MEMORANDUMS OF TRUST
AND TAX RELEASES
Most of the articles on this website were written because a number of clients have asked me the same questions over a long period of time. This article, however, is one written out of my frustration with real estate title lawyers. So in a sense, this article is really written for me.
I suppose I should restate my general philosophy on real estate sales, and that is, if anything can go wrong in a real estate transaction, it will go wrong before closing.
Let’s begin with a simple issue, and that is, the client has conveyed property to themselves as trustees under their trusts. They are preparing to sell the property, and the Title Examiner requires that a “Memorandum of Trust” be filed of public record. The client usually calls me and asks what a Memorandum of Trust is.
Years ago I would cite 60 O.S. §175.45 (C), and remind the client that there is no statutory requirement for recording any private trusts. The deeds I customarily prepare for clients convey title to “John Doe, Trustee of the John Doe Trust dated January 1, 1982”, or words to that effect. Since title is vested in the Trustee’s name, and the date of the trust is given, the Oklahoma statutory requirement of 60 O.S. §175.6a has been met. To underscore the fact that a memorandum of trust ought not to be required, I have reprinted the OBA Real Property Law section on this very topic (it is located at the conclusion of this article). However, the handful of lawyers in the Tulsa area who must meet Mortgagee Title Insurance requirements nonetheless require a Memorandum of Trust be filed.
Thus, I have surrendered on this issue. Until the Legislature or the Real Property Section amends the Title Standards, I prepare Memorandums of Trusts for my clients, whenever real estate is sold by the trustees (during the past few years, we simply include the Memorandum of Trust as part of the Deed). The more recent requirement is that a certificate of incumbency be filed of record (which is, in essence, a memorandum of trust).
The second issue dealing with real estate, which occurs after the death of the settlor, involves estate tax releases. The title standard on this issue is as follows:
16 O.S. Ch. 1, App. §15.4. Estate Tax Concerns of Revocable trusts. Where title to real property is vested in the name of a revocable trust, or in the name of a trustee(s) of a revocable trust, and a subsequent conveyance of such real property is made by a trustee(s) of a revocable trust, who is other than the settlor(s) of such revocable trust, a copy of the order of the Oklahoma Tax Commission releasing or exempting the estate of the non-joining settlor(s) from the lien of the Oklahoma estate tax, and a closing letter from the Internal Revenue Service, if the estate is of sufficient size to warrant the filing of a Federal estate tax return, should be filed of record in the office of the county clerk where such real property is located unless evidence, such as an affidavit by the successor trustee of the revocable trust is provided to the title examiner to indicate that:
A. the non-joining settlor(s) was alive at the time of the conveyance; or
B. the settlors were husband and wife and:
1. one settlor is deceased, and
2. the sole surviving settlor is the surviving spouse of the deceased settlor, and
3. the assets of the trust, pursuant to the terms of the trust, pass to the benefit of the surviving settlor spouse, upon the death of the deceased settlor spouse; or
C. the sole settlor is deceased and the assets of the trust, pursuant to the terms of the trust, pass to the benefit of the surviving spouse of the deceased settlor, upon the death of the settlor; or
D. more than 10 years have elapsed since date of the death of the non-joining settlor(s), or since the date of the conveyance from the trustee(s), and no estate tax lien against the estate of the non-joining settlor(s) appears of recorded in the county where the property is located.
Because of this title standard, I request the client to provide me with a tax release, which their accountant can procure, or if they do not have an accountant, I will either prepare an estate tax return(s) (or prepare the 2 page surviving spouse notice to the Oklahoma Tax Commission), or refer the client to an accountant, for preparation of the requisite estate tax return(s). When the real estate is sold out of the trust estate, I will attach the tax release to the certificate of incumbency (the memorandum of trust).
The following is a reprint of an article published in the Oklahoma Bar Journal, dealing with the topic, memorandums of trust:
By Paul A. Kane
Reprint from Vol. 69, No. 11, 3/14/98,
The Oklahoma Bar Journal
With the increasing popularity of revocable inter vivos trusts as the estate planning vehicle of choice, title examiners are called upon, more than ever, to examine the opine as to the conveyance of real property to and from such trusts. However, the Title Examination Standards Committee has discovered an area of trust law which has created a true split among title examiners. Accordingly, we felt compelled to write this section note to address this area of law and to invite comments from fellow title examiners throughout the state.
Since the enactment of Okla. Stat.tit.60 §175.6a, title examiners have known that a recorded memorandum of trust is required when property is transferred or acquired in the name of an express private trust by the trustee or trustees of said trust. However, the language of the statute sets out a directive (“…the trustee shall file a memorandum of trust…”) without explaining the exact circumstances under which a memorandum of trust must be filed.[i]
During the recent meeting of the Title Examination Standards Committee, I took an informal poll. I presented the committee with three hypotheticals. They were as follows:
1. Property is held in the name of “John Doe, Trustee of the John Doe Revocable Trust dated January 1, 1997”.
2. Property is held in the name of “The John Doe Revocable Trust dated January 1, 1997”.
3. Property is held in the name of The John Doe Revocable Trust dated January 1, 1997, John Doe, Trustee.”.
Using these examples, I asked the committee[ii] if they would make a requirement for a memorandum of trust on each example. In the first hypothetical (where the property was held in the name of “John Doe, Trustee of the John Doe Revocable Trust, dated January 1, 1997”), the committee agreed almost unanimously that a memorandum of trust would not be required. This is because the property is held in the name of the trustee (as opposed to the trust itself) and all of the information required in a memorandum of trust is otherwise present (i.e., the date of the creation of the trust and the name of the trustee of the trust).[iii]
Likewise, the committee almost unanimously agreed that the second hypothetical (in which the property was held in the name of “The John Doe Revocable Trust dated January 1, 1997”) would require a memorandum of trust. This was because the property was held in the name of the express private trust itself, as opposed to being held in the name of the trustee, as in the first hypothetical. Further, the title examiner would not know who the trustee with authority to sign a deed was.[iv] Therefore, no member of the committee had any hesitations in requiring a memorandum of trust in such instance.
