Clients often ask if they should put their real property into a trust. The answer is complicated. It depends on whether the client has an existing estate plan, the purpose of the trust, and whether the property is their primary residence, vacation home, or a business venture. The benefits of putting real property into a trust include avoiding probate (property passes to the beneficiaries at death), privacy (trust terms may be kept private), and estate tax savings. Massachusetts does not allow a surviving spouse to claim any unused estate tax exemption of a deceased spouse. Owning properties in trust may enable you to utilize estate tax exemption amounts, rather than losing them. A trustee may record a Declaration of Homestead at the Registry of Deeds in Massachusetts to protect up to $1,000,000, but this protection only applies if the property is the beneficiary’s primary residence. However, it is important to note that if privacy is a concern, the beneficiary of a trust must be named in the filing of a Declaration of Homestead. See M.G.L. c. 188.

There are many different types of trusts. For purposes of this article, I am referring to basic forms of inter vivos nominee, revocable, and irrevocable trusts. When creating any trust, the trustee’s powers should be clearly set forth and include powers necessary to deal with real estate, and whether the direction or consent of the beneficiaries is required. The beneficiaries should be listed on a separate non-recorded schedule. When a trust is created, both a trustee and a successor trustee should be named; it is prudent even to name a successor-successor trustee in the third position. A frequent issue for real estate lawyers is dealing with properties held in trust where only one trustee is named (who has passed away) with no successor. This issue can cause significant delays in conveying a property.

In a nominee trust, the trustee can only act upon the direction and consent of the majority of the beneficiaries. There is a popular misconception that owning assets in a nominee realty trust will avoid probate. If an individual is the beneficiary of the trust, then a probate filing would be necessary to gain access to the trust assets. To avoid a probate proceeding, you should name a trust as the beneficiary of a nominee realty trust. Also, if there are multiple beneficiaries, it is a good idea to require the consent of the majority to prevent a stalemate. A nominee trust with this language also works well to hold title when there are several remaindermen on a life estate deed. Revocable trusts can be amended or revoked during the grantor’s lifetime. An irrevocable trust cannot be revoked and, for this reason, is often used in estate planning. In both revocable and irrevocable trusts, the trustee can act without the direction or consent of the beneficiaries, and the property passes to the beneficiaries according to the terms of the trust, thereby avoiding probate. Note that when creating a trust, the sole beneficiary cannot be the sole trustee because this causes a merger of title, which can invalidate the trust. This is easily prevented by having either multiple beneficiaries or by making the trustee the beneficiary for his or her lifetime and then also naming his or her remainder beneficiaries.

Once a trust is established, the property is conveyed by a deed to the named trustee in his or her capacity as Trustee of the Trust; the property is NOT conveyed to the trust itself. The deed must contain a reference to the declaration of trust, its date of creation, and where and when it was recorded (or state that it is being recorded “herewith”). The deed and either the entire trust (without the beneficiary schedule) or a Certificate of Trust (summary of its terms) are recorded at the Registry of Deeds. With every transaction thereafter, there must also be a Trustee Certificate. These steps may vary for Registered Land.

Some lenders will lend to a revocable inter vivos trust, but for those who will not, borrowers should check their mortgage for language regarding a “due-on-sale” clause and obtain written permission from their lender before conveying their property to a trust. There is a federal statute that provides an exception to the due-on-sale clause for transfers to revocable trusts. However, when dealing with an existing mortgage, it is best to request permission to convey your property to a trust. Even with permission to convey the property to a trust, most lenders are still reluctant to lend in the name of the trust; therefore, borrowers often convey their property in and out of trust every time they refinance their mortgage. This process usually goes smoothly, but repeated conveyances can increase the risk of errors in a chain of title and could affect insurance coverage. The borrower’s title insurance and hazard insurance must be modified to reflect the correct ownership unless there is language in the policy or in an endorsement that indicates coverage will be extended to the form of ownership or provides that coverage continues if there is no change in beneficial ownership.

So, the answer to the initial question is yes – there are benefits to owning property in a trust, but the answer needs an explanation.