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Closing Opinions for Business Trusts

Stanley Keller, James Gadsden, and Tarik J Haskins

Closing Opinions for Business Trusts kontan

The Summer 2016 issue of In Our Opinion contained an article, “Closing Opinions for Common Law Trusts,” by James Gadsden that discussed opinions given when a New York common law trust is a party to a transaction. This article expands and updates that article by discussing opinions given when different types of business trusts, including so-called Massachusetts business trusts, Delaware statutory trusts and New York common law trusts, are the parties to a transaction.

Business trusts are a common form of non-corporate entity used for business purposes, particularly prior to the advent of limited liability companies. They can provide more flexibility than corporations and avoid restrictions that applied to corporate entities under earlier corporate and regulatory statutes. They also can offer some tax advantages. Although business trusts are less commonly formed today, they continue to exist as business entities that participate in transactions, including as mutual funds, real estate investment trusts, other real estate ventures, holding companies that own public utilities and securitization transactions. Therefore, legal opinions continue to be given on business trusts.



Business trusts were first popular in Massachusetts, in part because they were recognized by the Massachusetts courts as separate entities akin to corporations, and were commonly used by parties in other jurisdictions – hence the name “Massachusetts business trust.” The declaration of trust typically states that the trust was formed under and governed by the law of Massachusetts. That recitation is considered sufficient to establish the requisite nexus with Massachusetts regardless of whether the trust has operations in Massachusetts, but lawyers often seek for the trust to have other nexus with Massachusetts, such as having a Massachusetts resident as a trustee or having the declaration of trust executed in Massachusetts.

A Massachusetts business trust is a common law trust, as opposed to statutory trust, but it is recognized and to some extent regulated by a statute — Chapter 182 of the Massachusetts General Laws. A “business trust” is defined under the statute as a voluntary association or trust operating “under a written instrument or declaration of trust, the beneficial interest under which is divided into transferable certificates of participation or shares.” While the statute requires filing of the declaration of trust and subsequent reporting by a business trust with the Massachusetts Secretary of State, the trust is created under non-statutory law without any filing and its existence and the validity of its declaration of trust is not dependent upon a filing, although there is a penalty for failure to file. The Massachusetts Secretary of State has also adopted regulations that require certain basic information to be included in the declaration of trust (e.g., name of business trust, date of organization, names and addresses of trustees and trust’s principal place of business), but the regulations do not contain substantive provisions.

Although formally not an entity apart from its trustees, a Massachusetts business trust is recognized for many purposes by the statute and the courts as a type of business entity similar in many respects to a corporation, and is treated differently in many respects than private or ordinary trusts. As to matters of status, power and shareholder rights, a Massachusetts business is treated much like a corporation. Massachusetts courts often look to the corporation statute and related case law when deciding questions involving business trusts.

Status, Power and Authorization Opinions

The status and power opinions for business trusts often closely resemble the comparable opinions for business corporations. Because of the filing requirements for business trusts, the Massachusetts Secretary of State issues what amounts to a certificate of good standing, which is relied upon to give a status opinion regarding the entity. Because the Rule Against Perpetuities is no longer a concern under the Massachusetts Uniform Probate Code since a Massachusetts business trust does not have unvested interests, declarations of trust usually provide that the life of the trust is without limit. The following are examples of typical forms of status and power opinions for a Massachusetts business trust:

The Trust is validly existing [and in good standing] as a business trust under Massachusetts law pursuant to the provisions of the Trust Agreement dated _______ __, 20__.

The Trust has the power, acting through the Trustee, as trustee of the Trust, to execute and deliver the [transaction documents] and to perform its obligations thereunder.

With respect to opinions regarding the power and authority of the trust, Massachusetts business trusts do not enjoy the statutory default powers of a business corporation (e.g., Mass. Gen. Laws ch. 156D, § 3.02), so power and authority must be ascertained from the declaration of trust. With respect to due authorization and execution opinions, the procedures specified in the declaration of trust (and any authorizing resolutions) should similarly be reviewed. Less clear, though, is what the opinion preparer must do to confirm the status, power and authority of a trustee if the trustee is an entity. For example, to what extent is this similar to customary practice for a limited liability company or limited partnership where the managing member or the general partner is itself an entity?

