By: Attorney William Rosa| Partner
My last blog focused on the various forms of tenancies in which you can hold real estate in Massachusetts. This blog is an expansion of my previous blog dated September 6, 2016 in which we are going to discuss an alternative type of ownership which is commonly used today in Massachusetts.
Today’s subject is Trusts. For those of you not familiar with the concept of a Trust, a Trust is most commonly a written instrument in which one individual (the Trustee) holds title to real estate for the benefit of one or more other individuals (the Beneficiaries), for example: A and B (husband and wife) are the owners of real estate. A and B create a Trust in which A is named as Trustee, and A and B are each named as 50% Beneficiaries of the Trust, with the survivor of them being entitled to the entire 100% beneficial interest upon the death of the other.
The primary reason for the use of a Trust is to separate the legal ownership in the Trustee from the equitable ownership in the Beneficiaries. This separation of legal and equitable ownership may shield the Beneficiaries from third-party liability. Since the Schedule of Beneficiaries to a trust is not recorded with the Declaration of Trust at the Registry of Deeds, the identity of the Beneficiaries is not a matter of public record. Additionally, upon the death of the first of the Beneficiaries, the entire beneficial interest of the trust is held by the survivor Beneficiary and does not pass through the estate of the first deceased Beneficiary.
There are two types of Trusts in Massachusetts. The first is a Testamentary Trust which is a Trust created by will or other document dealing with the estate of a particular person and only comes into use upon the death of that individual. This type of Trust is better left to a discussion of estates and estate planning rather than real estate; so, beyond identifying this type of Trust, we will not delve into Testamentary Trusts at this time.
The second type of Trust is what is commonly referred to as an Intervivos Trust which means it comes into use while the person who creates the Trust is alive. Intervivos Trusts can take, basically, two forms. The first is a Trust that is only used in a very few states, Massachusetts being one of them. This Trust is loosely referred to as a Nominee Trust. A Nominee Trust says that A, as Trustee, holds legal title to the property for the benefit of A and B (using the example above); however, the Trustee has no authority or power to deal with the property in the Trust without the consent of the Beneficiaries. Based upon the terms of the Trust, consent must either be by unanimous or a majority vote of the Beneficiaries in order for the Trustee to sell, mortgage, or take any action relative to the property held in the Trust. The Trustee must receive, in writing, such consent of the beneficiaries.
The second type of Intervivos Trust used in Massachusetts is more closely akin to a “true” Trust. In this case, A, as Trustee, again holds property for the benefit of A and B but in this type of a Trust, A, as Trustee, has the full and complete authority to deal with the Trust property as he or she deems fit. The relationship between the Trustee and the Beneficiaries is one of a fiduciary nature. This means that the Trustee owes to the Beneficiaries upmost good faith in dealing with the Trust property; or, in other words, the Trustee will do nothing with the Trust property that would be detrimental to the Beneficiaries. The advantage of this type of Trust is the Trustee may deal with the property without the consent of the Beneficiaries as long as the action taken is in the best interest of the Beneficiaries. If the Trustee is selling or mortgaging the property, any buyer or bank mortgaging the property does not need to look to any other party for consent to consummate the transaction.
As in all matters of this nature, it is helpful, if not imperative, that you discuss the available options with an attorney and accountant well versed in taxation and real estate law in order to ensure that the Trust that you are selecting is the appropriate vehicle for the purpose you wish to accomplish.
I hope this information has been helpful in alerting you to the existence of this very flexible instrument that may be of benefit to you and your family. Additionally, if you have any questions, please call the attorneys at Wynn & Wynn, P.C. at 1.800.852.5211 or request a free consultation.