Gary D. Buchman
Massachusetts nominee trusts have long been used to hold title to real estate. They offer privacy, flexibility in estate planning and a layer of separation between the holder of legal title and the beneficial owner or owners.
A nominee trust is a creature of statute whereby the trustee or trustees holds title to real estate on behalf of one or more beneficial owners. The named trustee appears as owner in the public records, but the underlying schedule of beneficiaries typically aren’t recorded and sets forth the beneficial owners of the property.
Such trusts are common in Massachusetts because they provide a level of anonymity and privacy as to the identity of beneficial owners, simplify management and can facilitate cost-effective property transfers for estate planning and other purposes.
What’s a Nominee Trust?
Unlike other forms of trusts, nominee trusts do not give the trustee discretionary authority; rather, the trustee acts more like an agent in holding title to the property; the beneficiaries retain power and control directing Trustee activities.
Theresa M. Santoro
Nominee trusts are essentially a pass-through entity for tax purposes. Unlike a corporation, limited liability company, or other entity registered with the secretary of the commonwealth’s office, a nominee trust does not have an annual registration fee or a tax ID number.
When representing the seller of real estate owned by a nominee trust, any lawyer must first review the trust document, and confirm the trustee’s authority to sell.
They must also obtain written authorization for the transaction. Even if the Trustee has authority, obtain written consent and direction from all beneficial owners.
Lastly, they must know their seller. They should Identify the true seller for tax reporting purposes, as the Form 1099-S, which reports gross proceeds of the sale to the IRS, should be issued in the name of the beneficial owners with their tax ID numbers, not in the name of the nominee trust.
Potential for Misplaced Records
A nominee trust may expose the trustee to personal liability in the event that the trustee has knowledge of property defects and is negligent in effecting repairs. True trusts, or trusts of the “donative type,” have the liability protections afforded to them by statute.
It is not uncommon for the nominee trust’s schedule of beneficiaries to be lost or misplaced, particularly because such information is omitted from the public version disclosed and recorded with a registry of deeds. A lost schedule of beneficiaries is particularly likely when the trust was created decades ago and before electronic storage.
Without the schedule of beneficiaries, the identity of the beneficiaries cannot be ascertained to obtain required consents to the transaction.
Nominee trusts also do not avoid probate in the same way as a traditional trust, or a trust of the “donative type.” Interests of a deceased beneficial owner of a nominee trust who held in his or her individual capacity must pass through probate, which may be time consuming and costly.
Less Cost, Simpler Than LLC
That said, a nominee trust still provides anonymity for the holders of the underlying beneficial interests.
It also simplifies title to one or more holders, regardless of the number of beneficiaries, and allows for off-record transfers and less complicated creation of partial property interests.
And a nominee trust is more cost-effective to hold real estate than a limited liability company or other entity filed with the secretary of the commonwealth requiring annual fees.
Title companies generally expect the nominee trust to execute documents in substantially the following manner: [Trustee(s) name(s)], as trustee(s) of the [Trust Name], and not individually.” These formalities are also matters of good practice.
Since the advent of limited liability companies, which provide a greater level of risk avoidance and ease of administration nominee trusts are less frequently used.
