Articles from The Massachusetts Focus
Newsletter of Stewart Title Guaranty Company, Massachusetts Offices
Fall 2006, Volume 5, Number 4
by Gary F. Casaly, Special Counsel
There is a lot of law that has been decided and settled about trusts. There are few questions that remain unanswered. But the subject still remains mysterious, or so it seems. This article will attempt to explore and explain some of the questions that arise on a regular basis concerning trusts.
What is a Trust?
What is a trust and why would anyone want to create one? Historically, trusts were created in an effort to protect the true owner from the burden of taxes and the exposure of a forfeiture of title. In Bogert, Trusts, West Publishing Company (Sixth Edition, 1987), Chapter 1, Sec. 2 the author says this:
As the feudal system prevailed when uses arose, the lord was entitled to a “relief,” or money payment, when the land descended to an heir of full age; to the rights of “wardship” and “marriage” when the heir was a minor; and to “aids” upon the marriage of a daughter of the lord, the knighting of his eldest son, or when the lord was held to ransom. These burdens, and others of similar nature, fell upon the holder of the legal title. By enfeoffing another of the legal title and reserving only the use, the tenant escaped such extractions.
So, too, upon the commission of certain crimes the holders of the legal title suffered forfeiture, which could only be avoided by vesting the legal estate in another and retaining the use.
So, the geneses of trusts is found in the efforts of the medieval barristers to “protect” their clients from the burdens of legal ownership of land imposed by the sovereign while at the same time permitting the clients to have the use of the land.
This concept has developed over the years, still holding true to the original purposes, but with more permutations. To conveyancers the historical roots of the trust are at best an interesting piece of trivia; more important to conveyancers are the answers to the questions that surround how the trust works and how to get title “out of” (and probably “into”) a trust.
Getting Title “Into” A Trust
With the exception of certain trusts designed to remedy a wrong, all trusts are in writing. This writing constitutes the “rules” that will govern and dictate what needs to be done to get the title “out of” the trust. This “writing” can arise in three ways: a declaration of trust, a declaration of trust accompanied or followed by a deed and a deed of trust. What’s the difference between these forms?
A pure declaration of trust, at least when it applies to real estate, is the situation where the title holder makes a “proclamation” that he or she shall thereafter hold the title to the real estate in trust, specifying the terms of the trust in the “proclamation.” The declaration itself puts the title “in the trust,” with no further action — no necessity of a deed — on the part of the declarant. It happens, however, that many times, even though the title holder is the declarant, the title holder nonetheless feels compelled to and in fact deeds the property from himself individually to himself as trustee. This deed is wholly unnecessary with respect to the initial declaration provided it applies to locus; the mere declaration is sufficient. (When it is realized that the recording charges for a trust and a deed amount to a total of $350 for the two instruments, it’s wondered whether this method should be re-thought.)
Then we have what I’ll characterize as the “regular” way of “getting the title into the trust.” This method involves the declaration — either by the title holder of a third party — followed by a deed from the title holder to the trustee under the declaration. This method is almost invariably used, regardless of whether the declarant is the title holder or not. As noted, such a deed is unnecessary if the title holder is the declarant but it is the option that’s used where the declaration is someone other than the title holder.
The final option of “getting the title into the trust” is to use a deed which itself contains the terms of the trust. Like the pure declaration of trust, this method involves but one document, and generally applies where the title holder is not the intended trustee. This method is rarely used, but there is no reason for failing to employ it when applicable.
Types of Trusts
There are many types of trusts — intervivos trusts, testamentary trusts, pour over trusts, nominee trusts, Massachusetts Business Trusts, as well as a host of others — and for the most part they all share the same questions that surround the issue of “getting the title out of the trust.” These questions are resolved by a review of the powers in the trust, and any limitations on those powers and requirements as to how they are to be exercised. For example, the primary powers of a trust would include the power to sell and the power to mortgage. Perhaps, especially in estate planning trusts, the power to gift would be important, and this particular power might involve self-dealing, at least where the recipient of the gift happens to be the trustee.
