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.

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