What is a nominee trust? Well, let’s start with what it isn’t. It isn’t a trust at all. Technically speaking, a nominee trust (also referred to as a Realty trust) is a principal-agency relationship or arrangement, whereby the “trustee” essentially acts as the agent of the beneficiaries, who act as the principal. Did I lose you yet?

Let’s back up. We all know what a trust is, to at least some extent. A trust holds property, which is overseen by a trustee, for the benefit of one or more beneficiaries. With a true trust, the trustee makes any decisions that need to be made. A beneficiary can sue a trustee, claiming the trustee is not living up to his or her fiduciary responsibilities, but – for the most part – the trustee is in charge. With a nominee trust, the opposite is true. The trustee has no power whatsoever, but can only act at the direction of the beneficiaries. This is why a nominee trust is not a true trust, but – in actuality – is a principal-agency arrangement.

Nominee trusts do one thing; they hold legal title to real property – real estate. A person or entity files a new deed, transfering ownership from himself/herself/itself to the nominee trust. Why would anyone do this? What are the benefits of using a nominee trust?

Nominee trusts are used for three primary reasons: (1) anonymity; (2) protection from liability; and (3) ease of proportional gifting. Let’s briefly discuss each one, to make sure you understand the purpose.

First, anonymity. When a piece of real estate is placed into a nominee trust, the entire documentary package consists of the actual nominee or realty trust document (called a declaration of trust), a trustee’s certificate, a deed transferring the property from the previous owner to the nominee trust, a schedule of beneficiaries (often called a schedule of beneficial interests), and a receipt of the schedule of beneficial interests (by the trustee). From a layperson’s perspective, the names of these documents is not important. What is important is to know that the only place the name(s) of the beneficiary(ies) appears is on the Schedule of Beneficiaries (hereinafter “SOB”), and Massachusetts law does not require that this document be filed with the Registry of Deeds.

The only documents that are required to be filed with the Registry of Deeds, when forming a nominee trust, are the Trustee’s Certificate and the Transfer Deed. Neither of these documents contains the name(s) of the beneficiary(ies), and the beneficiary(ies) is/are the true owner(s) of the property. As was already pointed out, the trustee is a trustee in name only. As one 1st Circuit Judge put it, a nominee trust is ” … an entity created for the purpose of holding legal title to property with the trustees having only perfunctory duties.” Johnston v. Holiday Inns, Inc., 595 F.2d 890, 893 (1st Cir. 1979).

What this means is that the real owners are anonymous. Now, if the previous owners of the real property were Mary and John Smith, and the property was transferred to a nominee trust called the “Mary and John Smith Realty Trust,” obviously anonymity has not been achieved. What is absolutely mind boggling is that, in fact, this is exactly what many of those using nominee trusts have done (obviously, without the assistance of counsel, I would like to think). As a side note, a nominee trust can be given any name you wish, and it should never be your name or the name of your spouse, unless you or your attorney has a very good reason for it.

There are endless reasons an owner of real property may wish to have anonymity of ownership. For example, you may be in a border dispute with a neighbor or have some other neighborhood issue that will require you to file a lawsuit. By placing the property into a nominee trust, the lawsuit can filed in the name of the trustee of the trust, rather than in your own name. This can act as a barrier between you and your neighbor, and keep your name from being publicly connected to a lawsuit. Another example are women’s shelters. Different charitable organizations buy homes for use as women’s shelters and these organizations do not want their ownership to be public, for obvious reasons. Thus, by purchasing the properties in the name of a nominee trust, there is no way for an abusive husband to search public records to find these properties.

The second benefit of using a nominee trust is protection from liability. The idea here is that by placing your real property into a nominee trust, you cannot be held personally liable by a tenant or other party with a claim against the property. In fact, this is only partially true. If this is your goal, you would want to make sure that the listed trustee is not also listed as a beneficiary. See APAHOUSER LOCK AND SECURITY CORPORATION vs. G. ROBERT CARVELLI & ANOTHER, 26 Mass. App. Ct. 385 (1988). One thing is certain. If the trust has one beneficiary and one trustee and these are both the same person, the trust will fail and provide no protection whatsoever, except (we’ll get to the “except” in a minute).

Why did the last sentence end with “except”? This is because, a person a cannot sue another person or entity, if they don’t know who they are. Take general liability, for example. As was mentioned above, if done correctly, a nominee trust provides anonymity of ownership. This means that anyone seeking to determine your assets, for liability purposes, will likely overlook your ownership of the real property held in a nominee trust. Obviously, this will not always be the case, but what we can say is that, from this perspective, holding your property in a nominee trust will always help to protect your property from liablity to the extent your ownership cannot be determined.

The third benefit of using a nominee trust is ease of proportional gifting. An example will make this easier to understand. Say Jim and Mary Smith, who are grandparents to four grandchildren, want to give each grandchild a gift of ownership in their property. They can simply place the property into a nominee trust, and on the SOB (Schedule of Beneficiaries) list the percentage ownership of each one. If they ever decide to change these percentages, they can simply file a new SOB with the adjusted percentages.

The bottom line is that nominee trusts are the easiest way to transfer property. You will not find an easier way. Transfers to and from a corporation, LLC, or any other entity are far more complicated. With a nominee trust, you simply list the new owner or owners on the SOB, and that’s it! The transfer of property using a nominee trust also avoids probate, just like any other trust. In this way, a nominee trust does act like a trust. This means, upon your death, any gifting of property you’ve made via the the nominee trust will hold. The property will not revert to your estate, but will remain with the owners, as you’ve assigned them in the SOB. This makes a nominee trust the easiest way to bequest property as well. In Massachusetts, a will must be witnessed by at least two witnesses, and must follow all the other rules as laid out in the MUPC (Massachusetts Uniform Probate Code). A nominee trust avoids all of this. In matter of minutes, a new schedule of beneficiaries can be drawn up, signed, and notarized – all without leaving your attorney’s office.

Nominee trusts are not without their problems though. As was already pointed out, a nominee trust is at its strongest, as far as avoiding liability, when none of the trustees are also beneficiaries. This means, ideally, finding a trustee whom you trust – no pun intended. This is because, a nominee trust, like a power of attorney, can be used fraudulently. Although a trustee of a nominee trust has no power, and is only supposed to act at the direction of the beneficiaries, if the trustee wanted to fraudulently sell the property, he or she would be in the ideal position. This is because most nominee trustee certificates specifically allow the trustee to convey the property, and for the buyer to rely on this as having been directed by the beneficiaries. Without this provision, a transfer would not be possible, as no buyer would want to buy property held in a nominee trust, where the buyer cannot rely on the trustee’s power to sell.

In the end, this really means, if you are not going to be listed as a trustee, you need not just someone you trust, but someone you trust beyond all doubt. If you have no friends or family members that fit this description, you may want to have your attorney act as the trustee.

If you are thinking about having your home or another piece of real property you own placed into a nominee trust, we can help! We have considerable experience with nominee trusts, and can help you decide it is the right step, given your circumstances and goals. Call us today! As always, your initial consultation is absolutely free and one-hundred percent confidential!