Powers of Trustees
What would constitute a power of sale? Clearly, including a provision “to sell” would do the trick. Ordinarily, one sees language just like this in a trust, but other language will also confer a power to sell upon the fiduciary. The classic phrase is “invest and reinvest,” but other verbiage, stating that the property is “to be invested,” or authorizing the fiduciary to “manage and invest” has been held to also include a power of sale as well. See Boston Safe Deposit & Trust Co. v. Mixter, 146 Mass. 100, 15 N.E. 141 (1888), Harvard College v. Weld, 159 Mass. 114, 34 N.E. 175 (1893). Language that the trustee has “powers of investment” would likewise include a power to sell.
The power to “sell” connotes more than simply the authority to transfer or convey and thereby dispose of the property. The term requires a transaction involving valuable consideration. Similarly, language in the nature of the alternate verbiage that includes a power of sale would require a transaction with valuable consideration.
As noted, the power to sell does not include the power to give away. Neither does it include a power to mortgage. Loring v. Brodie, 134 Mass. 453; Sanger v. Farnham, 220 Mass. 34, 107 N.E. 359; Turner v. Morson, 316 Mass. 678, 57 N.E.2d 18. The power to mortgage — or pledge property — is an awesome one inasmuch as it permits the property to be put beyond the reach of the trustee who grants the mortgage with less than fair and full consideration being received in return. It is for this reason that a special separate power to mortgage must appear in the trust if a mortgage is to be granted.
Powers can be included in a trust by reference, without the need to enumerate them at length. Under G.L.c. 184B, §2 it is provided:
The following powers shall be known as the “Statutory Optional Fiduciary Powers” and may be given to the fiduciary in a will or trust by specific reference thereto in said will or trust in addition to all common law and other statutory powers:
- Said fiduciary shall have the power without approval of any court:
- to retain any property in the form in which it is received and, while a trust is revocable by the settlor, to purchase or retain any property the purchase or retention of which is requested by the settlor;
- to accept additional property in any trust hereunder from any source and upon any special terms;
- with respect to any tangible personal property, to repair, store, insure or otherwise care for such property and to pay such shipping or other expense relating to such property as the fiduciary deems advisable;
- to abandon any property which the fiduciary determines to be worthless;
- to invest principal and income in such property as the fiduciary may determine, and, without limiting the generality of the foregoing, to invest in investment company shares or in shares or undivided portions of any common trust fund established by any fiduciary without notice to any beneficiary;
- to sell, exchange or otherwise dispose of the property at public or private sale on such terms as he may determine, no purchaser being bound to see to the application of any proceeds;
- to lease the property on such terms as he may determine although the term may extend beyond the time when it becomes distributable;
- to decide all questions between principal and income according to law;
- to keep registered securities in the name of a nominee;
- to pay, compromise or contest claims or controversies, including claims for estate or inheritance taxes, in such manner as he may determine;
- to participate in such manner as he may determine in any reorganization, merger or consolidation of any entity the securities of which constitute part of the property held, and to deposit such securities with voting trustees or committees of security holders even though under the terms of deposit such securities may remain deposited beyond the time when they become distributable, to vote upon any securities in person or by special, limited or general proxy, with or without power of substitution, and otherwise to exercise all the rights that may be exercised by any security holder in his individual capacity;
- to borrow such amounts as he may consider necessary to obtain cash for any purposes for which funds are required in administering the estate or trust, and in connection therewith, to mortgage or otherwise encumber any property on such conditions as he may determine although the term of the loan may extend beyond the time that would otherwise be needed for completing the administration of the estate or beyond the term of the trust;
- to allot in or towards satisfaction of any payment, distribution or division, in such manner as he may determine, any property held at then current fair market values determined by him;
- to hold trusts and shares undivided or at any time to hold the same or any of them set apart one from another;
- to lend, borrow, buy or sell on commercially reasonable terms to or from any fiduciary acting under another instrument made by the testator or settlor; and
- to combine all or part of the property for investment with property held by a fiduciary acting under another instrument upon substantially similar terms made by the testator or settlor or by his or her spouse, except that property qualifying for a marital, orphan or charitable deduction for federal tax purposes may not be so combined.
