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A Deed of Trust can be Assigned Apart from the Note, and that often occurs just before a foreclosure. But What Does That Mean? Not Much, the Deed of Trust is Inseparable from the Note

Notes and Deeds of Trust are often assigned to different parties. The question posed is what happens if the Deed of Trust alone is assigned ? A typical assignment of the Deed of Trust alone will purport to assign “all beneficial interest under that certain Deed of Trust dated xyz..” But the long-established law in California is clear: the beneficial interest under a Deed of Trust is held by the party who holds the Note (or is entitled to enforce it), without regard to the assignment of the Deed of Trust .

The subject was again addressed by the California Courts in Domarad v. Fisher & Burke, Inc. (1969) 270 Cal. App. 2d 543 ). The Court noted that a deed of trust is a mere incident of the debt it secures and that an assignment of the debt carries with it the security. “The deed of trust is inseparable from the debt and always abides with the debt, and it has no market or ascertainable value, apart from the obligation it secures and that a deed of trust has no assignable quality independent of the debt, it may not be assigned or transferred apart from the debt, and an attempt to assign the deed of trust without a transfer of the debt is without effect. (emph. added)”

In Stockwell v. Barnum ((1908) 7 Cal. App. 413) the Court stated that this Code “is wholly foreign to deeds of trust, which, instead of creating a lien only, as in the case of a mortgage, passes the legal title to the trustee, thus enabling him in executing the trust to transfer to the purchaser a marketable record title. It is immaterial who holds the note. The transferee of a negotiable promissory note, payment of which is secured by a deed of trust whereby the title to the property and power of sale in case of default is vested in a third party as trustee, is not an incumbrancer to whom power of sale is given…” Stockwell @ 417.

And more recently “it has been established since 1908 that this statutory requirement that an assignment of the beneficial interest in a debt secured by real property must be recorded in order for the assignee to exercise the power of sale applies only to a mortgage and not to a deed of trust.” ( Calvo v. HSBC Bank USA, N.A. (2011) 199 Cal.App.4th 118 , 122.)

Why is that? There is a technical difference between the two security instruments. The mortgage only involves two parties –the borrower who grants the power of sale to the lender, and the lender who then holds the beneficial interest in the mortgage plus the power of sale. A deed of trust, on the other hand, involves three parties: the borrower, the lender, and the trustee who is granted conditional title to the encumbered property as well as the power of sale.

Thus, the deed of trust may thus be assigned one or multiple times over the life of the loan it secures. But if the borrower defaults on the loan, only the current beneficiary may direct the trustee to undertake the nonjudicial foreclosure process. “[O]nly the ‘true owner’ or ‘beneficial holder’ of a Deed of Trust can bring to completion a nonjudicial foreclosure under California law.” Yvanova v. New Century Mortgage (62 Cal. 4th 919) (2016)

An Alternative The Commercial Code also provides a mechanism for recording an assignment of the security if there has been an off-record transfer of the note but no recorded assignment of the deed of trust or mortgage. The buyer of the note can record a copy of the transfer agreement whereby the note was acquired, together with a sworn statement that a default has occurred, and in that event may proceed with a nonjudicial foreclosure. ( Cal. Com. Code, § 9607, subd. (b))

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Land trust with assignment of beneficial Interests

• protects your privacy, avoids probate court costs after death,
• names beneficiaries and a trustee to uphold any income allocation to the beneficiaries as needed,
• transferable to new beneficiaries easily, without having public record,
• facilitates multiple ownerships for clear and easy division, and, helps you retain seniors’ exemptions.

More about Land Trusts:

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• How is having a land trust easier than just having a will?  

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When can i set up a land trust.

In most cases with multiple heirs, one or more of the heirs waives their rights to the property to avoid a disagreement. It is unfair that one of your children pays for the upkeep, taxes and other expenses associated with the property. Then when the property is sold, all your children expect to share the proceeds evenly. This usually makes tax payments go unpaid, and homes go into disrepair.

What are the benefits of doing a Land Trust?

