WHO DO YOU TRUST?

Winter Park Home, Spring, 2005

Trusts can be tricky. Consider the case of a man who turned to me when he ran into a huge obstacle that derailed his efforts to obtain a mortgage from a local bank. Ironically, he had inadvertently created the obstacle by his own actions. Fresh from attended a seminar on trusts and excited about the potential advantages offered by these legal tools, the individual promptly conveyed his home into a trust, using forms he had received at the seminar. Unfortunately, he failed to name a trustee on the deed.

Upon reviewing the trust, I determined he had not only failed to name himself (or anyone else) as the trustee, but also had not granted any powers to a trustee anywhere in the trust. He had, in effect, written his property into an inaccessible box. He could neither sell nor mortgage it until substantial legal work was undertaken to extricate him from this self-inflicted problem.

Trusts are often used to purchase real property. When properly set up, they are an effective form of ownership. Their purposes include, but are not limited to, estate planning, insulating property from the claims of judgment creditors, and/or allowing multiple properties to be purchased without disclosing on the public record the identity of the actual principals. Let’s examine the basic format of a “trust” and some of the issues associated with conveying real property in Florida, when title is held in a trust.

A “trust” is a form of ownership by which a Grantor transfers property to a named individual (a “trustee”), under the terms of a written document (the “trust”), to administer the property for the benefit of one or more individuals or entities (the beneficiaries). In most trusts, known as “active trusts,” the trustee is given the power to make all decisions involving the assets of the trust, including the power to sell, convey and mortgage real property, without interference or direction from any other parties. In other trusts, known as “passive trusts,” the beneficiaries direct the trustee on how to act – the trustee in this example is more of a figurehead, without any real power.

Conveyances involving trusts must include both the name of the Trustee and the name of the trust itself. It is the Trustee acting on behalf of the trust, and not the trust itself, that has the legal power to convey real property. If the land trust powers are recited in the deed, but the name of the trustee is not shown on the deed, the benefits of any land trust will be lost, since the trustee will have to prove his identity on the public record. This can only be done by recording the entire trust, or relevant portions of the trust. If the trust is passive, each one of the beneficiaries will be treated as an actual owner of the property, and will also have to execute the deed or mortgage. Since most trusts are created to avoid letting others know the terms of the trust and the names of the beneficiaries, the advantages of placing the property in the trust will obviously be eliminated in this case.

Homestead is another factor to consider when conveying property into trusts. Under Florida law, if the trustee uses the property as a primary residence, any deed or mortgage by the trustee will also have to be signed by the trustee individually, along with the trustee’s spouse.

There is also a misconception that placing property into a trust guaranties that the property will not have to be probated when the trustee dies. Although this may often be true, it is important to be guided by competent legal counsel. The following example illustrates a situation where property held in trust still needs to be probated.

Michael Johnson, a divorced father of minor children, owns homestead property and places it into his trust, naming himself as the trustee, while reserving the right to revoke the trust at any time. Mr. Johnson then dies without leaving a will. The successor trustee named in the trust now contracts to sell the property.

Even though the language in the trust clearly authorizes the successor trustee to sell the property, Florida law prohibits the successor trustee from transferring the property because Mr. Johnson was survived by minor children. The property will have to be probated because minor children have rights in homestead property that must be probated.

There are obviously many factors to consider when creating a trust.

Before transferring any real property into a trust, you should always obtain competent legal advice to determine the correct parameters of your trust document, and the best language to be placed into the deed when you initially purchase the property on behalf of the trust.

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Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.