded against the real property and then filed with the Court. At that point, any further transfer, or attempted transfer, of the real property would be subject to the lien and could be return to the rightful owners if they are successful in their suit.
CONSTRUCTIVE TRUSTS AND LEGAL MUSCLE. Constructive trusts are becoming increasingly important given the prevalence of abusive non-probate transfers. Living trusts, joint-tenancy bank accounts, durable powers of attorney and retirement plan designations are efficient estate transfer mechanisms, but they can also be invitations for fraud and undue influence by elder abusers. While estate related litigation ranges from traditional will contests to fraud and punitive damage claims, the utilization of the constructive trust action is expanding.
Constructive trust claims can be filed in courts with probate jurisdiction or in courts of general jurisdiction having authority over civil non-probate matters. The plaintiff’s choice for judicial oversight is based upon a mix of statutory limitations, strategy, tactics, ease of discovery and estimated time to trial.
Estate and trust litigation attorneys often share their clients’ frustration over the difficulties in remedying the financial abuse of the elderly. Remedies such as constructive trusts can go a long and creative way in preventing obvious and unfair results that would otherwise occur absent judicial intervention.
© Copyright Albertson & Davidson, LLP and Michael A. Hackard, 2012. All rights reserved.