Probate costs can range from several thousands of dollars to tens of thousands of dollars! It’s unfair to have one of your children pay this cost upfront, and then evenly divide the estate in it’s entirety. These types of disagreements can really split up family. With a trust, the trustee is obligated to distribute the proceeds from a sale evenly eliminating probate court costs.

There are a lot of benefits to having a land trust. One is anonymity. A lot of debt collectors and other interested parties such as business organizations interested in collecting on loans from a business etc. Cannot see who are the beneficiaries to the trust. It is not public information. Another reason is that after you pass, your heirs or beneficiaries will have to go through probate which is costly, from thousands to tens of thousands of dollars, and have waiting time during that process. With a land trust, your home is already transferred to them as owners upon your death, where they will avoid that costly probate process.

There is a trustee named, to carry out the details in the trust, and disburse assets along with other duties, and there are heirs which are further responsible for the property itself.

Debts are usually assigned to a person, an entity or placed as a lien or judgments on a home. No, debts are not usually assigned to land trusts, but some judgements can name the beneficiaries of a person as the parties being sued.

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Assignments, Disclaimers and Powers of Appointment

          Assignments, Disclaimers and Powers of Appointment can alter the distribution of a decedent’s estate.    

          First what is and who can make an assignment? A person who has a vested — legally enforceable — interest in a decedent’s estate can “assign” – i.e., transfer – part or all of their interest to another. Generally, an inheritance vests upon the decedent’s death.  An assignment is a gift by the assignor making the assignment to the assignee receiving the assigned interest.    Assignments create tax issues for both the assignor and assignee.   

          For example, consider an unmarried father who dies intestate — without a will or trust – and is survived by a son and a daughter — his heirs.  Prior to settling dad’s estate, the son decides to give his one-half share to his sister and signs and notarizes an assignment of inheritance rights.  The assignment is then filed with the Court.  Dad’s estate, less expenses and debts, is distributed entirely to the daughter. 

          If an interest in real property inherited from a parent is assigned then the parent child exclusion from reassessment — for local real property taxes — only applies to the interest(s) belonging to the child(ren) who do not assign their interest(s).  There is no reassessment exclusion for any transfers between siblings.

          Assignments, however, almost never apply to a beneficiary’s interests in a trust.  Usually, a trust prohibits beneficiaries from assigning their interest in the trust before distribution.  The anti-assignment provision protects undistributed trust assets from claims by a beneficiary’s creditors. 

          Next, disclaimers are used when a beneficiary, or heir, refuses to accept a gift or inheritance.  You cannot force someone to receive a gift or an inheritance.  To be valid disclaimers must satisfy the following requirements: be unconditional, be in writing, and be timely (i.e., generally, within nine months of the transfer), and, when real property is involved, also be filed with the county recorder where the real property lies.  Unlike assignments, the person disclaiming their interest cannot say who receives the disclaimed interest.  A disclaimer is not a gift by the person disclaiming.  Lastly, one cannot have accepted any benefits from the property being disclaimed, such as the income from an income producing asset. 

          The person disclaiming their gift or inheritance is treated as if they had predeceased the person who made the gift.  We see who is then entitled to inherit. 

          For example, a decedent’s trust leaves a share of the decedent’s trust estate to a named beneficiary and otherwise, if he does not survive to inherit, to the beneficiary’s descendants by right of representation.  The beneficiary survives and timely disclaims.  The beneficiary’s living descendants would then inherit by right of representation. 

          Unlike assignments and disclaimers, powers of appointment are created within a person’s estate planning, e.g., a trust or will, for future use.  A power of appointment allows the power holder to say who receives a gift/distribution from a trust or an estate.  The power of appointment is either a limited power that allows gifting to certain persons or is a general power that allows gifting to anyone at all, including the power holder, the power holder’s estate and the power holder’s creditors.  Powers of appointment are used for a variety of estate planning reasons. 

          For example, a husband’s and wife’s joint estate planning may give the spouse who survives a limited power of appointment over the deceased spouse’s separate trust estate.  The limited power of appointment might allow the deceased spouse’s estate to be divided equally or unequally amongst the deceased spouse’s children as the surviving spouse sees fit after the deceased spouse’s death.

