Types of TrustsIn Minnesota, a will must be in writing. Minn. Stat. § 524.2-502(1). Unlike a will, a trust can be created either orally or in writing unless the trust would change an interest in land. Minn. Stat. § 501C.0407. Trusts created only orally are called “oral trusts” and have settlors (the person or people creating the trust), trustees, beneficiaries, and trust property. By contrast, constructive trusts are not trusts at all—they are an equitable remedy for when someone holds legal title to property but has no equitable right to it. An oral trust is created on purpose by a settlor. A constructive trust does not have a settlor; it is awarded by a court to an equitable owner of property who does not hold legal title.

What is an Oral Trust?

An oral trust is a trust. A trust is created only if (1) the settlor has sufficient capacity, (2) the settlor indicates an intention to create the trust, (3) the trust has a beneficial interest, and (4) the trustee has duties to perform. Minn. Stat. § 501C.0402(a). Some trusts, such as special needs trusts, require specific written terms and therefore cannot be created orally. Otherwise, Minnesota allows oral trusts unless the trust would change an interest in land. Minn. Stat. § 501C.0407. The key element to showing that an oral trust exists is to show by clear and convincing evidence that the settlor indicated an intention to create the trust. Minn. Stat. § 501C.0407.

What is a Constructive Trust?

By contrast, a constructive trust is not a trust. A constructive trust is an equitable remedy where a court gives a claimant right to property rather than a claim for damages. A court construes the circumstances, but does not construct a “trust” as defined in the trust code. Black’s Law Dictionary (11th ed. 2019). A court cannot construct a trust. This judicial remedy is called a constructive “trust” only for historical reasons because early cases applying this remedy often involved trustees who stole money from trusts. Id. It was certainly not the intention of such thieves to create a trust.

The key to understanding the difference between an oral trust and a constructive “trust” is that in an oral trust, the settlor clearly indicated an intention to create the trust, whereas a constructive trust may be an appropriate remedy where there was no such intention or settlor. In a dispute involving an oral trust or theft where a constructive trust may be an appropriate remedy, hire a litigation attorney familiar with trust law.