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Massachusetts Real Estate and Trusts

2011 April 7
by Charles J. Sillari Jr.

Clients often ask me if they should own their Massachusetts real estate in a trust.  There is really no definitive answer to that question without knowing the facts.  Each and every situation is unique.  The most important service I can provide is to make sure that my clients are well informed so that they are able to make a decision that best suits their needs.   

A trust is a manner in which to hold property, whether that property is real property or personal property.  By that, I mean that the property owned by the trust can be almost anything.  For example, a trust can hold your home, an apartment building, cash or that original Picasso hanging over your fireplace.  I usually deal with clients inquiring about putting their Massachusetts real estate into trust.

 A Trust is a legal entity that can hold title to property for the benefit of one or more other persons or entities. The person who establishes the trust is called the Grantor, Trustor, Donor, or Settlor.

 A Trust has the ability to separate the ownership or title of the property held in the Trust.  The ownership is made up of “legal title” and “equitable title”.

The person or entity that controls the Trust and is responsible for managing the Trust assets or property is called the Trustee. The Trustee holds the legal title, but not the full title, to the property that is in the Trust. This means that the Trustee can only use the assets and proceeds from the Trust property for the benefit of the people the Trust is set up to benefit, not for his or her own profit.

The persons who are intended to benefit from the Trust are known as Beneficiaries. Beneficiaries own what is called the equitable title to the property held by the Trust. This means that they have a right to have the assets used for their benefit in the way directed by the Trust provisions.

These parties to the Trust need not be different people. However, historically courts concluded that there was no need for a Trust when the Trustee was also the Beneficiary. In these situations the legal and equitable titles were said to have “merged.” In some cases, when done properly, a Trust Grantor may establish a revocable Trust, serve as the initial Trustee and be able to obtain benefits as a Beneficiary from Trust property.

The property that is transferred to a Trust becomes the Trust estate.  The Trust estate is also called the Trust corpus, Trust res, or Trust principal. A Trust estate consists of all of the property, rights, and obligations that are transferred to the Trust.  It is common for Massachusetts real estate to be transferred to a Trust.

The Trust estate is managed according to the terms and conditions of the document creating the Trust, which is called the Trust agreement or declaration of Trust. This document sets out the purpose of the Trust, the identities and powers of the Trustees, the names of the Beneficiaries, how the Trust assets should be managed, and how they should be distributed to Beneficiaries.  Depending upon how the Trust document is drafted, a Trustee may act at the direction of the Beneficiaries or may act on his own with respect to the management of the Trust estate.

An “inter vivos” trust is set up during the Grantor’s lifetime. This means that the Trust comes into being and functions while the Grantor is still alive. A Testamentary Trust is set up by a Will and does not come into being or begin to function until after the death of the Grantor.

Trusts are also revocable or irrevocable. This is pretty self explanatory; a revocable Trust can be revoked or amended by the Grantor and the Grantor can reclaim the Trust assets. An irrevocable Trust cannot be revoked once it has been set up. The Grantor in unable amend or revoke the trust and take the trust assets back.

 In my experience, many lenders will not lend money against real estate if the title is held in a Trust.  They will usually require the real estate to be deeded out of the trust and into an individual borrower in order for the closing to take place.  I have found that it is easier to close in a trust with smaller local banks as opposed to the big national lenders.  I understand that the big lenders want someone to be personally liable for the debt; however, this can easily be accomplished by the execution of a personal guaranty.

 Feel free to call me at 617-628-1110 Ext. 3 with any questions.

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