Taking Over Terms of Contract Sale for Son’s Benefit Does Not Create Constructive Trust

April 26, 2013 | Erika Eckley

In Iowa, a constructive trust “arises when a person holding title to property is subject to an equitable duty to convey the property to another, on the ground that the person holding title would be unjustly enriched if the person were permitted to retain the property.” Iowa Code § 633A.2107. The issue of whether a constructive trust existed was reviewed in a recent Iowa case.

In a handwritten will, the decedent designated his final wishes for the distribution of his property to his five sons: Terry; Larry; Jerry; Gary; and Barry. The decedent designated that his son, Larry, would receive the 200 acre property, which is the one in dispute in this case, and he should pay the $12,000 paid by the decedent for the property to Larry’s brother, Gary.

The decedent had paid for the property after Larry attempted to purchase the land on contract. Larry could not keep the property because of farm loan programs he was involved in at the time. Instead, the decedent took over the contract, and Larry cash rented the property from his father.  In some years, the father gave the rent payments back to Larry.

When the decedent’s holographic (handwritten) will was probated, Larry objected to the will. He also argued that he was the actual owner of the property before it was devised to him in the decedent’s will. In addition, he claimed the estate owed him more than $100,000 for expenses he incurred in maintaining equipment owned by the decedent. The estate counterclaimed for unpaid rent on the disputed property.

The probate court held that the will was valid. It rejected Larry’s claims and entered judgment against Larry for $16,079 in unpaid farm rent on the disputed property. Larry appealed.

On appeal, the Court affirmed. The court held that a constructive trust for the disputed property was not created. The court found it to be significant that the decedent borrowed money and purchased the property for Larry’s benefit. By retaining ownership of the property purchased by the decedent, the estate did not receive an unjust benefit to Larry’s detriment. Larry even benefitted from the arrangement because he was able to use the land in essence rent-free in some years. The will was equitable in devising the property to Larry by requiring Larry to repay the decedent’s investment in the property to one of his brothers.

The court also rejected Larry’s application for expenses. The court noted that Larry never submitted any claims to the decedent when he was alive. Larry also failed to keep any records of the expenses, so the appellate court agreed that the expenses claimed were not “justly due.”

The court also agreed that rental expenses were owed to the estate by Larry. Because the disputed property was not held in a constructive trust, Larry did not own the property. Also, typically all specifically devised property is to be delivered to the devisees within nine months of a personal representative’s appointment, but Larry was not yet entitled to the property because, under the terms of the will, he was still required to pay $12,000 to his brother before receiving the property. Because Larry did not yet own the property, he was liable for rent to the estate. In re Estate of Loy, No. 3-212, 2013 Iowa App. LEXIS 452 (Iowa Ct. App. Apr. 24, 2013)