Commercial loans are complex enough without a trust-related surprise holding up the deal. In Massachusetts, real estate held in trust is often used to avoid probate and streamline transitions between family members. But what happens when the trust isn’t perfectly drafted? Or when someone passes away and the legal process is skipped?
In this post, I’ll walk you through a real case I handled involving a commercial loan, a trust, and a missed probate—and explain why lenders, business owners, and attorneys need to understand how real estate and estate planning intersect.
The Setup: A Family Business and a Trust
A local community bank retained me to handle a commercial loan secured by a retail property. The business and the building it operated out of were owned by a trust. The beneficiaries of the trust were two brothers who had worked together in the business for years.
In addition to the commercial property, the trust also held other investment real estate. The trust was clearly a key part of the family’s wealth and succession planning. But there was one big problem: one of the brothers had passed away.
The Buyout Agreement—and the Big Question
After the brother’s death, his widow and the surviving brother negotiated a buyout agreement. The idea was simple: the surviving brother would take over full ownership of the business and the building, and the widow would be compensated for her late husband’s interest.
The agreement was signed, everyone was cooperative, and they brought it to the lender to proceed with the loan. The original loan was maturing, and they wanted to refinance before the deadline.
That’s when the bank asked the critical question: “Does the borrower have clear title?”
The Answer: No Clear Title Without Probate
Despite the agreement, the answer was no—title wasn’t clear. Why? Because the deceased brother’s interest in the trust had not legally passed to his widow.
Even though she was likely the rightful heir and even though the family had agreed to the terms of a buyout, her husband’s estate had not been probated. And here’s the catch: the trust did not name a successor beneficiary in the event of a beneficiary’s death.
Without a named successor, the deceased brother’s share didn’t automatically pass to his spouse or children. It became part of his probate estate. And under Massachusetts law, until someone is officially appointed by the Probate Court as the Personal Representative of that estate, no one has legal authority to transfer his share of the trust.
So, even though the family had a deal in hand, the borrower technically didn’t own 100% of the business or the real estate. Which meant the bank couldn’t close the loan.
Why This Matters for Lenders
This situation highlights a key risk in commercial lending: trusts don’t automatically avoid probate if they’re incomplete or poorly drafted.
Lenders often assume that if property is owned by a trust, everything is in good order. But that’s not always true. A trust without successor beneficiary provisions—or one that hasn’t been updated after a death—can create just as many problems as property owned outright.
When trusts are involved, especially in family businesses, lenders should always:
- Ask who the beneficiaries are and confirm if any have passed away.
- Review the trust for clear successor provisions.
- Ensure that any deceased beneficiary’s interest has been lawfully transferred—ideally through probate if required.
- Engage counsel who understands both real estate and estate planning.
Had this been a national lender with rigid timelines or a borrower who was in default, the lack of clear title could’ve triggered foreclosure or significant penalties.
Lessons for Business Owners and Real Estate Investors
This situation also holds important lessons for Massachusetts business owners and real estate investors:
- Don’t assume a trust solves everything. Trusts can be excellent tools, but they must be updated and administered correctly. A trust that doesn’t name successor beneficiaries can’t function as intended after a death.
- Probate is often still necessary. If a trust is silent or incomplete, a probate estate must be opened to transfer the decedent’s interest—even if the heirs are known and agree on the outcome.
- Get legal advice early. In this case, the family had good intentions and acted in good faith, but the legal work wasn’t in place to make the transfer valid. The delay almost cost them their refinancing opportunity.
- Work with professionals who understand both sides. A transactional real estate attorney might not catch estate planning gaps, and a trusts lawyer might not be thinking in terms of lender requirements. A blended skill set helps anticipate and solve problems before they become deal-breakers.
A Happy Ending—This Time
Fortunately, the lender in this case was a local, community-focused bank. They understood the situation and extended the timeline so the deceased brother’s estate could be probated and the trust share properly transferred.
But this could have easily ended in disaster—with a deal falling apart, a business losing financing, or worse. A small legal oversight could’ve created massive consequences for a family that thought they had done everything right.
Final Thoughts
When it comes to commercial loans involving trusts, it’s not enough to review the financials and the appraisals. You need to dig into the legal ownership—and that means understanding how trusts, probate, and title law work together in Massachusetts.
If you’re a lender, financial advisor, or business owner and you’re dealing with trust-owned property or a buyout situation, make sure you consult with legal counsel who can look at the full picture.
You don’t want to be asking, “Do we have clear title?” days before a loan expires—and find out the answer is no.
Need help navigating trust-owned real estate or a probate-related delay in a business transaction? At Cote Law Group, we help lenders, business owners, and families across Massachusetts avoid costly surprises and keep deals on track.
Schedule a consultation today.
This article is for informational purposes only and is not a substitute for legal advice. Every situation is different, and only a licensed attorney can apply the law to your specific facts.