Opinions on Liability of Participants

Regarding matters of liability for participants in the business trust (i.e., holders of beneficial interests in the form of shares (“shareholders”), trustees or officers), a Massachusetts business trust is treated less like a corporation and more like a traditional trust (or even a general partnership). If shareholders exercise too much control over management of the trust, the trust runs the risk of being treated as a general partnership and its shareholders can be liable for the obligations of the trust. To minimize possible shareholder liability, Massachusetts business trusts typically (i) include provisions in their declarations of trust limiting shareholder liability and granting indemnification out of the trust assets and (ii) include on their stationery and in their contracts a statement that the obligations of the trust are binding only on the trust property and not on the shareholders. Similar liability concerns can arise for trustees and officers, so they are often added to the same statement disclaiming liability of the shareholders and protected by indemnification from the trust assets and insurance. While disclaimers of liability can help protect against contractual liabilities, they typically do not protect against tort or other non-contractual liabilities. For this reason, some business trusts, if concerned about potential liability, conduct their operations through corporate subsidiaries.

Opinions regarding the non-assessability of shares of Massachusetts business trusts can be more problematic than their counterparts for corporations. For trusts that are not investment companies and have only basic shareholder voting rights, it is common to see “clean” opinions in a form similar to that for corporations to the effect that the shares when issued will be “validly issued, fully paid and non-assessable.” When the declaration of trust includes voting rights mandated by the Investment Company Act of 1940, opinion givers may note that shareholders could, under certain circumstances, be held personally liable for the obligations of the trust, as in the following example:

When issued in accordance with the Agreement, the Shares will be validly issued, fully paid and, except as noted in the paragraph below, non-assessable by the Trust.

The Trust is an entity of the type commonly known as a “Massachusetts business trust.” Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimers be given in each agreement, obligation or instrument entered into or executed by the Trust or its trustees. The Declaration of Trust provides for indemnification out of the property of the Trust for all losses and expenses of any shareholder of the Trust held personally liable solely by reason of his or her having been such a shareholder. Thus, the risk of a shareholder incurring financial losses on account of shareholder liability is limited to circumstances in which the Trust would be unable to meet its obligations.



Delaware statutory trusts are formed under the Delaware Statutory Trust Act (the “DSTA”) by entering into a written governing instrument and the filing a certificate of trust with the Delaware Secretary of State. The DSTA currently provides that a Delaware statutory trust may opt out of being treated as a separate legal entity by so providing in its certificate of trust and governing instrument. The opt-out provision was added so that practitioners could take advantage of the non-entity element of a common law trust within the framework of the DSTA. Opting out of being a separate entity can preserve the benefit of the broad enabling provisions and limitation on liability contained in the DSTA for both beneficial owners and trustees while addressing concerns that favorable state and federal laws might treat a statutory trust differently than a common law trust.

Formation of a statutory trust has been made flexible by permitting filing of a certificate of trust and entering into a governing instrument to be done in any order (see Section 3810(a)(2) of the DSTA). Certain provisions of the DSTA look to corporate concepts, such as Section 3803(a) of the DSTA for the liability of beneficial owners, and the DSTA provides very broad authority to include almost any type of provision in a governing instrument (see Section 3806(b) of the DSTA). Due to the flexibility provided by the DSTA in tailoring the affairs of a Delaware statutory trust, an opinion giver must carefully review the governing instrument for purposes of the power and authority opinion. Further, it is important to note, however, that the Delaware trust law is the “gap filler” for the DSTA (see Section 3809 of the DSTA), that is, the law that applies if a matter is not addressed by the DSTA or the governing instrument. Importantly, that would include the fiduciary duties owed by common law trustees, unless the governing instrument provides otherwise. It also should be noted that opinion recipients do not typically request limited liability opinions with respect to the beneficial owners. Similar to limited liability companies and limited partnerships, opinions givers obtain a certificate of good standing from the Delaware Secretary of State in connection with the status opinion.

