John R. Blake, Jr., Esq.
When property owners turn their attention to estate
planning, a review of their real estate holdings and the manner in
which title to their properties is held can yield beneficial results
not only in terms of avoiding probate or succession planning, but also
in terms of a present benefit from changing the manner in which title
is held to a more advantageous form.
In some cases, a review of a person's real estate
holdings may reveal an undesirable situation, such as where investment
rental properties are held in an individual's name, thereby exposing
the property owner to personal liability. In such a case, estate
planning provides an opportunity to change the form of ownership into a
more protective structure.
Inter vivos estate planning trusts, either revocable
or irrevocable, are a common vehicle for purposes of removing assets
from probate. If the real property is to be transferred to an estate
planning trust, the transfer is accomplished by a deed to the trustees
of the trust, not the trust itself. However, there are some title
considerations that must be taken into account when using an estate
planning trust as a real estate holding entity.
All of the New England states permit the use of an
inter vivos estate planning trust as a grantee of real estate, but the
required level of disclosure of the nature and terms of the trust
relationship varies amongst those states. New Hampshire, for instance,
allows the identification of the trust relationship to be recited in
the grantee section of the deed into the trustee(s). This is
convenient for those who want to keep the terms of the inter vivos
trust, which may contain personal or family details that are best kept
private, confidential rather than part of the public record. When the
property is conveyed out of the trust, either in the administration of
the trust, or in connection with its dissolution, the trustee can
certify, either in the deed or in a separate instrument, as to his
authority to do so, and the grantee is entitled to rely on such
statement, pursuant to the Uniform Trustees Powers Act contained on NH
RSA 564-A. Connecticut follows a similar scheme in Ct. G.L. c. 821,
§47-20, as does Maine.
Massachusetts had taken a somewhat different approach.
Until recently, Massachusetts required that a declaration of trust be
recorded prior to or at the time of the recording of the deed into the
trustee. Failure to record the declaration of trust would result in a
failure of the intended arrangement, with the named grantee taking
title individually rather than as trustee.
One method Massachusetts practitioners use to avoid the
recording of the estate planning trust is to record a nominee trust to
be the record title holder to the property, with the estate planning
trust owning 100 percent of the beneficial interest of the nominee
trust. A nominee trust, being a pure principal/agent relationship
rather than a true trust, typically does not contain any sensitive
terms, and is therefore preferable for recording. However, under
Massachusetts case law, a trustee of a nominee trust can be held
personally liable in tort for injuries suffered by a third-party while
on the trust's property (see First Eastern Bank, N.A. v. Jones, 413
Mass. 654, 602 N.E.2d 211 (1992)) Trustees of a true trust, on the
other hand, have the liability protections afforded them under M.G.L.
c. 203, §14A.
With the addition of M.G.L. c. 18, §35, Massachusetts
now permits the recording of an affidavit by the trustee setting forth
the provisions of the estate planning trust relevant to the trustee's
power to deal with real estate owned by the trust, in lieu of recording
the entire declaration of trust. The affidavit is binding upon the
trustee in favor of third parties dealing with the trustee, such as a
bona fide purchase for value in a real estate transaction. Another
benefit of utilizing the affidavit rather than a nominee trust is the
benefit of M.G.L. c.203, §14A, as referenced above.
The recent Massachusetts statute tracks a similar
statute in Rhode Island, R.I.G.L. §34-4-27, which also permits the
recording of an affidavit, or memorandum of the trust's terms rather
than the declaration itself.
Vermont, like New Hampshire, does not require that a
declaration of trust be recorded, but the trustee customarily does
provide a trustee's certification as to the provisions of the trust
governing the trustee's authority to deal with real estate owned by the
One potential trap to avoid in conveying real property
in conjunction with estate planning is to overlook the existence of an
owner's title insurance policy insuring the owner's interest in the
property. As stated in the jacket to the standard ALTA policy, coverage
ceases upon a change in ownership of the property. A conveyance in
conjunction with estate planning may inadvertently void coverage,
especially where the property owner has an insurable, but not
marketable, title to his or her property. If a property owner undertakes
the effort and expense to have an estate plan prepared, the owner
should also take the extra step of obtaining, at the time of the
transfer to the trust, an endorsement to his or her existing owner's
policy reflecting the change in ownership to ensure the policy's