A nominee trust is a legal arrangement whereby a person, termed the
settlor, appoints another person,
termed the "nominee" or "
trustee", to be the owner of the
legal title to some
property.[1] Although the legal title is transferred to the nominee, the
beneficial ownership of the property is transferred to a third person, termed the
beneficiary.[2]
The arrangement is simple and passive: generally, the nominee is not required to do anything except carry out specific (lawful) actions if so directed by the
beneficiaries.[1][3] For example, in
England and Wales, the
Official Custodian for Charities, which acts as nominee for numerous
charities, can only buy and sell assets on behalf of charities if instructed to do so.[4]
A nominee trust is an example of a
bare trust:[5] this is a simple type of
trust where the trustee acts as the legal owner of some property but is under no obligation to manage the
trust fund other than as directed by the beneficiary,[6] and where there are no restrictions beneficiary's right to use the property.[7] A nominee trust is also an example of an
agency arrangement,[2] whereby the beneficiary acts as principal, and the nominee acts as agent. This agency relationship means the nominee has limited, or no, discretion as to how the trust property is managed.[8]
In the event a nominee becomes
insolvent, the beneficiary should not be affected as the nominee's
creditors cannot take possession of the trust assets.[9] For bankruptcy purposes, the directed agency feature of a nominee trust prevents the trust itself from being a debtor-person.[10] Therefore, a nominee trust cannot declare
bankruptcy.
Uses
Avoidance of disclosure of ownership
Nominee trusts can be used to avoid reporting the ownership of real estate on the public record. The
deed, or other filed document, lists the trustee but not the undisclosed principals.
Nominee trusts can be used to avoid
shares being registered in the names of the beneficiaries.[11]
In England and Wales, the legal title to
land may only be owned by persons aged 18 or over.[12][13] Someone wishing to transfer land to someone aged under 18 may appoint a nominee to act as the legal owner, with the person aged under 18 becoming the equitable beneficial owner. Although there is a restriction on persons under 18 owning the legal title to land, they may nonetheless take ownership of the
equitable beneficial interest under a trust.[14]
Reduction of administrative burden
Stockbrokers often appoint company to act as a nominee shareholder to reduce the administrative burden of
trading on behalf of their clients.[11]
In England and Wales, trustees of
charitable trusts may appoint a nominee to avoid the need to change the legal owner of trust property if the charity's trustees change.[9]
Nominee trusts can be used to reduce the number of parties required to validity execute documents relating to
securities.[15]