Section 3806(b)(2) of the DSTA provides that a Delaware statutory trust may establish designated series of beneficial interests. Section 3804(a) of the DSTA provides that a Delaware statutory trust that has (1) provided for series, (2) included specific provisions on inter-series limitation on liability in its governing instrument, (3) provided notice of the inter-series limitation on liability in its certificate of trust and (4) maintained certain recordkeeping, will have inter-series limitation on liability so that, unless otherwise agreed, the liabilities of one series cannot be asserted against the assets of another series or of the statutory trust itself.

Delaware statutory trusts are used in a variety of transactions including both closed-end and open-end investment funds. If the shares of such an investment fund are registered under the Securities Act of 1933, the fund will be required to file an opinion with the SEC as to the legality of those shares, which usually takes the form of a typical validly issued opinion. In addition, standard closing opinions are typically required when these funds do financings or other transactions like reorganizations (such as transactions where the assets and liabilities of one or more series or one or more trusts or other entities are combined). The Delaware Division of Corporations reported the formation of 2,498 statutory trusts in 2022, 2,306 in 2021 and 1,956 in 2020.

The DSTA, the governing instrument of the trust and the resolutions, if any, of the trustees will provide the basis for any opinions on a Delaware statutory trust. The statutory default rule for the management of a Delaware statutory trust is management by the trustees, and the governing instrument of a Delaware statutory trust that is a registered mutual fund typically provides for trustee management. Regarding a legality opinion on shares in a Delaware statutory trust, Section 3803(a) of the DSTA provides that, except to the extent otherwise provided in the governing instrument, the beneficial owners shall be entitled to the same limitation of personal liability extended to stockholders of private for-profit Delaware corporations. The governing instrument of a Delaware statutory trust that is operating as open-end investment company typically provides that the trust can issue an unlimited number of shares. The governing instruments for closed-end mutual funds sometimes also take this approach, but at other times may authorize a specific number of authorized shares. The governing instruments for both open-end and closed-end mutual funds organized as Delaware statutory trusts typically include a provision that all shares of the trust when issued in accordance with the governing instrument will be validly issued, fully paid and non-assessable.

Forms of Opinions

The following are typical opinions given with respect to a Delaware statutory trust that is entering into a financing transaction:

Trust is a duly formed and validly existing statutory trust in good standing under the laws of the State of Delaware.

The Trust has requisite statutory trust power and authority under the certificate of trust of the Trust and the trust agreement of the Trust (collectively, the “Governing Documents”) and the Delaware Statutory Trust Act to execute and deliver the Transaction Documents and to perform its obligations under the Transaction Documents.

The Trust has taken all necessary statutory trust action under the laws of the State of Delaware to authorize the execution, delivery and performance of the Transaction Documents

The Transaction Documents have been duly authorized, executed and delivered by the Trust.

The execution and delivery by the Trust of the Transaction Documents, and the performance by the Trust of its obligations under the Transaction Documents, do not violate the Governing Documents or any applicable Delaware statute, rule or regulation.

The execution and delivery by the Trust of the Transaction Documents, and the performance of its obligations under the Transaction Documents, will not require any consent of, notice to or filing with any Delaware Governmental Authority to be obtained or made by or on behalf of the Trust.

Issues for Opinions on Delaware Statutory Trusts

Opinions on valid existence and power and authority. Section 3807 of the DSTA provides that every Delaware statutory trust, other than a statutory trust that is, becomes or will become (prior to or within 180 days following the first issuance of beneficial interests) a registered investment company, must at all times have at least one trustee which in the case of a natural person is a resident of the State of Delaware or which, in all other cases, has its principal place of business in the State of Delaware. If a Delaware statutory trust does not comply with this requirement, issues arise as to whether it is duly formed and as to what business or other activities it can properly undertake.

Opinions on series interests. While the use of series permits considerable flexibility in the operation of Delaware statutory trusts, they can raise difficult issues. A series of a Delaware statutory trust is not a separate legal entity and cannot (unlike certain series of a Delaware LLC or Delaware limited partnership) contract in its own name or hold title to assets or grant liens and security interests. However, the DSTA does provide that a statutory trust that has established series with inter-series limitation on liability can contract, hold title to assets and grant liens and security interests in the name of a series. These series provisions can raise opinion issues even with regard to usually straight-forward opinions such as power and authority and due authorization. More difficult opinion issues can arise if series are used in connection with secured financings, particularly with regard to how to perfect a security interest in the assets of a series.