          Anyone who wants to proceed with making an assignment, a disclaimer or exercise of a power of appointment should consult a qualified attorney.  There are tax and other issues to discuss and drafting requirements to these legal instruments that benefit from the expertise of a qualified attorney. 

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Directive  Directive 95-5: Deeds Excise on Transfers of Beneficial Interests in Nominee Trusts

Miscellaneous/Deeds

INTRODUCTION: Title to real estate in Massachusetts may be taken in the name of a nominee trust. The Massachusetts nominee trust is based in common law and has been described as creating a principal-agent rather than a true trustee-beneficiary relationship. See Apahouser Lock and Security Corporation v. Carvelli, 528 N.E. 2d 133 (Mass. App. Ct. 1988). Generally, in a nominee trust arrangement, the names of the beneficiaries are set forth on an unrecorded schedule of beneficial interests, the trustees act only as directed by the beneficiaries, and the beneficiaries may terminate the trust at any time. A sale of real estate held by a nominee trust may be accomplished by an assignment of beneficial interests accompanied by the resignation of the trustee and appointment of a successor trustee.

ISSUE: Are sales and transfers of beneficial interests in nominee trusts for consideration in excess of one hundred dollars subject to the deeds excise?

DIRECTIVE: Sales and transfers of beneficial interests in nominee trusts for a consideration in excess of one hundred dollars are subject to the deeds excise. The excise stamps should be affixed to the assignments of beneficial interest, whether or not these documents are recorded.

DISCUSSION OF LAW:

G.L. c. 64D, §1, provides that there shall be levied, collected and paid an excise upon a "deed, instrument, or writing, whereby any lands, tenements or other realty sold shall be granted, assigned, transferred or otherwise conveyed to, or vested in, the purchaser or purchasers...when the consideration of the interest or property conveyed, exclusive of the value of any lien or encumbrance remaining thereon at the time of sale, exceeds one hundred dollars." Thus, under the statute, an excise is due upon any instrument or writing transferring an interest in real estate; the excise is not restricted to "deeds." Moreover, the excise is not limited to deeds, instruments, or writings that will be recorded.

In cases involving nominee trusts, Massachusetts courts have often looked behind the nominee trust entity and treated the beneficial owner as the true owner of the real estate. The Supreme Judicial Court ruled that "where a statutory limitation on damages protects the beneficiary of a nominee trust,... the beneficiary reasonably can be regarded as the true owner, and the limitation should apply to property held in trust for the beneficiary." See Morrisson v. Lennett, 415 Mass. 857, 616 N.E.2d 92 (1993). The SJC has also ruled that real estate trusts in which the beneficiary has complete control of the trust property may be disregarded for personal income tax purposes, thereby permitting the beneficial owner to deduct losses associated with the real estate on his personal income tax return. See Bertram A. Druker v. State Tax Commission, 374 Mass. 198, 372 N.E.2d 208 (1978).

In determining if the deeds excise is applicable, the Department has previously looked at the substance rather than the form of a transaction. In Letter Ruling 90-1, the Department ruled that transfers of ownership of cooperative apartments are subject to deeds excise. The substance of the transaction (stock transfer and proprietary lease to the new owner) is the right to occupy a specific apartment with maximum incidents of ownership. The transaction is therefore subject to the deeds excise, even though title to the real estate remains with the corporation, and the proprietary lease may not be recorded. See also LR 79-52, in which the Department ruled that leases for very extended periods are subject to the deeds excise.

Similarly, looking behind the nominee trust entity, the substance of a sale and assignment of beneficial interests in a nominee trust is to transfer incidents of ownership of the real estate to the new beneficial owners. Such an assignment for a consideration in excess of one hundred dollars is therefore subject to the excise on deeds, instruments, or writings imposed by G.L. c. 64D, § 1.  

/s/Mitchell Adams Mitchell Adams Commissioner of Revenue  

MA:HMP:ecl  

May 9, 1995  

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• Trust & Estate Planning

Beneficial Interest: Different Types and Examples

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

What Is Beneficial Interest?

