Roberts v. Roberts

¶1This dispute between two brothers, Gerald Roberts, the plaintiff, and Jason S. Roberts, the defendant, concerns the ownership of two contiguous parcels of commercial real estate located in Reading. The case was tried before a Land Court judge. The judge found for the defendant, and entered judgment to that effect. The plaintiff appealed. We allowed his application for direct appellate review. We affirm.

¶2The two brothers are the children of Harry and Rose Rosenblatt. In 1968, the family purchased the property at issue and opened a Midas franchise on it. Title to the property was • taken in a trust, known as the Harro Trust. The declaration of trust, which was duly recorded in the registry of deeds, was executed by Gerald, as sole trustee.

¶3*686Harry and Rose are listed as beneficiaries in a revisable unrecorded schedule. The trustee had to pay income to the beneficiaries at least annually. The trustee was authorized to open checking and savings accounts and safe deposit boxes and to deposit and withdraw funds in and from them. The trust was to last for twenty years or until terminated at the request of either beneficiary. On termination, the trustee was directed to convey the trust estate to the beneficiaries as tenants in common. The trust provided that, except for the aforesaid powers, “the Trustees shall have no power to deal in or with the Trust Estate except as directed by the beneficiaries.” The trust also provided that third parties could conclusively rely on a trustee’s certificate and on the execution of any document by the. trustee. The beneficiaries could add or remove a trustee and amend the trust. Such actions were required to be recorded in the registry of deeds.

¶4Approximately one and one half years after the creation of the trust, the family sold the Midas franchise. Since then, the property has been leased to outsiders. In July, 1973, a first amendment to the Harro Trust was executed before a notary and recorded. Jason was appointed cotrustee and a paragraph was added providing that, “[u]pan the death of both beneficiaries hereunder the Trustees shall transfer and convey the specific assets constituting the Trust estate ... to the Trustees as tenants in common.”

¶5Due to Gerald’s failure to repay debts, his inattention to the affairs of the trust and Harry’s suspicions that Gerald was using the trust to finance an extravagant life style, Harry and Rose decided that Gerald was not to share in the trust’s assets. On March 30, 1976, they executed before a notary and recorded a second amendment to the Harro Trust. The amendment removed Gerald as trustee and left Jason as sole trustee. The paragraph added by the first amendment was replaced with a provision that, “[ujpon the death of both beneficiaries hereunder, the Trustee shall have full power and authority to deal with the Trust Property in his own right and the Trust shall be deemed to have terminated.”

¶6*687A final amendment was executed and recorded on May 29, 1980. It set forth procedures for appointing a successor trustee and prohibited the appointment of Gerald as trustee.1 Harry died in May, 1985, and Rose died in November of that year. The Reading property was transferred to Jason. Gerald argues that this transfer is invalid because it was not attested to by two competent witnesses in accordance with the Statute of Wills. See G. L. c. 191, § 1. The Land Court judge concluded that the transfer was valid.

¶7The Harro Trust was a nominee trust: “an entity created for the purpose of holding legal title to property with the trustees having only perfunctory duties.” Morrison v. Lennett 415 Mass. 857, 860 (1993), quoting Johnston v. Holiday Inns, Inc., 595 F.2d 890, 893 (1st Cir. 1979). “Unlike ... a [traditional trust] the trustees of a nominee trust have no power, as such, to act in respect of the trust property, but may only act at the direction of . . . the beneficiaries.” Morrison, supra.2The plaintiff argues that, despite the fact that *688the parties intended a trust, the so-called trustee is, in fact, not a trustee, but merely an agent for the beneficiaries. Because the death of the principal terminates an agent’s authority to convey an interest in the principal’s property, Gallup v. Barton, 313 Mass. 379, 382 (1943); Restatement (Second) of Agency § 120 comment a, at 305 (1957), the plaintiff argues that Jason could not transfer the property to himself and the property belonged in Rose’s estate.

¶8Nominee trusts have characteristics of both agency and trust; the trustee is an “agent-trustee” who holds title to property “for the benefit of and subject to the control of another.” Restatement (Second) of Agency, supra at § 14B, at 62.3 Nominee trusts are subject to the rules of agency for certain purposes. Apahouser Lock & Sec. Corp. v. Carvelli, 26 Mass. App. Ct. 385, 388 (1988) (“In [nominee trusts], trustees are frequently seen as agents for the principals’ convenience rather than as trustees in the more familiar fiduciary sense”). See also, e.g., Drucker v. State Tax Comm’n, 374 Mass. 198, 201 (1978) (“extreme degree of control exercised by beneficiaries . . . vitiates the creation of a trust for purposes of [state income] taxation”). The fact that a nominee trust is held to be an agency in some contexts, however, does not mean that it should be treated as an agency in every instance. Trusts have been recognized for some purposes even though they are ignored for others. For example, revocable inter vivas trusts used in estate planning are ignored for tax *689purposes, see 26 U.S.C. § 676 (a) (1988), but are effective to hold and pass property, see National Shawmut Bank v. Joy, 315 Mass. 457 (1944); Penta v. Concord Auto Auction, Inc., 24 Mass. App. Ct. 635, 639 (1987).

