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What Should You Do About a Missing Schedule of Beneficiaries?

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Nominee realty trusts, which are used primarily in Massachusetts, are widely misunderstood estate planning tools. While called “trusts,” they are essentially agency agreements. The trustees hold title to property but act only at the direction of the beneficiaries.

While the trustees are named in the nominee realty trust document and their names are recorded at the registry of deeds, the beneficiaries are listed on a separate schedule that is not recorded. This is where the problem arises. Since the schedule of beneficiary is not recorded, and often clients don’t understand its importance, they are often misplaced. The lawyers who drafted them should have copies, but they may not. The schedule may have been created before attorneys routinely scanned documents. And the lawyer may have retired, passed away, or be unable to be located.

Why are Nominee Trusts Used?

Before discussing solutions to missing schedules of beneficiary, let’s say a few words about why nominee realty trusts are used. First, be aware that they are not used nearly as often as they had been in the past. Until 2003, Massachusetts was the only state that required full trusts to be recorded at the registry of deeds when real estate was being transferred into them. This could be expensive since trusts are often a dozen or two dozen pages long and it meant that all privacy trusts offer would be lost. To avoid this, lawyers would draft much shorter nominee realty trusts to hold title on behalf of the more complex trust, which would be listed on the schedule of beneficiaries.

This is no longer necessary since now trusts no longer need to be recorded, simply a certificate of trustee. But nominee realty trusts are still sometimes used. They are a good way for several people or entities, such as limited liability partnerships, to own property together. They also facilitate the transfer of property interests over time because all that needs to be changed is the schedule of beneficiaries, not a new deed to the property.

However, the fact that nominee realty trusts were used much more often two decades and more ago than they are today is one of the reasons that schedules of beneficiaries often cannot be located.

So, What Do You Do?

Where there’s agreement about what the original schedule of beneficiaries must have said, the beneficiaries can simply create a new schedule. (Schedules of beneficiaries are typically signed by the beneficiaries, not the trustees.) For instance, if the nominee trust was created at the same time as another trust with the intention of transferring real estate into the underlying trust, it’s pretty clear that the schedule of beneficiaries should list the trust. Or if parents created a life estate for themselves with the remainder held by a nominee trust, the family may be certain that the children should be listed on the schedule of beneficiaries.

But what if it’s not clear what the grantor intended or there’s disagreement? Sometimes matters can be resolved through negotiation or mediation. However, if that’s not possible, the only answer may be to go to court. This may be an action to reform the trust or the trustees may seek instructions from the court. In either case, this is most likely to occur in probate court.

Two questions are who has standing to bring an action and who should receive notice. Certainly, the trustee or trustees have standing. The grantor also has standing if they’re still alive. If not, their estate should be able to seek guidance from the court.

But what about beneficiaries when the whole problem is that we don’t know who the beneficiaries are? The answer is that the court will almost certainly accept an action brought by the next of kin of the grantor and require that such next of kin receive notice of an action brought by the trustees.

In short, if all interested parties, meaning the next of kin of the grantor, agree, they can simply create a new schedule of beneficiaries. But if they don’t, they’ll have to seek a court resolution.

If you every executed a nominee realty trust, avoid the potential cost and delay of negotiations or court involvement, make sure you can locate the schedule of beneficiaries. If you can’t find it, have the beneficiaries sign a new one.

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