A beneficial interest is the right to receive benefits on assets held by another party and is often evident in matters concerning trusts.

Most beneficial interest arrangements are in the form of trust accounts, where an individual, the beneficiary receives income from the trust's holdings but does not own the account.

Key Takeaways

• A beneficial interest is the right to receive benefits from assets held by another party.
• A Crummey trust is often set up by parents for their children where the beneficiary has an immediate interest.
• A beneficiary receives income from a trust's holdings but does not own the account.

How Beneficial Interest Works

A beneficiary interest will change depending on the type of trust account and the rules of the trust agreement. 

A beneficiary typically has a future interest in the trust's assets meaning they might access funds at a determined time, such as when the recipient reaches a certain age.

Trusts for Children

For example, a parent may set up a testamentary trust to benefit their three children upon the parent's death. The trust creator can stipulate the distribution of the account's assets to the children during the parent's lifetime.

Additionally, a beneficial interest can be a house owned by a trust, where a child is a trust beneficiary and can use the house, both income tax and rent-free.

Beneficial interest will alter depending on the rules of a trust's arrangement and the type of trust account.

Parents may set up  Crummey trusts , funded through annual gifts, to take advantage of gift tax exclusions. With Crummey trusts, the beneficiary has an immediate interest and access to the trust's assets for a specified timeframe. For example, the beneficiary may be able to access the trust's funds within the first 30 or 60 days after the transfer of a gift. Those assets fall under the distribution rules governing the trust.

Other Examples of Beneficial Interest

Another example of beneficial interest is in real estate. A tenant renting a property is enjoying the benefits of having a roof over their head. However, the renter does not own the asset.

Beneficiary interests can also be applied to employer-sponsored retirement plans such as 401(k)s and Roth 401(k)s, as well as in individual retirement accounts (IRA) and Roth IRAs. 

With these employer-sponsored accounts, the account holder may designate a named beneficiary who can benefit from the account funds in the event of the account holder's death. The rules governing beneficiary interest in these cases vary widely depending on the type of retirement account and the identity of the beneficiary.

A spouse beneficiary to an IRA has more freedom over the assets than anyone else. The surviving spouse can treat the account as their own, rollover assets into another plan—if the IRS allows— or designate themselves as the beneficiary. 

A non-spouse beneficiary to an IRA, for example, can't treat the account as their own. Thus, the beneficiary can't make contributions to the account or roll over any assets in or out of the IRA.

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Beneficial Interest in Property: What Is It & How To Prove It

In England and Wales, when it comes to who owns a property, there are actually two parts to it. 

First, there’s the legal ownership . This is who officially owns the property as registered with the Land Registry.

Second, there’s something called the beneficial interest , or beneficial ownership. This is about the people who have the right to live in or enjoy the property or the money if it’s sold. Legal owners and beneficial owners might not be the same people. 

The reason this split exists is because the law in England and Wales says that all properties are held as trust. This makes sure everyone’s interests are protected when it comes to property, and it is clear who has what housing rights in the event of a relationship breakdown .

What is beneficial interest in property?

Beneficial interest in a property means you have the right to live in or own a part of a property, even if you're not the legal owner. This often comes up when more than one person is involved with a property, like couples, family members, or friends.

Imagine you and your partner are both chipping in money to buy a house, but only your partner's name is on the official ownership papers. Legally, your partner owns it. But, because you both contributed money and had an agreement, you might still have a a share in the house even if you're not the legal owner.

Beneficial interest can be established in a few ways. Sometimes, it's through a written agreement that clearly says who gets what. Other times, if you've put money into the property, it's assumed you own a share based on your investment. It can also happen if you've contributed in non-money ways, like taking care of the property.. 

Beneficial interest vs. legal ownership

Legal ownership is when a person's name is officially on the property deed. This means they have the legal rights to the property, and they are in charge of it. They can decide to sell or rent it to others. The legal owner's name is recorded on the title register at HM Land Registry , which is the public record of property ownership.

On the other hand, beneficial interest is about the financial or occupancy rights that someone has in a property, even if they aren't the legal owner. So, if you have a beneficial interest, it means you have certain rights, like a portion of the rent from the property, the right to live in it, or a share of its value. 

