Title to Colorado Real Property Held in Trust

• Jurisdiction: Colorado,United States
• Citation: Vol. 31 No. 5 Pg. 85
• Pages: 85
• Publication year: 2002

31 Colo.Law. 85 Colorado Lawyer 2002.

2002, May, Pg. 85. Title to Colorado Real Property Held in Trust

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85

Vol. 31, No. 5, Pg. 85

The Colorado Lawyer
May 2002
Vol. 31, No. 5 [Page 85]

Specialty Law Columns
Estate and Trust Forum
Title to Colorado Real Property Held in Trust
by Sterling Ambler

This column is sponsored by the CBA Trust and Estate Law Section. The column focuses on trusts and estate law topics including estate and trust planning and administration, elder law, probate litigation, guardianships and conservatorships and tax planning

Column Editor:

David W. Kirch, a sole practitioner in Aurora?(303) 671-7726

About TheAuthor:

This month's article was written by R. Sterling Ambler, Denver, a member of Ambler & Keenan, LLC?(303) 407-1098. Ambler is a member of the CBA Trust and Estate Law Section Statutory Revisions Committee and CBA Real Estate Law Section Title Standards Committee, serving as liaison between those two sections. The author wishes to thank Mark E. Welsh for his review and helpful comments on this article.

How Colorado real property belonging to a trust should be titled has long been a matter of considerable discussion. This article examines relevant laws, illustrates some of the problems that arise when real property is an asset of a trust, and provides the practical solution on how to resolve some of these problems.

For many years, the question of how Colorado real property belonging to a trust should be titled has been a matter of considerable discussion among members of the bar. With the adoption of Senate Bill ("S.B.") 01-040 by the Colorado legislature, the rules have changed again. This article illustrates some of the problems facing trustees and title examiners when real property is an asset of a trust and discusses a solution to such problems.

Historical Background

The practice of placing title to real property in trust by conveying title to "X as trustee of the YZ Trust," or simply to "X, Trustee," has long been the subject of some concern by the real estate and trust and estate bars. Such concern arose because of the wording of an old statute, which had been designed to alleviate certain title problems facing title examiners.#1

This statute dictated that certain requirements be in the deed so as to put persons dealing with the trustee on notice that the property was held in a fiduciary or representative capacity. If such requirements were not met, the "description of a grantee in any such representative capacity . . . [in the deed] . . . shall be considered and held a description of the person only and shall not be notice of a trust or other representative capacity of such grantee," with the result that the property was deemed to be the individual property of the trustee.

The general belief, however, was that if questioned, the trustee or some other interested party could always prove that the property was in fact trust property and not that of the trustee individually. Nonetheless, the concern was that holding title in such a manner did not meet all of the requirements of the statute to identify sufficiently the property as a trust asset. Thus, the property would be deemed to be the individual property of the trustee and would be treated accordingly.##2

CRS § 38-30-108, originally adopted in 1921,#3# was designed as a curative statute to eliminate certain notice problems. The statute was intended to ensure that title examiners were not put on notice that the property was in a trust when title was held simply in the name of "X, Trustee" without following the statutory dictate regarding specific identification of the nature of the fiduciary relationship or the representative capacity in which "X" was holding title.##4

In 1977, CRS § 38-30-166 was adopted. This statute contained provisions for permitting title to real property to be taken in the name of the trust itself upon the recording of an affidavit meeting the requirements of the statute.#5# The requirements were rather technical as to the timing with respect to the execution and recording of the deed and affidavit.

The Problems

Two basic problems with those two statutes need to be addressed. First is the interpretation of CRS § 38-30-108. Second is the detail that must be followed when using CRS § 38-30-166.

Problem # 1: Lackner v. King And CRS § 38-30-108

In 1998, practitioners were alarmed when the Colorado Court of Appeals interpreted CRS § 38-30-108 strictly in Lackner v. King. In that case, the court held that real property titled in the name of "X as trustee of the YZ Trust" was not sufficient to protect the property from the trustee's individual judgment creditor.#6 The court, while admitting the "harsh result," ruled that the property was to be treated as if "X" were the individual owner of the trust property. The ruling permitted a personal judgment creditor of "X" to seek enforcement of a judgment lien against the trust property, even though it was clearly proven at trial that the property was owned by the trust, not by "X" individually.

Although Lackner was reversed by the Colorado Supreme Court,#7# the reversal was on the rather narrow grounds that the judgment creditor did not rely on the state of the title to the real estate when extending credit to the borrower. Thus, the Court left the basic questions raised in Lackner regarding the statute not fully addressed.

Problem # 2: Application
Of CRS § 38-30-166

In practice, the requirement of CRS § 38-30-166 that the trust affidavit be recorded before title could be taken in the name of the trust was not always...