T FRANK LAW, PLLC

Estate Planning Blog

Estate Planning Blog

Understanding Realty Trusts

Realty trust, sometimes also called nominee trusts, are used to hold real estate. The realty trust is unlike other trusts in that it establishes an agency relationship, where the trustees can only act with the express authority of the beneficiaries. In this way, the trustees hold legal title, and the beneficiaries hold equitable title to the real estate.

Before discussing further, reviewing Massachusetts trust law history might be helpful. Until 2003, Massachusetts was one of the only states that required the entire trust document be recorded at the Registry of Deeds when real property was held in trust. This requirement ran counter to the benefits of privacy living trusts afford. To counteract this requirement and maintain privacy, Massachusetts lawyers structured ownership of real estate in layered trusts. For instance, an estate planning attorney would establish a realty trust of which the living trust was the sole beneficial owner. Only the realty trust would be recorded public information, and the beneficiary could be kept confidential. Massachusetts now permits a Trustee’s Certificate to be recorded instead of the entire trust (See G.L. c. 184 § 35).

Circling realty trusts back to present, you might be wondering whether they’re still useful. In fact, realty trusts still do have certain benefits.

Privacy

Realty trusts provide anonymity for owners of real estate. As noted above, while the trust instrument is recorded, the schedule of beneficiaries is a separate document that is not filed and is thus confidential. You might also have an LLC as a trustee, a beneficiary, or both.

Ease of Transfer

Because transactions involving real property in realty trusts do not have to be recorded with the Registry of Deeds, realty trusts provide ease in the transfer of ownership interests. For example, in the case of a family vacation home, parents can gift percentage ownership interests in the property over time in a tax efficient manner, utilizing the annual gift exclusion ($15,000 for 2018).

Multiple Owners in Different Locations

If multiple owners live in difference locations, they can authorize the single trustee to execute mortgages, notes, condo documents, all without having to get signatures from all the beneficiaries.

Probate Avoidance

Because the trustee of a realty trust holds legal title, not the original owner of the property or the beneficiaries, the real property is not subject to the potentially time consuming, expensive probate process. This can be especially useful for property owned in another state, where ordinarily a separate “ancillary” probate would have to be done in the state where the property was located.

Because every situation is different, email me today at tim@tfranklaw.com to learn more about realty trusts and whether they’re right for you.