However, the name of the beneficial owner isn't necessarily listed on the public property register at HM Land Registry. 

How to establish a beneficial interest in property

Sometimes, it’s not easy to prove for sure whether a beneficial interest in property exists. Couples might disagree about what happened or what their intentions were regarding the property. When there’s such a disagreement, the only way to resolve it is to go to court and ask for a declaration. 

In this the court will examine the facts and make a decision, but they can be cautious about finding a beneficial interest. So, it’s a good idea to seek the opinion of a property lawyer who is experienced in these matters.

If a partner who doesn’t legally own a home wants to establish a beneficial interest, they an initiate legal proceedings in either the County Court or the High Court under section 14 of the Trusts of Land and Appointment of Trustees Act 1996.

Heterosexual couples engaged in the last three years can use section 17 of the Married Women’s Property Act 1882 , and same sex couples who have had a civil partnership agreement in the last three years can use section 74 of the Civil Partnership Act 2004 to clarify their beneficial interests in property. 

Express declaration of interest 

An express declaration of trust is a clear and documented agreement between people about who owns what in a property. This is the most common way to show that someone has a beneficial interest in a property.

This kind of trust is usually written down in a contract, a declaration, or a deed. It involves the legal owner, who is called the trustee, signing the document to confirm the beneficial interest. These express trusts are legally binding, meaning they are official and clear about who gets what rights in the property.

Example: Jack and Jill live in a house together, but Jill is the sole owner. She paid for the deposit and handles all the mortgage payments. But Jill signs a trust deed saying that Jack should have a 50% share in the property. This agreement is legally binding and would be enforced by the courts as long as it’s valid. 

For an express trust to be valid, it needs to have:

Clear intention : It must be clear that the person created the trust intended to make it. 

Defined subject matter: It should be crystal clear what’s part of the trust and what isn’t. 

Named beneficiary : The person who will benefit from the trust must be definite and certain, with no doubt. 

Resulting Trust

A resulting trust comes into play when the law assumes that there should be a beneficial interest in the property, even if there is no written agreement. 

For example, if Simon and Dave buy a property together, but the legal ownership of that property is only in Simon's name. Dave's financial contribution may mean he should have a beneficial interest in the property that’s proportionate to the amount he contributed.

A resulting trust can also come about if someone tries to give away a property but doesn’t do it correctly. In these cases, ownership can revert back to the original owner. 

Constructive Trust

A constructive trust happens when the court considers that one party should act as a trustee for another party based on their behaviour. This can happen in a situation known as ‘common intention trust.’ where both parties agree on how ownership of a property should work, but they don’t create a written declaration of trust . If one of the parties relies on this agreement and faces loss as a result, a constructive trust can be applied. 

For this to work, the terms of the informal agreement need to be clear enough for the court to recognise a constructive trust. 

To establish a constructive trust, usually three things need to happen: 

Both parties must have a shared intention that the non-owner will have a beneficial interest in the property; 

There must be evidence of discussions that show this shared intention (i.e. letters, emails or text messages); 

The non-owner must have acted to their disadvantage based on the belief that they would both have a beneficial interest.

For example, if Leon gives up his secure tenancy and job to live in his partner’s, Christina's, house and take care of her children, he may have a case for a constructive trust even if he didn’t financially contribute to the property’s purchase. 

Can you transfer a beneficial interest in a property?

Yes, you can transfer a beneficial interest in a property to someone else, but there are specific conditions you need to follow. To make this transfer, the property must be held as tenants in common .

With tenants in common, co-owners have defined shares in the property, which allows for the transfer of their interests. If the property's legal owners are already set up as tenants in common and there's a document like a deed of trust in place, transferring a beneficial interest to someone else involves using a specific document called a deed of assignment.

Things can become more complex when there's no written agreement or document that spells out how the property shares are divided or the ownership terms. In these cases, the court might need to step in to sort things out.

Once the property is correctly set up as tenants in common, you can transfer all or part of the beneficial interest in the property to a new beneficiary. However, things can get trickier, especially if there's a mortgage on the property because you might need the lender's permission to go ahead with the transfer. 

