Georgia Bar Journal
GSB Vol. 14, NO. 1, Pg. 12.
Rarely Utilized: The Georgia Business Trust Code
GSB JournalVol. 14, NO. 1August 2008"Rarely Utilized": The Georgia Business Trust CodeJames R. RobinsonMany practitioners, even experienced trust lawyers, may be surprised to learn that the Georgia Trust Act (the Trust Act)(fn1) contains provisions for a form of entity commonly known as a "business trust." Indeed, the preamble to the relevant sections of the Trust Act(fn2) states that these provisions are "rarely utilized," and the title of the relevant Article-"Creation by Deed to Acquire Beneficial Interest"-is far from illuminating.
This group of statutory provisions-let us call it the "Georgia business trust code," for want of a better title-has been carried over from revision to revision of the Trust Act. Indeed, the proposed draft of the revamped Trust Act (now called the Georgia Trust Code) currently in circulation among the members of the State Bar, while making several dramatic changes, has left the business trust code completely intact and unchanged, without comment.(fn3)
The modern business trust has its origins in Massachusetts, and was developed originally as a result of the inability of corporations to own real estate.(fn4) Perhaps not surprisingly, it now finds its most complete and modern expression in Delaware.(fn5) Indeed, in this author's experience, it is common to refer to this form of entity as a "Delaware business trust," although the Delaware Code itself now refers to a "statutory trust."(fn6)
The Georgia business trust code reflects these historical antecedents. In its current form, it serves primarily as a means to share ownership and centralize management of one or more specific properties. The current code relies extensively on corporate law for some of its most crucial terms. Although the form is not limited to ownership of real properties, it seems clear that this was its original purpose, as witnessed by the requirement of recording of a deed with the county clerk, as well as the time limits imposed on its duration, both of which are discussed in more detail below.
The potential uses of the business trust, however, go far beyond its historical antecedents. At least under modern statutes,(fn7) the business trust is not only an acceptable, but in many cases a preferable alternative to other forms of business organization. The business trust represents a unique juxtaposition of the modern business entity and the fiduciary relationship. If one thinks of the business trust as a "trusteed partnership," one begins to appreciate the possibilities offered by the form.
The first part of this article examines the current statutory requirements for the creation of a Georgia business trust. Next, the article reviews the degree to which the parties to the deed or trust agreement-namely, the trustee and the beneficial owners-may structure the terms of their arrangement, and discusses the need for revision of the business trust code in the context of possible uses of the form. Finally, the article concludes by making specific suggestions for change.
Basic Requirements to Form a Georgia Business Trust
The requirements to establish a valid business trust in Georgia are few, and quite specific. A Georgia business trust is created by the filing of a deed with the clerk of the superior court of the county in which the principal office of the trust is located. The deed must evidence an intent to acquire, improve or develop property identified therein, and must impose on the trustee (also identified in the deed) some active duty to perform in and about the property, or to exercise control and management of the same. Each of these requirements is examined in turn.
Under the present business trust code, the trust property, which may be either real or personal, must be "located" in Georgia.(fn8) It seems clear that this requirement reflects the historical antecedents of the business trust as a commercial form for the ownership of real property, and it seems clear enough what it means for realty to be "located" in Georgia. It is much less clear, however, what it means for personal property to be located in this state. Suppose, for example, that the trust property consists of an intangible such as a promissory note. Where is that property "located"? In the context of general trust law, there are many different possible answers to that question, including the place in which the trust is administered, i.e., the domicile or place of business of the trustee.(fn9) Does this mean that a Georgia business trust must have a Georgia trustee? There is no such express requirement, but the location requirement may impose one de facto if the trust property is not realty.
The statute specifically provides that intent to create a business trust must be indicated, either expressly or by implication, in the deed creating the trust. Although such intent can safely be inferred by the parties' following the very specific requirements discussed here, it probably is preferable to recite the express, specific intent to create a business trust in the document.
The deed is the instrument that sets forth the terms of the trust. As mentioned above, it must identify the property and provide for its acquisition, improvement or development. It also must name one or more trustees and impose duties on them (and their successors) with respect to the property. The deed also may identify a business or trade name for the trust and set forth additional terms of the trust arrangement, including the powers of the trustee, the duration of the trust (subject to the limits discussed below), the issuance of certificates of beneficial interest, and other terms of the arrangement, all of which are discussed in more detail below.
Recording and Filing
The deed must be filed with the clerk of the superior court of the county in which the principal office of the trust is located-again, presumably the office of the trustee- within 30 days of execution, along with the statutory fee. The clerk in turn gives the filer two certified copies, which must then be filed with the secretary of state. The secretary attaches a certification to one copy, the form of which is set forth in the statute. The deed as so (doubly) certified serves as evidence in any court of the existence and terms of the trust.(fn10)
From the foregoing, several things should be apparent. First, creating a Georgia business trust is a relatively straightforward matter, and the few requirements for doing so are easily followed. Second, the terms of the trust, which must be set forth in the deed, become public record upon filing with the clerk. The identity of the property transferred to the trust likewise is a matter of public record.
Mandatory Trust Provisions
As discussed in more detail below, one of the chief advantages of the trust form, whether in the donative or the commercial context, is its flexibility.(fn11) The Georgia business trust code does, however, mandate certain provisions beyond the formation requirements just discussed. First and foremost, there is a statutory limit on the duration of a business trust. Unless the deed specifies otherwise, the term of a Georgia business trust is 25 years. The deed may provide for a renewal of the term for another 25 years. Alternatively, the deed may provide that the trust is to last for a specified term, not to exceed the common-law Rule Against Perpetuities period, i.e., lives in being at the creation of the trust plus 21 years. Whatever the term, at its end the property vests in the beneficiaries.
Second, as just mentioned, at the trust's termination, title to the trust property must vest in the beneficial owners, in proportion to their respective interests in the trust. The pattern of distribution may not be altered by the deed, although presumably the beneficial owners are free to transfer interests among themselves or to others, unless precluded from...