The split of decision arose in interpreting the third hypothetical listed above (in which the property is held in the name of “The John Doe Revocable Trust, dated January 1, 2997, John Doe Trustee.”) Half of the committee[v] would require a memorandum of trust because the property is held “in the name of an express private trust.” According to these members of the committee, despite the fact that information regarding the trust and trustee were present, the title examiner could not ignore the mandatory language of 60 O.S. § 175.6a which requires that a memorandum of trust be field when the property is held in the name of the trust. Further, if some time has passed since the property was conveyed into “The John Doe Revocable Trust, dated January 1, 1997, John Doe, Trustee,” one may be concerned ass to whether John Doe is still the trustee.[vi] Or even more problematic, what if Jane Smith signs a subsequent conveyance “as trustee” of the trust?
The other half voted not to require a memorandum of trust because all of the information which a memorandum of trust requires (i.e., the date of creation of the trust, and the name of the trustee) are present in the named property holder. When asked about the mandatory language of section 175.6a, they refer to the historical context in which section 175.6a was created. As noted above, real property could not be held in the name of an express private trust until 1989. Regardless of the imprecise language of section 175.6a the intent of this section is to provide information to the title examiner as to who the trustee is. When the information is supplied in the name of the record title owner, as in this example, a memorandum of trust is irrelevant.[vii]
This apparent dichotomy among members of the Title Examination Standards Committee prompted this section note to determine if title examiners throughout the state are as evenly split as we were. In this regard, we invite all title examiners to respond to this note and share your comments with us; thereby taking this informal poll on a larger scale. If you wish you may state only whether you would require the memorandum of trust. Or, if you would rather elaborate, your additional comments are welcome. Please forward your “vote” and comments, if any, to Paul A. Kane, Eller and Detrich, 2727 East 21st St., Tulsa, Oklahoma 74114. If you have joined the computer literate faction of society, you may forward your “vote” via e-mail to Irish89@aol.com.
[i] The exact language of the statute is as follows: Any estate in real property may be acquired and held in the name of an express private trust which is a legal entity. Where real property is so acquired, any conveyance, assignment, or other transfer shall be made in the name of such trust by the trustee or trustees of said trust. When real property is transferred or acquired in the name of the trust after the effective date of this act [November 1, 1989] the trustee shall file a memorandum of trust with the county clerk in which the real property is located. The memorandum of trust shall include the date of creation and the name of the trustee or trustees of the trust.
Any person or persons making such conveyances and executing instruments while purporting to be the trustees of such trusts shall be presumed to be acting in the capacity indicated and within the scope of their authority in any action to set aside such conveyance brought against a bona fide purchaser for value. Okla. Stat. tit. 60, § 175.6a.
[ii] There were 28 members of the committee present on this particular day.
[iii] This is also the case where the property is held in the name of “John Doe, Trustee” where there is no other written evidence of the existence of a trust recorded with the county clerk. See Title Examination Standard 15.3.
Additionally, although not expressly stated in the statute, the committee took note of the fact that real property could not be held in the name of an express private trust until recently. Historically, any property held in trust was held by the trustee on behalf of the trust. Accordingly, the committee did not feel that the statute was intended to address a situation where the property was held by the trustee (as had always been the case) as opposed to when the property was held by the trust itself.
[iv] Although, not the subject of this section note, one may argue that the rebuttable presumption found in Okla. Stat. tit. 16, §53(A)(7)(e) would not require the title examiner to determine who the trustee was because anyone signing would be presumed to have such authority under this statue. However, the cautious title examiner should note that the rebuttable presumptions found in Title 16 do not obviate the need for the memorandum of trust as set out in Title 60.
[v] It should be noted that the committee was split evenly in half. Twenty-eight members were in attendance at the meeting when this “poll” was conducted. Exactly 14 voted to require a memorandum of trust and 14 voted not to require a memorandum of trust.
[vi] As noted in the preceding footnote, this argument for the necessity of a memorandum of trust is not as strong because of 16 O.S. § 53.
[vii] Another problem which has been raised, both at the Committee level and elsewhere, arising from these same scenarios, has been what to do with the memorandum of trust after death and the release of the Oklahoma estate tax lien. No statutory procedure exists to cover this event. Consider the following situations:
1. Property held in the name of “John Doe, Trustee of the John Doe Revocable Trust dated January 1, 1979” is now conveyed away by “Jane Doe, Successor Trustee of the John Doe Revocable Trust dated January 1, 1997.”
2. Property held in the name of “The John Doe Revocable Trust dated January 1, 1997” is conveyed by “Same Smith, Trustee of the John Doe Revocable Trust dated January 1, 1997” after he has signed, acknowledged, and filed a memorandum of trust showing that he is the trustee of the trust.
What proof is required of record, if any, to show that either of these individuals has authority to act? Section 175.6a says that the person “purporting to be the trustee or trustees of such trusts shall be presumed to be acting in the capacity indicated and within the scope of their authority.” However, since the assets of a revocable trust are considered a part of the estate of the trustor, does not the fact that the trustor is no longer acting as trustee create the concern that the trustor is deceased? If he is deceased, and not the trust assets subject to the Oklahoma Estate Tax lien? Section 175.6a creates a presumption; however, cannot that presumption be overcome, thus defecting the presumption of marketable title itself? Although it would appear that a legislative solution is necessary, it is the focus of the Title Examination Standards Committee to determine a practice standard in this area.