- to retain any property in the form in which it is received and, while a trust is revocable by the settlor, to purchase or retain any property the purchase or retention of which is requested by the settlor;
Note that the powers are termed “Statutory Optional Fiduciary Powers” and can be included in the trust “by specific reference thereto.” (emphasis added.)
How Powers are Exercised
Who can exercise the powers provided for in the trust? If there are multiple trustees, all must act in concert (unless the trust provides otherwise). “Where there are two or more trustees, it is essential that they all concur in the exercise of powers conferred upon them.” Scott on Trusts, 194. See also Chapin v. First Universalist Society, 8 Gray 580 (1857). The only exception is where the trustees are managing a public charity. This rule translates into an axiom, namely that the trustees cannot delegate their duties, either as to third parties or as between themselves. If there are successor or substitute trustees they can exercise the powers, unless the trust provides otherwise.
Delegation, when not authorized, results in the trustee improperly permitting others to make the decisions that he or she is required to personally make in connection with the administration of the trust. Self-dealing is its sister and occurs when the trustee takes advantage, or even appears to take advantage, of the trust estate and the beneficiaries by conveying title to himself. Self-dealing is so contrary to fidelity and good faith that the courts have said that even if the trustee purchases the trust property for himself at a sum greater than its value, the transaction can still be attacked and undone by the beneficiaries. The theory here is that the courts don’t even want the trustee to be in a position to deal with himself, even if the transaction could be financially beneficial to the trust. Self-dealing is permitted only if the beneficiaries consent, are competent to do so and have done so after full and complete disclosure.
Although self-dealing is prohibited under the law of trusts, the question to be addressed is the beneficiaries' remedies in the case where self-dealing has occurred. It would appear that after a transfer to a third party for valuable consideration (and a mortgage is such a transfer) the beneficiaries are limited to an accounting, unless the sale is to one other than to a bona fidepurchaser. See Scott on Trusts §170.2, et. seq.
There is a “safe harbor” that will protect purchasers where self-dealing occurs in the chain of title. This refuge is contained in Title Standard No. 23. It provides:
Title Standard No. 23
A title based upon a deed from a trustee to himself free of trusts is not on that account defective if
- the instrument establishing the trust expressly authorizes self dealing on the part of the trustee;
- a court of competent jurisdiction has rendered a judgment authorizing or ratifying the deed;
- a period of at least 30 years has elapsed since the recording of the deed and the record does not disclose any adverse claim based thereon;
- the trust does not contain spendthrift provisions and (i) all beneficiaries are legally competent and assent to or ratify the conveyance by the trustee; or (ii) barring a prohibition against self-dealing, the recorded declaration recites that third parties may rely without inquiry.
The important provision here is the one contained in paragraph (4) of the standard. It is the one that concerns the “reliance” clause in the trust, if there is one. If there is a “spendthrift” clause in the trust, all bets are off. Otherwise, a purchaser for value can take a title where a self-dealing conveyance has occurred in the chain if (i) the beneficiaries are legally competent and assent to or ratify the conveyance or (ii) the recorded declaration recites that third parties can rely upon the acts of the trustee (this would be the trustees certificate or the self-executing language discussed later in this article), and there is no express prohibition against self-dealing in the declaration.
The provisions of a nominee, although ordinarily containing the same kind of powers as in any other kind of trust, generally contain a “precondition” that the powers may not be exercised without the consent of the beneficiaries. This is the nature of a nominee trust — the beneficiaries are the real principals — but with this kind of provision the trustees are powerless to act, preventing title to be “taken out of the trust.” The typical provision states:
Except as hereinafter provided in case of termination of this Trust, the Trustees shall have no power to deal in or with the Trust Estate except as directed by all of the Beneficiaries. When, as and if and to the extent specifically directed by all of the Beneficiaries, the Trustees shall have [the enumerated powers].
