Question:

I am the sole successor trustee and sole beneficiary of my mother’s Massachusetts grantor trust. She passed away in 2022. Her domicile was Massachusetts. My domicile is Rhode Island. I understand that the trust ceased to be a grantor trust as the grantor (my mom) passed away. However, my attorney told me that it is now an irrevocable grantor trust. I believe that perhaps I did not understand, so I reread the trust document. Here’s what it says, in part:

“NAME AND PURPOSE”: “This trust shall be known as the XXXX Real Estate Trust and is intended to be a nominee trust, so-called, for federal and state income tax purposes and to hold the record legal title to the Trust Estate and such functions as are necessarily incidental thereto.”

What does that mean?

“BENEFICIARIES”: … “The parties hereunder recognize that if a sole Trustee and sole Beneficiary are one and the same person, legal and equitable title hereunder shall merge as a matter of law.”

What does that mean?

Also, lastly, under “SUCCESSOR TRUSTEE”: (having to do with after my mother passes) “Upon the recording of such instrument [Registry of Deeds recording of acceptance of Successor Trustee–already done], the legal title to the Trust Estate shall, without the necessity of any conveyance, be vested in said succeeding or additional Trustee or conveyance, with all the rights, powers, authority and privileges as if named as an original Trustee hereunder.”

What does that mean? Does this last provisions make the trust an irrevocable grantor trust?

One more question: Is it my understanding that under Massachusetts law, irrevocable grantor trusts are taxed differently than irrevocable non-grantor trusts?

Response:

To start with your first (and last) question, the trust is not an irrevocable grantor trust. Once the grantor dies, a trust can no longer be a grantor trust.

However, it sounds like what you have is a nominee realty trust, which is a form of trust used almost exclusively in Massachusetts. While called “trusts,” nominee realty trusts are really agency agreements under which the trustee or trustees act on behalf of the beneficiary or beneficiaries. Typically, the beneficiaries are named on a separate schedule of beneficiaries that is not recorded at the registry of deeds.

Are you the trustee? Are you now the sole beneficiary? I will assume the answer is “yes” to both questions. If so, there may be little or no benefit to keeping the house in the trust and you may want to simply convey it into your name alone.

But assuming you keep the house in the trust, for tax purposes, nominee realty trusts sometimes get their own tax identification numbers and sometimes simply use the Social Security numbers of beneficiaries, especially if there’s a single beneficiary. If you obtain a tax identification number for the trust, to the extent the income — I assume we’re talking about rental income — is distributed to you, it will be ultimately taxed to you in any case. You will file a 1041 tax return for the trust, reporting the income and deducting the expenses, and issue yourself a K-1 reporting the net income. The trust will pay no tax and you will report the net income for tax purposes.