Why is my Nominee Real Estate Trust Expiring!? Realty Trust Trap (Part 2)

Jan 30

Realty trusts, also known as nominee trusts, confuse virtually everyone.

That is because nominee realty trusts (which is what I’ll be calling them for purposes of this article) are more akin to an agency relationship than a standard trust agreement. In other words, with a nominee realty trust, the trustee is only the title holder (as shown on the deed) and the beneficiaries are really the ones who call the shots.

Why are nominee realty trusts a thing?

For many of my clients, nominee realty trusts are a relic from a time when trusts still had to be recorded at the registry of deeds. Since people don’t want private information on public record, they would use a nominee realty trust that has very generic language recorded at the registry of deeds and then have a separate private schedule of beneficiaries that was not publicly available.

So, for most people, nominee realty trusts were just a privacy mechanism to hide the true beneficiary from public record.

But, when Massachusetts updated the law in 2003, you could instead record a trustee certificate with the registry in lieu of a trust and that achieved the same goal in a couple of pages.

Therefore, for many clients, the traditional nominee realty trust structure / purpose became obsolete.

So what’s the problem with nominee realty trusts? What do I need to know that is so urgent?

The biggest problem I’ve been seeing (apart from lost schedule of beneficiary pages) is that many of the nominee realty trusts are set to expire 21 years after their creation to avoid the rules against perpetuities law.

To be clear, they should have been set up to expire 21 years after the death of the original trustee, but for some reason many of them just stated that they would automatically terminate 21 years from the signing date.

What does this mean for you and your nominee realty trust?

If you have a nominee realty trust, then check to see if yours has an expiration date - look for anything that says 20 or 21 years.

If your trust has expired or is set to expire, you need to fix it as soon as possible.

If you don’t know where to look, email me a copy of your trust and I’ll tell you what it says.

To be clear, there are some situations where a nominee realty trust could still be useful, but for most clients, it’s probably time for you get a real living trust to avoid probate, minimize estate taxes, and protect your children’s inheritance.