With such “strings” attached it’s impossible for the trustees to act. However, this prohibition remains an obstacle “[e]xcept as hereinafter provided.” This clause generally refers to two other clauses that appear in the instrument, which provide the authority that the trustees need. One of the clauses, generally referred to as the “trustee’s certificate” provision, states:
Any person dealing with the Trust Estate or the Trustees may always rely without further inquiry on a certificate signed by the person or persons appearing from the records of the Registry of Deeds to be the Trustees, as to who are the Trustees or the Beneficiaries hereunder, as to the authority of the trustees to act or as to the existence or nonexistence of any fact or facts which constitute conditions precedent to action by the Trustees or which are in any manner germane to the affairs of the Trust.
The apparent “collision” of these two provisions — one states that the trustees can’t act without the consent of the beneficiaries, and the other states that the trustees can provide a self-serving statement that the precondition has been met — is understood when it realized that without them third parties could not rely upon deeds from the trustees. The provisions do not cancel each other out; if the trustees violate their trust (don’t get beneficiary approval) they can still be surcharged, though third party purchasers would be protected.
The lack of a trustees’ certificate is sometimes felt by conveyancers to result in no protection for the purchaser. But this is not necessarily true. Most nominee trusts also contain this “self-executing” language which provides the same protection without any certificate at all:
Every agreement, lease, deed, mortgage, note or other instrument or document executed or action taken by the person or persons appearing from the record of the Registry of Deeds to be Trustees shall be conclusive evidence in favor of every person relying thereon or claiming thereunder that at the time of the delivery thereof or the taking of such action this Trust was in full force and effect, that the execution and delivery thereof or taking of such action was duly authorized, empowered and directed by the Beneficiaries.
The above language would obviate the necessity of a separate trustees’ certificate when taking a deed, mortgage, etc. from a trustee.
Official and Individual Capacities of Trustees
Questions sometimes arise not as to the authority of the trustee to convey, but rather the capacity in which he purports to exercise the power. These questions revolve around recitations in the grantor clause, in the signature block and sometimes in the acknowledgment. It is feared by some that the failure to include the word “trustee” in the conveyance (or the inclusion of that word when the persons hold title individually) causes the conveyance in all cases to be defective. But it will be seen that this fear is not always well-founded. In Kaufman v. Federal National Bank, 287 Mass. 97, 191 N.E. 422 (1934), for example, Celia Green was the named trustee of the Back Bay Realty Trust. However, since no shares had been issued and no beneficiaries ever existed, Celia in fact owned locus individually. In connection with a mortgage transaction, and in compliance with requirements of the Federal National Bank, Celia mortgaged the property from herself to herself as trustee of the trust and then assigned the mortgage to the bank, executing the assignment in her capacity as trustee. After the mortgage went into default and the bank had foreclosed and taken title for itself, Celia deeded the property in her individual capacity to Kaufman. The question was who had a better title, the bank or Kaufman. After ruling that the mortgage was void — one cannot convey to himself, so the mortgage to Celia from herself (where the trust was a nullity) passed no title — the court ruled that the assignment from Celia as trustee to the bank would be considered to be, and treated as a substitute for the mortgage. The question then boiled down to the manner in which Celia had given and executed this “mortgage.” She had given it in her capacity as “trustee,” when in fact there was no trust and while she therefore still held the title in her own name individually. The court said:
The signature of Celia as trustee was effective to convey her individual property as though she had signed simply her name. At law, the official and individual capacities of a trustee are not separated. A trustee simply owns the property, subject to such equitable rights of the cestui as may exist.
The “reverse” of this rule — where a person who in fact held title as trustee but gave a mortgage in her individual capacity — was announced in Fairfield Affiliates v. General Builders Supply Company, 40 Mass.App.Ct. 1109, 662 N.E.2d 1063. In Fairfield Affiliates title was held by Ms. Iannacone in her capacity as trustee, but she granted a mortgage of the property in her individual capacity (i.e., the mortgage made no mention of the trustee or her officer as trustee). The land court ruled, and the Appeals Court affirmed, 40 Mass.App.Ct. 1109, 662 N.E.2d 1063 (1996), that the mortgage was good, especially due to the fact that no other lienors had intervened between the acquisition of the title and the granting of the mortgage. “As Iannacone had acquired title in her capacity as trustee of Apple Realty Trust and had made no intervening conveyance before the mortgage to Comfed, she could not have granted the mortgage to Comfed other than as trustee of Apple Realty Trust. No reasonable title examiner would have been misled by the state of the records.” The Supreme Judicial Court essentially affirmed the result, having denied further appellate review, 664 N.E.2d 1004 (1996).
