You have a big heart and a little bit of money. You want to help out a cash-strapped family member, and – “because you’re family” – you don’t put down how much you’ll loan or how it’ll be paid back. You would hate to do it, but, in a worst-case scenario, you suppose a court could help you get it back. Through its opinion in Roberts v. Smith, however, the Georgia Court of Appeals may have made it harder to get that money or property back from a family member through an implied trust.
Four siblings arranged to purchase a home for the benefit of one of the siblings. All of the siblings verbally agreed to contribute money toward the purchase and maintenance of the house. One of the siblings testified that “[n]obody had a set amount to pay,” and another testified that “we are a family. So we don’t sit down and say you put this amount, you put this amount. Whatever was needed we did.” All of the siblings contributed toward the down payment, and another later made one insurance and one tax payment and bought some doors for the house. One sibling – Johnnie – however, was the sole buyer listed in the purchase agreement, obtained the mortgage, and was the only borrower listed on the promissory note and security deed. After closing, Johnnie executed a warranty deed transferring ownership of the property to the siblings and himself as joint tenants with rights of survivorship. Johnnie arranged for the monthly mortgage payments to be automatically deducted from the account he owned jointly with his wife. No other sibling contributed to the mortgage payments while Johnnie was alive.
As you might expect, Johnnie ended up dying. His wife became executor of his estate, and mortgage payments continued to be deducted from Johnnie and his wife’s account for at least 8 months after Johnnie died. The executor closed Johnnie’s accounts and told the surviving siblings to refinance the mortgage and to pay it, which they tried to do but were rebuffed because their names were not on the loan. One of the siblings made mortgage payments directly to the lender for 5 months. The lender notified the executor that the loan was in default after Johnnie’s accounts were closed and because Johnnie’s warranty deed violated a provision of the security deed requiring the lender’s pre-approval of any transfers. After some foreclosure proceedings were initiated, the executor paid off the mortgage and the lender assigned the security deed and loan documents to Johnnie’s estate.
The siblings sued the executor seeking a declaration that they were the owners of the property. The executor counterclaimed asserting, among other things, an implied trust. The trial court ruled in favor of the executor, but the Court of Appeals reversed.
We must first start with what an implied trust is under Georgia law. An implied trust can be either a resulting trust or a constructive trust. A resulting trust is “a trust implied for the benefit of the settlor or the settlor’s successors in interest when it is determined that the settlor did not intend that the holder of the legal title to the property also should have the beneficial interest in the property” under a number of circumstances including a “purchase money resulting trust.” A purchase money resulting trust, in turn, is a “trust implied for the benefit of the person paying consideration for the transfer to another person of legal title to real or personal property.” With the payment of such consideration there is a rebuttable presumption in favor of a resulting trust. However, if the person who pays the consideration and the person to whom the property is transferred are husband and wife, parent and child, or siblings, a gift is presumed and is rebuttable only by clear and convincing evidence. This is called the familial gift presumption, and, while it may be “exceedingly difficult to differentiate between” resulting trusts and constructive trusts, the familial gift presumption appears to apply only to purchase money resulting trusts and not to constructive trusts.
“No problem,” you say. “If I have to go to court against my sibling, I’ll get a lawyer who stays on top of fiduciary litigation cases, and she’ll make our claim a constructive trust claim.” A constructive trust “is a trust implied whenever the circumstances are such that the person holding legal title to property, either from fraud or otherwise, cannot enjoy the beneficial interest in the property without violating some established principle of equity.” Not so fast. A constructive trust is not a claim in itself but a remedy to prevent unjust enrichment and allow recovery of property if an unjust enrichment claim prevails. Unjust enrichment, however, does not apply when the conferred benefit was a gift or voluntary payment. So, even if the familial gift presumption does not apply to constructive trusts, an unjust enrichment claim might be defeated by showing that the payments were gifts or voluntary payments.
In this case, there was evidence that put into question whether Johnnie’s financial contributions were gifts or voluntary payments not required to be repaid. And, unless you impose some formality in financial dealings with family members – like documenting whether the monies need to be repaid, when, and how – there’s a good chance that, if a dispute arises, someone is going to argue that the payment was a gift or a voluntary payment that was not required to be repaid “because you’re family.”