It is common for home buyers in Massachusetts to take title to property with a nominee realty trust (sometimes simply called a “realty trust” or “nominee trust”). What is a nominee realty trust? A nominee trust is an entity unique to Massachusetts, and despite its name, it’s not a true trust. It does, however, provide several benefits for property owners concerned about:
- Estate planning
- Simplifying subsequent transfers.
What is a nominee trust?
As opposed to a true trust, a nominee trust is really just a principal and agency relationship between the beneficiaries and the trustees. As explained by the Supreme Judicial Court of Massachusetts, a nominee trust is “an entity created for the purpose of holding legal title to property with the trustees having only perfunctory duties”. Morrison v. Lennett, 415 Mass. 857, 860 (1993).
A true trust, on the other hand, is defined as “a fiduciary relationship with respect to property, subjecting the person by whom the title to the property is held to equitable duties to deal with the property for the benefit of another person.” Restatement (Second) of Trusts § 2 (1959). The trustee of a true trust has a duty to the beneficiary to administer the trust and can exercise such powers as are necessary or appropriate to carry out the purposes of the trust and that are not forbidden by the terms of the trust. Id. at §§ 169, 186.
The common characteristics of a nominee trust are as follows:
(1) the names of the beneficiaries are filed with the trustees rather than being publicly disclosed;
(2) a trustee may serve simultaneously as a beneficiary;
(3) the trustees lack power to deal with the trust property except as directed by the beneficiaries;
(4) a third party may rely on the disposition of trust property pursuant to any instrument signed by the trustees, without having to inquire as to whether the terms of the trust have been complied with; and
(5) the beneficiaries may terminate the trust at any time, thereby receiving legal title to the trust property as tenants in common in proportion to their beneficial interests.”
Roberts v. Roberts, 419 Mass. 685, 687 n.2 (1995), quoting In Re Grand Jury Subpoena, 973 F.2d 45, 48 (1st Cir. 1992).
Most significantly, a nominee trust provides that the trustees are to act only at the discretion of the beneficiaries. It is the beneficiaries – not the trustees – who truly own the property. While the deed to the property will contain the name of the trust and trustees, the beneficiaries are not listed on the deed or even the trust instrument. Rather, beneficiaries are normally listed in a “Schedule of Beneficiaries,” which is not recorded and can be kept confidential. Although the same person can be a trustee and a beneficiary, one cannot be the sole trustee and the sole beneficiary at any point in time.
What are the benefits of a nominee trust?
- Privacy – The Schedule of Beneficiaries is not recorded and, as such, the true owners of the property need not be publicly disclosed.
- Simplicity – A nominee trust can be used to simplify title where multiple people and/or entities own the property. It can also simplify the process of transferring ownership to the property. That is, instead of recording an entirely new deed, one can transfer ownership by simply amending the Schedule of Beneficiaries (with the written consent of the current beneficiaries, of course).
- Avoid probate – Like a true trust, a nominee trust can be used to avoid passing title through a probate estate.
A common option for people with revocable or irrevocable trusts (a/k/a “true” trusts) is to take title to property as trustee of a nominee trust, and to name the trustee(s) of the “true” trust as the beneficiary of the nominee trust.
A recent decision issued by the Supreme Judicial Court of Massachusetts (SJC) brings to light another benefit of nominee trusts: Mass. Health cannot reach the beneficial interest of the decedent in a nominee trust. Guilfoil v. Sec’y of Exec. Office of Health & Human Servs., No. SJC-12922 (Mass. Feb. 9, 2021). In Guilfoil, the decedent retained a life estate in her property as a beneficiary of a nominee trust, while her five children had a remainder interest. The SJC concluded that because the trust was a nominee trust, not a true trust, the plaintiff had no ability to reclaim ownership of the property’s remainder interest and that her life estate was not a countable asset for Medicaid eligibility purposes.
Why not just take title with an LLC?
Taking title with an LLC may be an attractive option for people concerned with anonymity and multi-member companies seeking to avoid liability. However, in Massachusetts, an LLC does not protect single-member LLCs or managers of LLCs from liability for negligence or misrepresentation. So, despite popular thought, taking title with an LLC does not afford as much protection as one might hope. While an LLC does offer some limited liability and can be used to maintain privacy of ownership, this latter benefit can also be attained with a nominee trust at less cost. It costs $500 to register an LLC in Massachusetts, and $500 every year thereafter to renew, but only $155 to record a new deed and $105 to record a trustee’s certificate, with no annual renewal fees. It is critical that you consult with an attorney to determine the best option for you.
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