Other treatises also address the manner of the execution of documents by trustees:
“When one executes a deed as trustee, or as executor, or in any other representative capacity, the fact that he so executes it should be stated in the body of the deed, and, if so stated there, there is no occasion for the addition of the word “trustee,” or similar word, to his signature or to the mention of his name in the certificate of acknowledgment.” Swaim, Crocker's Notes on Common Forms (Seventh Edition), §354.
“When one acknowledges a deed which he has executed in a representative capacity (for instance as "trustee" or "executor") there is no reason for inserting any reference to that fact in the certificate of acknowledgment but it is usual to do so." Swaim, Crocker's Notes on Common Forms (Seventh Edition), §398.
One of the most misunderstood aspects of trust law is the concept of the termination of a trust. A companion subject (just as misunderstood, but less frequently focused on), is the application of the Rule Against Perpetuities to trusts.
The “termination” of a trust does not bring a trust to an end. It does not strip the trustees of their authority — but in fact requires them to exercise it. In fact, for the most part, as far as conveyancers are concerned, the termination is a non-event. A typical provision regarding termination would go something like this:
This trust shall terminate upon the death of the donor, or sooner upon the election of the beneficiaries by notice to the trustees.
What exactly then is termination, if it does not just stop the trust in its tracks? Termination is simply the heralding in of the time for distribution. It is a time to wrap up the affairs of the trust. Although the trustee can be subjected to liability and surcharges if he doesn’t make distribution within a reasonable time after termination has occurred, the fact remains that the trustee retains the full ability to make a good conveyance even after that time has expired. Rothwell v. Rothwell, 283 Mass. 563, 186 N.E. 662 (1933). In Rothwell, where distribution under the trust was mandated one year after the settlor’s death that had occurred on November 20, 1928, the court simply said, “The trust in the case at bar did not terminate on November 20, 1929. It terminates upon the conveyance [by the trustee].”
Unless there is an automatic vesting clause in the trust the trustee retains title until, and is capable of making a conveyance pursuant to the provisions governing distribution. An automatic vesting clause would obviate the necessity of a deed from the trustee and would vest title in the beneficiaries instantly upon the termination of the trust.
Distribution pursuant to the termination of the trust can take different forms. When the time for distribution has arrived, the beneficiaries are entitled to a conveyance of the trust res, according to the terms of the trust. Unless the trust otherwise directs or authorizes the beneficiaries are entitled to the trust res in its existing form, if such a distribution can be made. In some cases the trust is worded such that the trustee is required to, or may liquidate the res (e.g., sell it to a purchaser) and distribute the proceeds to the beneficiaries.
Trusts can terminate in other ways too. For example, they can terminate by reason of a merger. Where the sole trustee is also the sole beneficiary, there will be a merger. The result of a merger is that title ends up in the individual who serves in both of those capacities free of trust. The mere commonality of trustees and beneficiaries, however, does not necessarily cause a merger. For example, although there will be a merger when A is the trustee and A is the beneficiary, a merger will not occur when A and B are the trustees and A and B are also the beneficiaries. The reason there’s no merger in the second instance is that each trustee holds the title for the benefit of both beneficiaries. The required commonality isn’t there.
Merger for the most part is irrelevant. For example, either by reason of the original creation of the trust or the transfer of beneficial interests thereafter, it’s possible (and I’m sure more often than not) that the sole trustee is or becomes the sole beneficiary. But even if there is “no trust,” a deed from the named trustee in that capacity will, under the Kaufman case cited above, pass the individual title. But the merger has the potential of causing problems, because with the title now in the person individually because of the merger, it is vulnerable to liens and liabilities of that individual, where that is not the fact while the title is held under a valid trust.
