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Trust Law/Level VII · Property and business/7.1 Land/Lesson 3

Nominee trusts

How the Massachusetts nominee trust puts a trustee’s name on the deed while the beneficiaries, listed on an unrecorded schedule, keep control of the property.

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Massachusetts lets a trust holding land record a short trustee’s certificate under G.L. c.184 §35 instead of the full document, so a revocable living trust often does the job without a separate nominee trust.
  2. A nominee trust whose beneficiaries direct the trustee is generally not taxed as a separate trust; beneficiaries report the income themselves, though several beneficiaries may create a partnership return duty.
  3. Keep the signed schedule of beneficiaries with the trust papers and update it on every change; a lost schedule can leave ownership unclear and cost far more to fix than to maintain.
  4. It is no liability shield: Massachusetts courts often treat beneficiaries as the real owners, so insurance or an LLC must supply the liability layer, and claims are brought against the trustees, not ‘the trust’.

MaterialsThe Massachusetts Supreme Judicial Court’s opinion in Morrison v. Lennett, 415 Mass. 857 (1993), free on law.justia.comMassachusetts General Laws chapter 184, section 35, on trustee’s certificates, from malegislature.govLessons 7.1.1 and 7.1.2, on US land trusts and the Illinois land trust, for comparison

Wonder

  1. If the trustee’s name is on the deed, who really owns a property held in a nominee trust?
  2. What happens if the unrecorded list of beneficiaries is lost?
  3. How is a nominee trust different from a land trust or an ordinary living trust?

Explore

  1. A nominee trust is a device used mainly in Massachusetts to hold title to real estate. The trustee’s name appears on the recorded deed, and the trust document is often recorded too, but the beneficiaries are listed on a separate schedule of beneficiaries that is not recorded. No Massachusetts statute creates the nominee trust; it grew out of conveyancing practice and case law. This lesson explains how it works and does not suggest using one.
  2. In Morrison v. Lennett (1993), the Massachusetts Supreme Judicial Court described a nominee trust as an arrangement for holding legal title in which the trustees have only perfunctory duties. Unlike trustees of an ordinary trust, they have no power to act on the property except at the direction of the beneficiaries. Massachusetts courts therefore often treat the trustees as agents of the beneficiaries, who are seen as the real owners. A trustee may also be a beneficiary.
  3. Because the beneficiaries are treated as the real owners, Massachusetts courts have sometimes imposed liability connected with the property directly on them, looking past the trustees’ record title. Morrison also held that claims must be brought against the trustees, not against ‘the trust’ itself, which is not a separate legal person. Holding property this way therefore does not separate the beneficiaries from claims arising from it.
  4. For income tax, practitioner sources say that when the beneficiaries, not the trustee, make the real decisions, the arrangement is generally not taxed as a separate trust. Income and deductions are reported by the beneficiaries; with several beneficiaries, the arrangement may be treated as a partnership with its own filing duties. Whether a particular nominee trust qualifies depends on its documents, and a clause giving the trustee real discretion can change the result.
  5. Nominee trusts became common partly because Massachusetts registries once required the whole trust document to be recorded when a trust held land. Chapter 184, section 35 now lets a trustee record a short certificate, signed under the penalties of perjury, stating who the trustees are and what authority they have, and buyers may rely on it in good faith. Some practitioners say this has made nominee trusts less necessary for estate planning, since a living trust can hold land using a certificate.
  6. A nominee trust differs from an Illinois land trust (lesson 7.1.2), which rests on Illinois statutes and practice and usually has a bank or trust company as trustee. Its schedule of beneficiaries is a weak point: Massachusetts practitioners report schedules being lost, leaving it unclear who owns the property. The Massachusetts Uniform Trust Code (chapter 203E, effective 8 July 2012) covers trusts of a donative nature, and commentators suggest most nominee trusts fall outside it, so the common law still governs them.

Key facts

  • A nominee trust is a mainly Massachusetts device: the trustee’s name is on the deed and the beneficiaries are listed on an unrecorded schedule.
  • In Morrison v. Lennett (1993), the Massachusetts Supreme Judicial Court said nominee trustees have only perfunctory duties and act only at the beneficiaries’ direction.
  • Massachusetts courts often treat nominee trustees as agents and the beneficiaries as the real owners, including for some liabilities.
  • Practitioner sources say a nominee trust controlled by its beneficiaries is generally not taxed as a separate trust; the beneficiaries report the income.
  • Massachusetts General Laws chapter 184, section 35 lets trustees record a short trustee’s certificate instead of the full trust document.
  • The Massachusetts Uniform Trust Code (chapter 203E, effective 8 July 2012) covers donative trusts; commentators suggest most nominee trusts fall outside it.

Exercise nine, six, three, one

9CollectList up to 9 features of a nominee trust described in this lesson or in a Massachusetts source you are reading (some sources give fewer), such as who holds title, who directs the trustee, where the beneficiaries are named and how income is reported.
6ClusterSort them into 6 categories: title and recording, the trustee’s powers, the beneficiaries’ rights, liability, tax treatment, and facts you are unsure about.
3DistillReduce the 6 categories to 3 groups: features that make it unlike an ordinary trust, features that affect privacy, and features that create risk.
1CrystallizeWrite 1 sentence explaining, in your own words, why Massachusetts courts often treat a nominee trust as an agency rather than an ordinary trust.

Fact check

Dates, figures and claims checked against the published sources listed below.

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