Deeds to Trustees [Florida]

One statute that most Florida real estate and trust lawyers have to deal with at some time is Fla.Stats. Section 689.07(1). Let’s read it together:

(1) Every deed or conveyance of real estate heretofore or hereafter made or executed in which the words “trustee” or “as trustee” are added to the name of the grantee, and in which no beneficiaries are named, the nature and purposes of the trust, if any, are not set forth, and the trust is not identified by title or date, shall grant and is hereby declared to have granted a fee simple estate with full power and authority in and to the grantee in such deed to sell, convey, and grant and encumber both the legal and beneficial interest in the real estate conveyed, unless a contrary intention shall appear in the deed or conveyance; provided, that there shall not appear of record among the public records of the county in which the real property is situate at the time of recording of such deed or conveyance, a declaration of trust by the grantee so described declaring the purposes of such trust, if any, declaring that the real estate is held other than for the benefit of the grantee.

Thus, the statute appears to grant fee simple title to the grantees in a deed, even though they are designated takers “as trustee” if no other information regarding the trust is included and the trust was not previously recorded in the public records. And so concluded a Florida Circuit Court judge, in ruling that two co-trustees owned real property conveyed to them “as trustee” in fee simple without further description and without a recorded trust instrument. In so ruling, the court was providing that the two trustees could partition the property, sell it, and keep the proceeds for themselves.

This was the case, even though the two trustees were siblings holding the trust property for over 30 years for 6 siblings under an unrecorded trust agreement. During those 30 years, the trust property was operated as a trust asset for the benefit of all the beneficiaries. Further, the trust agreement was recorded in June 2013. Thus, the Circuit Court ruling, if upheld, would provide a windfall to the trustees to the detriment of the beneficiaries.

Fortunately for the beneficiaries, the 1st District Court of Appeals reversed the Circuit Court, on two theories.

First, the DCA noted that Section 689.07(1) (and its predecessors going back 100 years) was enacted to protect innocent third parties from “secret” trusts, and not to provide a windfall to trustees. More particularly, the statute allows third parties to deal with the trustees as fee simple owners in regard to title, conveyancing and mortgages, and need not be concerned about contrary provisions in trust agreements that may restrict the trustee or vest beneficial ownership in others – that is, the third parties are entitled to rely on the public record as to ownership rights even though there is a suggestion of a trust by the trustee language in the deed. Clearly, in this case the trustees do not fall within the class of “uninformed outsiders” that are protected by this statute.

Second, the legislature attempted to put this issue to bed fifty years ago when it enacted Section 689.07(4), which reads:

(4) Nothing herein contained shall prevent any person from causing any declaration of trust to be recorded before or after the recordation of the instrument evidencing title or ownership of property in a trustee; nor shall this section be construed as preventing any beneficiary under an unrecorded declaration of trust from enforcing the terms thereof against the trustee; provided, however, that any grantee, transferee, assignee, or mortgagee, or person obtaining a release or satisfaction of mortgage from such trustee for value prior to the placing of record of such declaration of trust among the public records of the county in which such real property is situate, shall take such interest or hold such previously mortgaged property free and clear of the claims of the beneficiaries of such declaration of trust and of anyone claiming by, through or under such beneficiaries, and such person need not see to the application of funds furnished to obtain such transfer of interest in property or assignment or release or satisfaction of mortgage thereon.

This statute was intended to prevent trustees from using 689.07(1) as a sword against beneficiaries to cut off their beneficial interests – the trustees are still bound by their fiduciary obligations under the trust agreement. Further, this statute expressly allows for recording of the trust instrument AFTER the recording of the deed.

The case provides an interesting history lesson regarding this statute, and how it is intended to operate. It does not appear that the 2013 breakout of these provisions out of Section 689.071 to their new home in Section 689.07 changes the analysis.

Heiskell and Morris v. Morris, 1st DCA, Case Nos. 1D15-364 & 1D15-365. Opinion filed December 18, 2015