The Rule Against Perpetuities
Another concept that is sometimes misunderstood is the application of the Rule Against Perpetuities to trusts. The Rule Against Perpetuities does not apply to the duration of a trust. The Rule applies to and governs the question of the period during which interests may remain unvested. In Newhall, Future Interest and the Rule Against Perpetuities in Massachusetts, Eugene W. Hildreth, Inc. (Third Edition, 1951), §49, Duration of Trusts, the author cites Harlow v. Cowdrey, 109 Mass. 183 and Minot v. Burroughs, 223 Mass. 595, and states:
The mere fact that a trust may last indefinitely does not of necessity make it invalid. Thus an estate to A and his heirs in trust for B and his heirs might last indefinitely, but is unobjectionable, because, the equitable interests being at all times vested, the trust can be terminated at any time at the option of the parties involved.
So, the fact a trust states that its duration shall continue for any number of years does not necessarily translate into a violation of the Rule Against Perpetuities, provided that the interest are vested.
Trustees as Grantees and Grantors
A deed to persons as “trustees” without a reference to the place of recording or the terms of the trust was once held to render the title hopelessly unmarketable. Cleval v. Sullivan, 258 Mass. 348 (1927). That remained true until the passage of the “Indefinite Reference Statute” (G.L.c. 184, §25), which by its terms is retroactive. That statute provides as follows:
No indefinite reference in a recorded instrument shall subject any person not an immediate party thereto to any interest in real estate, legal or equitable, nor put any such person on inquiry with respect to such interest, nor be a cloud on or otherwise adversely affect the title of any such person acquiring the real estate under such recorded instrument if he is not otherwise subject to it or on notice of it. An indefinite reference means * * * (3) a description of a person as trustee or an indication that a person is acting as trustee, unless the instrument containing the description or indication either sets forth the terms of the trust or specifies a recorded instrument which sets forth its terms and the place in the public records where such instrument is recorded * * * *
Note that the statute by its terms is applicable only as to a “person not an immediate party to” the instrument. The grantees in a deed that describes them as trustees are parties to the instrument containing the indefinite reference and the title they take as trustees they hold in that capacity, indefinite reference or not.
The Indefinite Reference Statute essentially provides that the vague indication that a person is serving as trustee can be ignored under Cleval “unless [the instrument contains] the terms of the trust or specifies a recorded instrument [and its place of recording] which sets forth its terms.” This language means that we can’t ignore the vague reference if the trust is recorded and we can find it. In enacting G.L.c. 184, §35, a new statute that provides for the recording of a certificate, or “summary” of the trust in lieu of the entire instrument, the quoted language of §25 had to be dealt with. Now, something less than “the terms of the trust” can be recorded and yet “keep the title in the trust.” The new statute provides as follows:
Notwithstanding section 25 to the contrary, a certificate sworn to or stated to be executed under the penalties of perjury, and in either case signed by a person who from the records of the registry of deeds or of the registry district of the land court, for the county or district in which real estate owned by a nontestamentary trust lies, appears to be a trustee thereunder and which certifies as to: (a) the identity of the trustees or the beneficiaries thereunder; (b) the authority of the trustees to act with respect to real estate owned by the trust; or (c) the existence or nonexistence of a fact which constitutes a condition precedent to acts by the trustees or which are in any other manner germane to affairs of the trust, shall be binding on all trustees and the trust estate in favor of a purchaser or other person relying in good faith on the certificate. The certificate most recently recorded in the registry of deeds for the county or district in which the real estate lies shall control.
Note that this statute does not apply to “a nontestamentary trust.” This term is limited to trusts that are actually created under (not simply referred to in) a will. For example, a pour over trust, though mentioned in a will is nonetheless an intervivos trust, and a certificate with respect to it can be used under the statute.