How to prove beneficial interest in a property

Proving beneficial interests in a property can be challenging as they aren’t always put down in writing, and this can lead to disputes between owners or partners over their financial contributions, ownership, or intentions.

If the court gets involved to determine the existence of a beneficial interest, they’ll look at: 

Documented agreements: If there's a written agreement, declaration of trust, or a deed of trust, these documents can provide strong evidence of a beneficial interest.

Financial contributions: Records of financial contributions, such as mortgage payments, property upkeep, or renovation costs can help prove interest.

Witness statements: Statements from witnesses who can confirm the agreements and contributions can strengthen a case.

Emails and correspondence: Any written communication discussing the property's ownership can be useful evidence.

Self detriment: If someone acted to their own disadvantage, thinking they would acquire a beneficial interest, such as contributing to mortgage payments, home improvements, or contributing to family life related to the property, this can prove a beneficial interest in property, too.  

How are shares in a property decided if beneficial interest is established?

Basically, the court decides how shares in a property should be split if beneficial interest is established based on the agreements, intentions and actions of both parties. 

If the partner who doesn’t legally own a home successfully shows they have a beneficial interest, then the court can determine how much of the property each party owns based on its value. This calculation of their shares should be decided when the property is sold or if one party buys the couple out, not when the couple stops living together. 

If one person stays in the property and spends money on improvements that increase the value of it, the court may take this into account when deciding on shares. 

The court will also consider any clear declaration about the property shares made by the parties. If that doesn’t exist, they may look for evidence of a common intention regarding the property shares.

Tax on beneficial interest in Property

Taxation of beneficial interest in property can be complex and is subject to various factors and circumstances. The tax implications depend on the specific type of beneficial interest, the parties involved, and how the interest is acquired or disposed of.

1. Capital Gains Tax (CGT)

Capital Gains Tax is typically a significant consideration when dealing with the transfer or disposal of beneficial interests in property.

Transfer of Beneficial Interest

When a beneficial interest in property is transferred from one person to another, it may be subject to Capital Gains Tax. The tax is calculated based on the gain in value from the original acquisition to the transfer. However, there are exemptions and reliefs that may apply, such as the Principal Private Residence Relief, which can exempt a primary residence from CGT.

Multiple Owners

If multiple individuals jointly own a property and one of them transfers their beneficial interest to another, this could trigger CGT. The extent of the tax liability depends on various factors, including the proportion of the interest transferred.

If a person gifts their beneficial interest in a property, it is treated as a disposal for CGT purposes. The donor may be liable for CGT on any gain in the property's value since its acquisition. However, if the property is a primary residence and meets certain conditions, it may qualify for full or partial CGT relief.

2. Inheritance Tax (IHT)

Inheritance Tax may apply when beneficial interests in property are passed on through inheritance. The value of the property is included in the deceased person's estate for IHT purposes. However, there are tax-free allowances and reliefs available, such as the Residence Nil Rate Band, which can reduce the IHT liability on the family home.

3. Stamp Duty Land Tax (SDLT)

If a beneficial interest in property is transferred, and there is a significant change in the ownership structure, Stamp Duty Land Tax may apply. The amount of SDLT depends on the value of the property and the consideration paid (if any) for the transfer.

4. Income Tax

Income Tax may come into play if a beneficial interest is acquired and generates rental income. The recipient of the beneficial interest could be liable for Income Tax on the rental income they receive.

Get legal help with beneficial interest in property

At Lawhive, our property solicitors are here to provide you with affordable and accessible legal help online. If you have questions or concerns related to beneficial interest in property, whether as an owning or non-owning party, contact us today for a no-obligation fixed fee quote. 

We are dedicated to assisting you in understanding and addressing your legal matters concerning property rights. Tell us about your case , and we'll be happy to get you started on the right path.

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2021 Utah Code Title 57 - Real Estate Chapter 1 - Conveyances Section 36 - Trust deeds -- Instruments entitled to be recorded -- Assignment of a beneficial interest.

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