Constructive Trust - Breach Of Duty In Direct Dealing With Beneficiary

The trustee has a duty to make a complete disclosure and to treat the beneficiary with the utmost fairness when there is a direct conveyance, contract, or other transaction between them. This duty extends to everyone who acts as a fiduciary and to persons in a confidential relation, similar to the duty of loyalty in the administration of a trust. It is a duty arising from the superiority and dominance of the fiduciary and the danger of overreaching or undue influence.

The trustee or other representative can be declared a constructive trustee of any property obtained through a transaction where there was a breach of the duty to make full disclosure and to act fairly. Such clearly inequitable conduct justifies the imposition of a constructive trust. If, therefore, a trustee purchases the interest of one of the beneficiaries under the trust for an inadequate price, without revealing facts that the beneficiary did not know concerning the value of the interest being sold, and later the trustee realizes a profit on the transaction, a constructive trust can be imposed to remove this gain from the trustee.