A deed of trust is a type of trust instrument that transfers interest in real property. In Texas, a deed of trust is most commonly used to secure a loan for the purchase of a home or other real property until that loan is repaid and the trust is voided, similar to how mortgages are used in other states. It can also be used, however, as a more permanent part of a comprehensive estate plan. The trustee, the person or entity who owns and manages the property, must meet Texas' legal requirements for trustees.
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Parties to a Deed of Trust
There are three principal parties to a deed of trust: the trustee, settlor and beneficiary. The settlor, also known as the grantor or trustor, is the person or entity who owns the property being transferred to the trust. This is typically the purchaser or owner. The trustee is the person or entity who will hold legal title to the property after the transfer. The beneficiary or beneficiaries are those whom the trust is intended to benefit. In the case of a mortgage, this would be the lender. If the trust is used for estate planning, this would likely be the settlor, his heirs or other named persons, or some combination of both.
Requirements for Trustee
The trustee named in a Texas deed of trust can be any individual person who has the legal capacity to hold and transfer property. Under Texas law, if the named trustee is a corporation, the corporation must be authorized to act as a trustee in Texas. This includes chartered financial institutions, but not most general businesses incorporated under the Texas Business Corporation Act. This also includes nationally chartered banks, and certain financial institutions or corporations depending on the circumstances.
Beneficiary as Trustee
Unlike some states, Texas permits a trust beneficiary to serve as trustee. This is typically not an issue with mortgage-type deeds of trust. If, however, there is only one beneficiary and he is the sole trustee, the trust will fail. In other words, if the trust is created with a sole beneficiary as trustee, it is void and the settlor retains title to the property. If the trust is initially valid, but circumstances change such that the trustee becomes the sole beneficiary, the trust terminates automatically and the beneficiary then holds legal title to the property. An online legal document preparation service can assist you with properly executing your deed of trust or transferring title to your property.
Settlor as Trustee
Like many states, Texas permits the settlor of a trust to also serve as trustee. Again, this occurs in estate-planning situations, but usually not in mortgage-type trusts; instead, a neutral third party is typically appointed as trustee.
References & Resources
- Onecle: Texas Property Code, Section 112.008, Capacity Of Trustee
- Onecle: Texas Property Code, Section 112.034, Merger
- Google Books: Texas Real Estate; Charles J. Jacobus
- Google Books: Modern Real Estate Practice in Texas; Cheryl Peat Nance
- College of the State Bar of Texas: Trustee Selection; Retaining Strings Without Getting “Strung-Up” OR “The Fancy Stuff Is Fun— But This Is What I Wrestle With Every Day”; Steve R. Akers