EFFECTIVE MARCH 22, 2012
Generally speaking, a trust is not a legal entity and it may not hold title to real property, with a couple of exceptions for specific types of trusts. Rather, it is the trustee who holds title for the benefit of the beneficiaries of the trust. For example, the proper grantee on a deed funding a trust with real property is “Jon Smith, Trustee of The Jon Smith Trust.” A deed to “The Jon Smith Trust” is a void ab initio because the trust is a non-entity.
Unfortunately, there are many deeds of record purporting to convey the property to the trust, with no mention of the trustee. Ohio has recently passed a bill that will allow for such defects to be cured.
The Ohio legislature has recently passed S.B. 117, which was signed by the governor on December 21, 2011 and will become effective on March 22, 2012. It makes a significant change to O.R.C. § 5301.071, which provides:
“No instrument conveying real property, or any interest in real property, and of record in the office of the county recorder of the county within this state in which that real property is situated shall be considered defective nor shall the validity of that conveyance be affected because of any of the following:
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(E)(1) The grantor or grantee of the instrument is a trust rather than the trustee or trustees of the trust if the trust named as grantor or grantee has been duly created under the laws of the state of its existence at the time of the conveyance and a memorandum of trust that complies with section 5301.255 of the Revised Code and contains a description of the real property conveyed by that instrument is recorded in the office of the county recorder in which the instrument of conveyance is recorded. Upon compliance with division (E)(1) of this section, a conveyance to a trust shall be considered to be a conveyance to the trustee or trustees of the trust in furtherance of the manifest intention of the parties.(2) Except as otherwise provided in division (E)(2) of this section, division (E)(1) of this section shall be given retroactive effect to the fullest extent permitted under section 28 of Article II, Ohio Constitution. Division (E) of this section shall not be given retroactive or curative effect if to do so would invalidate or supersede any instrument that conveys real property, or any interest in the real property, recorded in the office of the county recorder in which that real property is situated prior to the date of recording of a curative memorandum of trust or the effective date of this section, whichever event occurs later.”This essentially confirms that an incorrect deed to a trust is a valid conveyance to the trustee, so long as two conditions are met. First, the trust must have been duly created at the time of the conveyance. And, second, a proper memorandum of trust, with a legal description of the property, is recorded in the county where the deed was recorded.”
This curative section is retroactive; however, it will not have retroactive effect if another conveyance has been recorded prior to the recording of the memorandum of trust. This is important for the following reason:
Assume that Jon Smith conveys title to his real property to “The Jon Smith Trust” and the beneficiaries of the trust are his children from his first marriage. Jon Smith dies and his will leaves everything to his second wife. His intent was clearly to leave his real property to his children in trust, and everything else to his wife.
However, when the defective deed is discovered, the real property is included in his probate estate and passed to his wife with a properly recorded Certificate of Transfer. The trustee now wants to rely on the newly enacted Ohio statute § 5301.255 to file a memorandum of trust and validate the conveyance to the trustee, thereby intending to supersede the certificate of transfer O.R.C. § 5301.071(E)(2) would not permit the trustee to file a memorandum of trust and essentially claim that the defective deed was valid to reclaim the real property for the trust beneficiaries, because there has already been a conveyance which would be invalidated.
This new law will make it easier to cure a common title problem so that the results conform to what the grantor most likely intended – the trustee to hold title to the property. This is certainly great news for those who have mistakenly prepared the deed to the trust and will become the law in Ohio on March 22, 2012.