¶9“Gifts over” are not typical of nominee trusts; nominee trusts do not normally provide for disposition of the res to anyone other than the beneficiaries.4 Gifts over also are not related to the purposes for which nominee trusts are used. See In re Grand Jury Subpoena, 973 F.2d 45, 48 (1st Cir. 1992) (tax advantages); Carvelli, supra at 388 (same); Birnbaum, supra at 365-366 (maintaining anonymity of ownership, easing title transferability and avoiding title transfers). The gift over provision in the Harro Trust did not give the beneficiaries any additional control over the trust. Because the gift over is unrelated to a typical nominee trust, see In re Grand Jury Subpoena, supra at 48; Carvelli, supra at 388; Drucker, supra at 201, agency principles are not applicable.

¶10When they executed the first amendment, Harry and Rose intended a present transfer of a future interest, albeit subject to recall, to Gerald and Jason. In executing the second amendment, they recalled that gift and transferred a future interest to Jason only.5 The question is whether the purported disposition of the trust estate was testamentary. A testamentary transfer would be invalid because the transfer did not comply with the two-witness requirement of the Statute of Wills. G. L. c. 191, § 1 (requiring testamentary dispositions to be subscribed by two or more competent witnesses). See Joy, supra at 470; Russell v. Webster, 213 Mass. 491, *690491-492 (1913). An inter vivas transfer of a future interest, however, would be valid even without two witnesses.6

¶11“[A] trust is ‘not testamentary and invalid for failure to comply with the requirements of the Statute of Wills merely because the settlor-trustee reserves a beneficial life interest [,] power to revoke and modify the trust . . . [and] controls the administration of the trust.’ ” Sullivan v. Burkin, 390 Mass. 864, 869 (1984), quoting Restatement (Second) of Trusts § 57 comment h (1959).7 The second amendment gave Jason a future interest in the trust estate at the time it was - executed. That disposition was not testamentary. Future interests are valid even though subject to being eliminated at any moment by the exercise of powers retained by life beneficiaries. See Sullivan, supra,Joy, supra.The ability to control the activities of the trustees does not pose any additional peril to such interests. It therefore does not affect their validity.

¶12In National Shawmut Bankv. Joy, supra,we said that an inter vivas trust with a gift over of the trust estate on the settlor’s death was a valid nontestamentary transfer even though the settlor retained a beneficial life estate, a general power of appointment, the power to withdraw principal from the trust and the power to “alter, amend or revoke” the trust. *691Id. at 472-475. We also said that the “reservation by a settlor of the power to control investments [by the trust] does not impair the validity of a trust” or the validity of a gift over as an inter vivas transfer. Id. at 476. There is no reason to treat the Harro Trust differently. The only material difference is that, in the present case, the beneficiaries control not only investments, but almost all discretionary actions of the trust. Where a trust allows the beneficiaries to receive all the income and principal they desire, there are no discretionary functions except managing investments.

¶13In Sullivanv. Burkin, supra,we held that a trust with remainder interests given to others on the settlor’s death was not testamentary in character where the settlor was sole trustee and retained a broad power to modify or revoke the trust, the right to receive income, and the right to invade principal during his life. Id. at 867-868.8 Unlike the Harro Trust, the trust did not contain a provision that, with limited exceptions, the trustees may act only at the direction of the beneficiaries. The situation was essentially the same, however, because the present beneficiary was the sole trustee and therefore, the trustee would only act at the direction of the beneficiary.9

¶14Because the gift over in the Harro Trust is not materially different from the gifts over in Sullivanand Joy, it should be treated similarly. We therefore hold that the gift over was a valid inter vivas transfer.10 Our determination is not antithet*692ical to the purposes of the Statute of Wills. “The formal requisites of wills serve two main purposes: to insure that dispositions are carefully and seriously made, and to provide reliable evidence of the dispositions.” Blanchette v. Blanchette, 362 Mass. 518, 525-526 (1972). See Second Bank-State St. Trust Co. v. Pinion, 341 Mass. 366, 371 (1960) (policy of fraud prevention). The first and second amendments, which effectuated the gift over, were embodied in formal documents which were notarized, and thus had an attesting witness, and recorded. The formalities insured that the gift over was carefully and seriously made, and the notarization and recording of the amendatory documents provided reliable evidence of the disposition.

¶15Judgment affirmed.