Does a trust beneficiary own the assets in his trust?
You may be surprised to find out that he does not. There are actually various types of ownership, or “title,” to property, and trusts have at least two.
Types of Property Ownership
Beneficial or Equitable Title
“Beneficial title” or “equitable title,” also called a “beneficial interest” or “equitable interest,” carries with it the right of use or enjoyment of the property. A beneficiary under a trust has a beneficial interest in the trust property. That is, he has a right to the benefit of the property left in trust, including its economic advantages. However, he cannot deal with the property directly as the owner of legal title.
Legal Title
“Legal title” is the form of ownership that is often received through a deed or assignment. It grants the owner various rights, such as the right to control the property, the right to transfer it to another owner, or to encumber it with liens. It carries with it various obligations, such as maintenance and paying taxes. Legal title can also be subdivided, such as title to the surface of land versus title to the minerals underlying the land. Often, legal title carries with it the right to enjoy the property, but not in the case of a trust.
A trustee of a trust has legal title to the trust property. The trust property is actually transferred to her in her capacity as a trustee. But the trust document controls how the legal owner can use or dispose of the property. So, although a trustee has legal title to the property, she does not have a beneficial title.
Can Property Be Transferred to the Trust?
Sometimes property is transferred “to the trust,” and title is held in the name of the trust, without naming the trustee. Legally, that transfer is void. Any deed or assignment that names “the John Doe Trust” as the transferee fails for lack of a legal transferee. A trust is just a contractual relationship between a trust-maker, a trustee, and a beneficiary. The trust itself is a pile of paper; it is not a legal entity with the ability to own property. It is the trustee who must own the property held for the benefit of the beneficiary. So the trustee must be named as the transferee or transferor on any deed dealing with trust property.
How to Avoid a Void Trust Transfer
Luckily, the Texas legislature has enacted a law that saves many transfers of property from being void. Section 114.087 of the Texas Property Code says that if a deed transfers property to “the John Doe Trust” instead of naming the trustee of the trust, then the trustee will be considered to be the named party in the deed. But although the law saves people from their own mistakes, it’s better practice to make sure the assignment is correct in the first place; that is, to the trustee, not to the trust itself.
Let Hammerle Finley Help You With Your Trust
There are a lot of pitfalls for the unwary when preparing a trust. Kendra Rey from Hammerle Finley can advise you on what trust may be right for you and the correct funding. Set a consultation to discuss your estate planning today.
Kendra Rey dedicates her practice to representing clients in estate planning and probate. This blog contains general information only and does not constitute legal advice.
