The nominee realty trust (commonly referred to as a “nominee trust” or “realty trust”) is an entity unique to Massachusetts that may be familiar to many homeowners in the Commonwealth. Despite what its name suggests, a nominee realty trust does meet the legal definition of an actual trust. In a traditional trust, the trustee has an affirmative duty to administer the trust pursuant to its terms and is authorized to take the necessary actions to carry out the purposes of the trust. Restatement (Third) of Trusts §§ 76, 85. On the other hand, a nominee realty 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). Unlike the trustee of a real trust, the trustee of a nominee realty trust lacks the authority to deal with trust property except as directed by the trust beneficiaries.
Nevertheless, a nominee realty trust shares many of the characteristics of an actual trust that are attractive to property owners, such as privacy and probate avoidance. When properly structured, a nominee realty trust can shield the beneficial owners of real property from the public and allow title to real property to bypass a decedent’s probate estate.
Lately, our office has guided numerous beneficiaries of poorly structured nominee realty trusts through the process of filling a vacancy in the office of trustee. Although the steps involved are relatively straightforward, the reality of family dynamics can quickly turn a simple administrative formality into a costly and time-consuming endeavor. The following example illustrates the unforeseeable challenges that arise from inadequate planning.
Hypothetical
Husband and Wife deed their primary residence into a nominee realty trust for the benefit of their four children, two sons and two daughters, while retaining a life estate, which allows them to occupy the property for the duration of their lives. Shortly thereafter, the Husband, who is the sole trustee of the nominee realty trust, passes away without having appointed a successor trustee. The Wife survives her Husband for another fifteen years, during which time she is predeceased by one of her sons.
By the time the Wife has passed away, the three surviving children are estranged and live in different states. The surviving brother, who still resides in Massachusetts, takes it upon himself to make some much needed repairs to the residence and before placing it for sale on the market. The brother personally incurs the restoration expenses with the expectation of being reimbursed from the sales proceeds then dividing the remaining balance with his sisters. However, when the house is finally ready to be placed on the market, the brother discovers that he does not have authority to enter into a purchase and sale agreement on behalf of the nominee realty trust in his capacity as trust beneficiary.
How does the brother recover his expenses?
Even though the beneficiaries of a nominee realty trust direct the trustee’s actions with respect to trust property, they cannot deal directly with trust property themselves – only a duly appointed trustee may act with respect to trust property. In this example, there has been a vacancy in the office of trusteeship since the death of the Husband because the trust terms failed to appoint a successor. In order for the brother to sell the property and recover his expenses, he must first be appointed as the successor trustee of the nominee realty trust.
In the absence of a duly appointed trustee, the terms of the nominee trust stipulate the process for appointing a successor. It is common for a nominee realty trust to require all of the trust beneficiaries to unanimously agree to the appointment of a successor trustee. In this example, the two sisters who have not spoken with each other for years must agree to appoint their brother as successor trustee of the nominee reality trust. Adding more complexity to the situation are the children of their deceased brother, who inherited their father’s beneficial interest upon his death. Without knowing where his niece and nephew are located or how to contact them, the brother must somehow obtain their consent to his appointment as well. If any one of these other four trust beneficiaries refuses to consent to the brother’s appointment, his only available recourse is to add to his existing expenses by incurring the cost of legal fees to petition a court for an order appointing him successor trustee.
All of this could have been avoided had the Husband and Wife appointed a successor trustee in the terms of the nominee realty trust at the time of formation. However, due to poor drafting and failing to plan for unforeseeable life events, what began as an effort to simplify the transfer of the primary residence to their children has now become a costly and burdensome responsibility for their son. This example is just one of the various dilemmas our firm routinely encounters and assists clients in resolving. If you find yourself in the unfortunate position of dealing with the consequences of ineffective estate planning, MacLean Holloway Doherty & Sheehan would be happy to assist you.
The information provided in this article is for general informational purposes only and does not constitute legal advice. While we strive to ensure the accuracy of the content, the details presented may not apply to every situation or jurisdiction. For advice specific to your individual circumstances, we recommend consulting with a qualified attorney.