A companion statute to the Indefinite Reference Statute is G.L.c. 184, §34. This other statute provides as follows:
Any recordable instrument purporting to affect an interest in real estate executed by any person or persons who, in the records of the registry of deeds for the county or district in which the real estate lies, are or appear to be the trustees of a trust shall be binding on the trust in favor of a purchaser or other person relying in good faith on such instrument, notwithstanding (a) inconsistent provisions of the trust, unless said trust is recorded in said registry of deeds, with the place of recording referred to in some instrument in the chain of title to the real estate affected, (b) any amendment, revocation, removal or resignation of trustee, appointment of additional trustee, or other matter affecting the trust, unless the same is recorded in said registry of deeds and noted on the margin of said trust in said registry, or (c) any inadequacy in the consideration recited. As used in this section the term “trust” shall not include a trust under a will.
The difference between the two statutes is that G.L.c. 184, §25 saves the title from being unmarketable under Cleval, while G.L.c. 184, §34 binds the trust unless there is a recorded document that provides otherwise, and it can be found.
Sometimes a transaction involves a deed actually running to the trust by name (as opposed to naming the acting trustees.) Of course, a trust is not a corporation, so as an entity it cannot hold title. There is a title standard on this (No. 45), which states:
Title derived from a conveyance of real estate to a named trust by an instrument in which the trustees are not named as grantees is not on that account defective if the instrument unambiguously identifies the grantee trust by reference to a recorded trust (including a Massachusetts business trust with transferable shares filed with the Secretary of the Commonwealth under G.L.c. 182 s. 2), even if the trust instrument does not expressly provide for conveyances to be made in the name of the trust.
If the deed to the named trust “unambiguously identifies the grantee trust by reference to a recorded trust” the conveyance will be considered effective. There is no companion standard when the named trust is the grantor in a deed.
More on trusts in another edition…
1 Title neither “goes into” nor “comes out of” a trust. Title is not held by the trust. The title is held by the trustee(s), who hold and convey it. Unlike a corporation, a trust is not an entity, but rather a relationship between the trustee and the beneficiary, much like a marriage is a relationship between two people. [Back to Text]
2 These are resulting trusts, constructive trusts and similar types of vehicles, but because this article is one designed to assist the conveyancer, these types of trusts are beyond its scope. [Back to Text]
3 The declarant can add additional property to the trust thereafter, and this would be accomplished by utilizing a deed with respect to such post-declaration property. [Back to Text]
4 See the discussion below. [Back to Text]
5 Pour over trusts are intervivos trusts that are referred to in wills. Because they are unfunded when created, special considerations arise concerning them. In Loring, At Trustee’s Handbook, Little, Brown and Company (Seventh Edition, 1994), §2.2.1 the author notes: “No property is passed [to the pour over trust] at the time a will is executed. At common law, therefore, the execution of a will with a pour-over provision could not serve as the initial funding vehicle for an intervivos trust.” My colleague, Ward Graham, in his article “Getting Title out of a Trust” (see Stewart Publications>Other Stewart Publications) notes, however, that whatever difficulties there may have been historically in dealing with an unfunded trust, we don’t have to worry about the problem today, at least in the context of pour over trusts, because of the Uniform Testamentary Additions to Trusts Act, G.L.c. 203, §3B. [Back to Text]
6 The power to sell does not include the power to give away. See Fratcher, Scott on Trusts, Little, Brown & Company (Fourth Edition, 1988), §190.10. See also, Clune v. Norton, 306 Mass. 324, 28 N.E.2d 229. However, if the settlor reserved a power of revocation it would appear that the trustee could give the property back to the settlor, or, presumably, to a trust of which he was a beneficiary. [Back to Text]
7 Attorney General v. Olson, 346 Mass., 190, 191 N.E.2d 132 (1963); City of Boston v. Doyle, 184 Mass. 373, 68 N.E. 851 (1903); Morville v. Fowle, 144 Mass. 109, 10 N.E. 766 (1887). [Back to Text]
8 With the possible exception of ministerial acts or acts requiring the advice, assistance and execution of professions, such as accountants, lawyers, etc., trustees are prohibited from letting others apply the acts of discretion that they have been selected by the donor to perform. [Back to Text]
9 See the discussion in Loring, At Trustee’s Handbook, Little, Brown and Company (Seventh Edition, 1994), §6.1.4. [Back to Text]
