Thank You Fifth Circuit for Saving Deeds into Trusts!
The Fifth Circuit recently reversed a decision made by the United States District Court for the Southern District of Texas. The Fifth Circuit held that a deed into trust is valid and that such a conveyance is a nonmaterial error that can be amended through the correctional statutes.
The Issue
A deed into a trust presents two important problems; first, a trust is not a legally recognizable entity capable of receiving property, and second, a conveyance into a grantee that does not exist is invalid.
When considering these issues, the court looked to the context of the deed itself. The court reasoned that if the grantee can be ascertained from the deed instrument, considered as a whole, then the deed is effective. Specifically, the context of a deed into a trust strongly infers that the grantor intended to deed the property to the trustee, instead of the trust itself. This is because it is widely known that a trust is not an entity capable of holding property, and a trustee is the only entity capable of holding property for the benefit of the trust. Therefore, it can be ascertained from the context of a deed into a trust that the grantee is the trustee.
The court went on to decide that even if a Texas court would not find the conveyance valid, the error is nonmaterial and correctible under the correction statutes.
Why It’s Important
Deeds into trusts are pervasive — if a deed into a trust is invalid without the possibility of correction, the effect would be catastrophic to chain of title. For example, if a deed into a trust was null and void, without correction, current title holders could be subject to divestment and entire chains of title could be overturned creating chaos for title holders, title insurance companies, and the courts.
The Texas Legislature, in creating the correctional statutes, envisioned these critical issues and desired to prevent their occurrence. The recent Fifth Circuit case is an extension of this intent and a relief to Texas landowners.
For more information regarding the Fifth Circuit decision or other commercial and residential real estate matters, contact Cassie McGarvey at cmcgarvey@mcgarveypllc.com or visit the website at www.mcgarveypllc.com.
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