DD 6/2/03 Who's The Trustee, and Why Is He Doing This to Himself?

Daily Development for Monday, June 2, 2003
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
dirt@umkc.edu

TRUSTS; REVOCATION:  A deed to a trustee effects a change in
ownership of property, even if the grantor, the trustee and the beneficiary
of the trust are the same person and the beneficiary has the complete
power to revoke, and such trust is not revoked simply by the trustor
making another conveyance to a different trust.

Austin, Trustee v. City of Alexandria, 574 S.,E. 2d 289 (Va. 2003),

In 1993, Duncan,  who owned commercial property in Alexandria,
Virginia, conveyed the property to himself as trustee under a revocable
living trust in which he was the only present beneficiary.  There were
several remainder beneficiary interests, but the trustor retained the power
as trustee to dispose of the corpus of the trust during his lifetime by
transferring back to him as the beneficiary.  Later he added contingent
trustees to serve in the event of his death or incapacity.

In 1999, Duncan conveyed the same property to himself as trustee under
a new charitable trust.  The deed for the 1999 transfer did not indicate in
what capacity (trustee or individual) Duncan signed.

Later, Duncan, as trustee under the second trust, contracted to sell the
property in the trust.

After Duncan died, the successor trustee under the 1993 living trust sued
the successor trustee under the 1999 charitable trust to determine who
owned the property.

The trial court held that by execution of the 1999 transfer into trust,
Duncan had revoked the transfer to the 1993 trust, consistent with his
power to invade the corpus.

On appeal: held: Reversed.  Because the 1999 deed did not purport to be
executed by Duncan as trustee of the 1993 trust, it necessarily could not
be effective as a trustee's transfer.   But  the 1993 deed caused a change
in the ownership of the property and thereafter, Duncan owned the
property as a trustee, not in his individual capacity.  Unless the 1999
deed declared that it was a transfer by Duncan in his capacity of trustee,
the 1999 deed was ineffective to transfer title to the property.

Reporter's Comment: The decision would give a title insurer grounds for
arguing that, if an insured under a 1992 ALTA owner's policy conveys
property to himself, as trustt, the trustee has no coverage under the
original owner's policy.  The same argument would not be available
under the 1998 ALTA homeowner's policy, which insures a trustee to
whom the homeowner transfers title.

Editor's Comment 2: The editor puzzles over what the court is
attempting to accomplish here.  The 1999 deed was silent as to the
capacity in which Duncan signed.  What harm would be done in
assuming that the deed was executed by Duncan in his capacity as
trustee.  It seems clear that Duncan's intent was to make a valid transfer
to the new trust.  If this required his signature as trustee, and the
documents did not indicate otherwise, what on earth is the court trying to
protect?
What if there had been a separate trust - Jones - and Jones had executed a
deed to Duncan not indicating that Jones was executing as trustee?
Would the court conclude that this deed, also, was void, because Jones
did not indicate his capacity, even though he could have only executed in
one capacity?  If the answer is, as the editor suspects, that the Jones'
deed would be valid, then by parallel reasoning the deed should be valid
here.

Editor's Comment 2: Of course, the case also would confirm that a
transfer to a trust in which the sole beneficiary was also the trustee would
be the transfer of a an interest triggering the due on sale clause in a
mortgage (unless a federal law exception applied, as would be the case if
the property was owner occupied residential property.)

The reporter for this case was Bruce Davis of the Arlington, Virginia,
Bar.

Readers are encouraged to respond to or criticize this posting.

Items reported on DIRT and in the ABA publications related to it  are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters.  The same is true of all commentary provided by contributors to the DIRT list.  Accuracy of data provided and opinions expressed  by the DIRT editor the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.


Parties posting messages to DIRT are posting to a
source that is readily accessible by members of
the general public, and should take that fact
into account in evaluating confidentiality
issues.

ABOUT DIRT:

DIRT is an internet discussion group for serious
real estate professionals. Message volume varies,
but commonly runs 5 - 15 messages per work day.

Daily Developments are posted every work day.  To
subscribe, send the message

subscribe Dirt [your name]

to

listserv@listserv.umkc.edu

To cancel your subscription, send the message
signoff DIRT to the address:

listserv@listserv.umkc.edu

for information on other commands, send the message
Help to the listserv address.

DIRT has an alternate, more extensive coverage that includes not only
commercial and general real estate matters but also focuses upon residential real estate matters.  Because real estate brokers generally find this service more valuable, it is named “BrokerDIRT.”  But residential specialist attorneys, title insurers, lenders and others interested in the residential market will want to subscribe to this alternative list.  If you subscribe to BrokerDIRT, it is not necessary also to subscribe to DIRT, as BrokerDIRT carries all DIRT traffic in addition to the residential discussions.

To subscribe to BrokerDIRT, send the message

subscribe BrokerDIRT [your name]

to

listserv@listserv.umkc.edu

To cancel your subscription to BrokerDIRT, send the message
signoff BrokerDIRT to the address:

listserv@listserv.umkc.edu

DIRT is a service of the American Bar Association
Section on Real Property, Probate & Trust Law and
the University of Missouri, Kansas City, School
of Law.  Daily Developments are copyrighted by
Patrick A. Randolph, Jr., Professor of Law, UMKC
School of Law, but Professor Randolph grants
permission for copying or distribution of Daily
Developments for educational purposes, including
professional continuing education, provided that
no charge is imposed for such distribution and
that appropriate credit is given to Professor
Randolph, DIRT, and its sponsors.

DIRT has a WebPage at:
http://www.umkc.edu/dirt/

Members of the ABA Section on Real Property, Probate
and Trust Law or of the National Association of Realtors can subscribe to a quarterly hardcopy report that includes all DIRT Daily Developments, many other cases, and periodic reviews of real estate oriented literature and state legislation by contacting Antonette Smith at (312) 988 5260 or asmith4@staff.abanet.org