10 See Fratcher, Scott on Trusts, Little Brown and Company (Fourth Edition, 1987), §190.10. [Back to Text]
11 The court said, “[F]or centuries, where a deed of real estate shows by its language that it was intended to pass title by one form of conveyance, by which however title could not pass, courts have made the deed effective by construing it as a deed of some other form, notwithstanding the inapproprietness of the language. The general intent to convey overrides an intent to employ an ineffective form.” [Back to Text]
12 In Larson v. Sylvester, 282 Mass. 352, 185 N.E. 44 (1933) the court reiterated this rule, saying, “[The trustee] deals with the property in which trust rights exist. Contracts with regard to the rights and property affected by trusts are the contracts of the trustee. He, in person, is liable on them. He is not acting as representative or agent of another. He is acting for himself, but with fiduciary obligations to others.” [Back to Text]
13 But compare Bongaards V. Millen, 55 Mass.App.Ct. 51, 768 N.E.2d 1107 (2002) and Bongaards V. Millen, 440 Mass. 10, 793 N.E.2d 335 (2003). [Back to Text]
14 The trustee is concerned because he or she has obligations to perform, the failure so to do possibly subjecting them to liability or surcharge. [Back to Text]
15 In Rothwell property was held under a trust instrument that required the trustees to make distribution to the beneficiaries one year after the death of James Rothwell, who died November 20, 1928. One question was the state of the title after that one-year period, namely on November 20, 1929. The court said: “It is plain that the trust was not self‑executing and the appellant does not contend that it is. At the expiration of one year from the death of James E. Rothwell the trustees did not become mere dry trustees. The trust required them to pay over the net income and upon an event certain to convey the corpus of the trust. The duty to convey conferred upon them active duties, which prevented the statute of uses from executing the use, for to enable them to convey at the time and to the persons or classes of persons designated in the will it was necessary for the legal title to be and remain in them. (Citation omitted.) * * * The trust in the case at bar did not terminate on November 20, 1929. It terminates upon the conveyance. In Christine v. Baldwin, [95 N. J. Eq. 83, 122 A. 369], it was held that the duties and powers of the trustees do not cease until they have so divested themselves. It does not appear in Christine v. Baldwin, supra, that there is any difference in the character of the duties and powers of the trustees before and subsequent to the death of the life tenant or the happening of the event upon which the trustees are to convey, but it is plain that they are not the same; their powers and duties subsequent to the happening of the event are limited to matters looking to a conveyance of the property. These include the liquidation of their indebtedness and acts incidental to the conservation of the property pending the settlement of their accounts.” [Back to Text]
16 Rothwell made reference to such a provision, but noted that it was not present in the trust before the court. [Back to Text]
17 There is a view that if the trust terminates and there is no companion provision that the trustee make distribution (“upon termination the trustee shall distribute the property of the trust . . .), that the trust — with the trustees having no further obligations to perform — would be a “dry trust,” and distribution would be executed under the Statute of Uses, and would vest title in the beneficiaries without any action on the part of the trustee. [Back to Text]
18 If, in connection with making distribution, expenses remain to be paid and there is insufficient cash on hand to do so, the trustee may, indeed must, liquidate the trust res and distribute the net proceeds derived therefrom. [Back to Text]
19 What goes on in the “back rooms” of trusts generally is not a matter of public record. [Back to Text]
20 “It is axiomatic, under Massachusetts law, that property that one holds as trustee is not subject to payment of the trustee's personal debts.” Zuroff v. First Wisconsin Trust Co., 41 Mass.App.Ct. 491, 671 N.E.2d 982 (1996). [Back to Text]
21 The Indefinite Reference Statute protects third parties from being bound by the terms of a trust that they cannot find; the statute does not transform a title taken by a person as a trustee to his individual use. [Back to Text]
22 Although the Indefinite Reference Statute works “magic” in eliminating the uncertainty of the title when there’s simply a indication that one is serving “as trustee,” other problems can arise if the title is not considered to be “in the trust,” most notably the necessity of probates upon the death(s) of the named grantees. [Back to Text]
23 A “Massachusetts Business Trust” is a quasi-entity, required to be filed with the Secretary of State. [Back to Text]