2.28 Business Trusts

Question any deed that does not run to the trustees of the trust and call the National Legal Department.

2.28.1

In General

A business trust, also known as Common-Law or Massachusetts Trust, is an unincorporated business organization created by an instrument that regulates and determines the manner in which property is to be held and managed by the trustees, for the benefit and profit of such persons as may be or may become the holders of transferable certificates evidencing the beneficial interest in the trust state.

The business trust was developed in Massachusetts as a form of business organization having a quasi-corporate character at a time when corporations in Massachusetts were limited in their powers to hold and deal in real estate and own controlling interests in public utility companies. Although these restrictions have since been removed, the business trust still persists in a minority of instances.

2.28.2

Is A Business Trust A Legal Entity Capable Of Holding Title To Real Estate?

There is a difference of opinion on whether a Business or Massachusetts Trust is a distinct legal entity capable of holding title to real property in the name of the trust and state law must be consulted. A deed to a Business Trust in its own name (as distinguished from a deed to the trustees of the trust) should not be insured unless there is a statute permitting an unincorporated association to take title in its own name.

If the deed is out of the trust and there is no state statute permitting an unincorporated association to take title in its own name require:

  • Properly authorized trustees to convey; and,
  • Ratification of current conveyance by original grantors who conveyed to the trust.

If state law authorizes the business trust to take title in its own name, this may be done unless specifically prohibited by the trust agreement.

2.28.3

Declaration Of Trust

A business or Massachusetts trust is set up under a declaration of trust which sets forth organizational details.

The declaration of trust must be carefully examined in order to determine the following particulars:

  • Name of the trust.
  • Duration and existence of the trust.
  • Number of trustees.
  • Names of the trustees.
  • Powers of prohibitions of the trustees.
  • Purpose and prohibitions in relation to investments.
  • Possible violation of the rule against perpetuities.

2.28.4

Real Estate Investment Trust (R.E.I.T.)

A business or Massachusetts trust can generally qualify as a Real Estate Investment Trust (REIT). A ?REIT? is a trust organized to pool capital for the purpose of investing in real estate mortgage loans.

A REIT is a creature of the Internal Revenue Code.