What is a Nominee (“Realty”) Trust?
It’s hard to start an article about nominee trusts, without pointing out that a nominee trust is not a trust at all. Unlike a real trust, where the power and duty to appropriately control the trust property lies with the trustee, in a nominee trust the beneficiaries actually retain all decision-making power. In fact, the trustee is really just an agent of the beneficiaries, who essentially act as the principal. We’ll get more into this later.
For the purposes of this article, we will use the nomenclature of “nominee trusts” – but these are also called “realty trusts” and “real estate trusts.” Whatever you call it, it can be a very useful tool. To understand the potential uses for a nominee trust, we have to understand how they work.
A nominee trust is a tool used to hold title to real estate. The real property is transferred from the title holder(s), into the trust, and the trust becomes the holder of the real property. In fact, real property can be held by any trust, not just a nominee trust. Real property can also be held by a corporation or LLC. So, from a technical standpoint, a nominee trust is just like any other trust, in that it can hold legal title to real estate. So why use a nominee trust then? What’s the big deal? Why not just use a revocable or irrevocable trust to hold title to the real property? It is in the way that the nominee trust is recorded that provides the answer to this question. To understand the answers to these questions, read the following article below, on understanding the benefits of using a nominee trust.
What are the Benefits of using a Nominee Trust?
As we alluded to, in the previous article, a nominee trust is recorded differently than the standard real estate conveyance, and it is from this difference that the potential benefits and uses of a nominee trust emanate. The transfer deed, transferring property into a nominee trust, is the same as any other deed, at least any other deed showing the transfer of real property into a trust. The shows the name of the previous owner and the name of the nominee trust into which the real property was transferred. Where things get different is when it comes to the registration of the actual nominee trust itself. Trusts, like deeds, are also recorded with the Registry of Deeds. Normally, the entire trust document, which includes the list of beneficiaries, is recorded, but this is not the case with a nominee trust. With a nominee trust, only a trust certificate must be filed with the Registry, and this is usually done at the exact same time that the transfer deed is filed. The trust certificate for a nominee trust is only required to show the name of the trustee, not the names of the beneficiaries.
So, when it comes to a nominee trust, the names of the actual owners (or beneficiaries) of the property may be hidden. This doesn’t mean that they are always hidden, but they can be, if so desired and assuming the drafter of the nominee trust knows what he or she is doing. It is this attribute of a nominee trust that leads to its potential beneficial uses. So, what are the uses of a nominee trust then?
Nominee trust have two common uses. First, they are a useful tool for giving gifts of real estate, generally by percentage. Second, they allow anonymity of ownership, in situations where the owner of a particular piece of real estate does not wish that his/her ownership of the property be made known to the public.
Nominee trusts are useful tools for giving and readjusting gifts of real estate. When a nominee trust is filed, the only piece of paper required to be filed is the trustee certificate. The trustee certificate names the trustee, and certifies that he or she is the trustee of the nominee trust and certifies that the nominee trust does exist. No other document, pertaining to the trust, must be filed. When a nominee trust is formed, there are – of course – many other documents that must be drafted. In total, these include the actual trust document, called “a Declaration of Trust,” the trustee’s certificate, the schedule of beneficiaries, and the trustee’s receipt of the schedule of beneficial interests. The only document that lists the actual names of the beneficiaries and their respective percentage of ownership interests is the schedule of beneficiaries. This means that once the nominee trust is formed and the property has been transferred into the trust, the actual ownership of the property can be easily adjusted (often by percentage of ownership) by simply executing a new schedule of beneficiaries. Becaues the schedule of beneficiaries is not filed with the Registry of Deeds, there is no tax or fees that must be paid. Thus, actual ownership interest in the real property can be easily transferred and adjusted among the beneficiaries, without any tax being paid and without any public record of this occurring.
To understand how this actually works, consider an example. An elderly widow owns a house, and has become advanced in age. She wishes to bequeath a portion of her property to her two daughters and four grand children. The widow has her attorney place the property into a nominee trust, files a transfer deed with the Registry of Deeds, and Trustee’s Certificate, with her attorney acting as trustee. She also has her attorney draft a schedule of beneficiaries listing herself, her two daughters, and her four grand children as beneficiaries. In this schedule of beneficiaries, the widow retains a 60% ownership, each one of her two daughters is given 10%, and each grand child is given 5%. The widow tells her grand children that if and when each one graduates college with a bachelor’s degree, she will reward each one with an additional 5% ownership. Eventually, one of her grand children acquires her degree. The widow instructs her attorney to execute a new schedule of beneficiaries now showing the widow with a 55% interest and that grand child with a 10% interest, while the other interests remain the same. No conveyance tax is paid, and – other than the new schedule of beneficiaries being executed – everything else remains the same. The same is later done, each time the other three grand children graduate.
This illustrates how a nominee trust can be used to make gifts of real property, in a very easy manner, with very little effort and expense. Each time a change in ownership is made, the cost is simply the cost of a drafting and executing a new one or two page schedule of beneficiaries. Compared to the cost of drafting and filing a new transfer deed each time a change in ownership made, this expense is next to nothing!
Nominee trusts are also useful, because they allow anonymity of ownership. This can be useful in many ways. A common application of this is when it comes to women shelters. When a woman faces domestic violence and is trying to escape a life-threatening relationship, she may seek safety at a women’s shelter. If the perpetrator of violence was an informed individual, who understood real estate, or was in a position to hire someone else who was informed about real estate conveyance and the documents available at the Registry of Deeds, that individual could simply look up all properties owned by the organizations who set up women’s shelters. Then that individual could easily track down the fleeing woman. To avoid this, women’s shelters are commonly placed in nominee trusts, by their respective organizations, so that it is not possible to determine who owns the property.
In fact, there are many reasons a person might not want his or her ownership of a particular piece of real estate to be public information. Perhaps he or she doesn’t want to be approached by potential buyers. Another use, not readily apparent to most people (or even to most attorneys) is that a nominee trust can also be used to provide anonymity, not just of ownership, but also, for lawsuits. For example, say you want to file a lawsuit related, in any way, to real property, but you also don’t want to be the talk of the town or neighborhood. The real property can be placed into a nominee trust and the lawsuit can then be filed in the name of the nominee trust and the trustee, rather than in your personal name. If a person or organization were then looking to see what, if any, legal actions you were personally involved in, it would not show up and they would not realize that you were involved.
If you think you might benefit from a nominee trust, or if you have questions about their potential uses, we would be happy to answer your questions. Your initial consultation is absolutely free and – as always – is one-hundred percent confidential!