New York


Unlike other states like Delaware, New York has no form of statutory trust. New York trusts used for investment or other business purposes are common law trusts. Also, unlike a state like Massachusetts that has a statute regulating non-statutory business trusts, New York does not have such a regulatory statute.

As described in the 2016 article, a New York common law trust is not a separate legal entity; rather, it is a “relationship.” The trustee, who may be an individual, institution or other entity, holds the trust property in trust for the beneficiaries.

Under New York law, there are four essential elements of a valid common law trust: (1) a designated beneficiary, (2) a designated trustee who is not the beneficiary, (3) a fund or other identifiable property, and (4) the delivery of the fund or other property to the trustee with the intention of passing legal title to the property to the trustee to hold in trust for the beneficiary.

New York common law trusts are used for collateral trusts, for a variety of investment vehicles such as unit investment trusts, tender option bonds and other “repacks.” For example, the collateral underlying the SPDR Gold Trust (GLD) is held in a New York common law trust. A typical indenture for debt securities is governed by the same principles.

The characteristics of the transactions and opinions involving common law trusts include the following:

  • No written agreement is necessary to create a common law trust.
  • Any contract that might be the subject of a closing opinion is entered into not by the trust but by the trustee. The trustee executes the contract it its capacity as trustee (rather than the trust as the contracting entity executing the contact by the trustee as its agent).
  • The traditional common law rule is that, in the absence of a limitation in the contract, a trustee is personally liable on contracts entered into as trustee, but is entitled to indemnification from the trust property. To negate the application of this rule, trustees have insisted on the inclusion in contracts to which they are a party as trustee of an explicit statement that the only recourse of the counterparty under the contract is to the trust property and not to the assets of the trustee.
    • Trustees typically sign agreements and other instruments under signature blocks making clear that they are signing the document as a trustee and not in their individual or entity capacity.
    • No public filing is required for creation of a common law trust. In the terms of Article 9 of the Uniform Commercial Code, unlike a statutory trust, a common law trust is not a “registered organization” formed or organized by the filing or issuance of a “public organic record” and, unlike a Massachusetts business trust, it is not subject to a statute of the state governing the business trust that “requires that the business trust’s organic record be filed with the state.”
    • In New York, no certificate is available from a state official to confirm the existence of a common law trust and there is no concept of a common law trust being in good standing.

Forms of Opinion

The following are forms of the status, power and authority opinions for a New York common law trust used as an investment vehicle:

[The Client] is the trustee of [the Trust] pursuant to the provisions of the Trust Agreement dated ____________ ____, 20___.

[The Client], as trustee of the Trust, has the trust power and has taken all action necessary to authorize the execution and delivery of the [transaction documents] and to perform [the Client’s] obligations thereunder.

The issues to be addressed for closing opinions on New York common law trusts include:

  • Whether the trust has been created by a transfer of property to a trustee who has agreed to hold it for the beneficiaries.
  • The ability of the individual, institution or other entity to act as trustee in New York.
  • New York Banking Law § 100 grants fiduciary powers to all institutions chartered as trust companies. If an out of state bank establishes a branch in New York, it has the same powers as a like-type New York banking organization. Out of state banks and trust companies which have fiduciary powers under the laws of their state of incorporation may exercise those powers in New York, if the state of its domicile grants reciprocal rights to New York institutions subject to designating agent for service of process. For federally chartered national associations, the Comptroller of the Currency is authorized to grant the national banks authority to act in a fiduciary capacity in competition with state banks with those powers.
  • Opinion preparers may assume, without so stating, that an individual trustee has the requisite capacity to contract and is not subject to a disability, unless they have knowledge to the contrary.
  • The permissible activities of the trust are determined by applicable law and the terms of the trust agreement.
  • Relevant law may restrict the power of the trustee to take certain action without the consent of the beneficiaries, such as a self-dealing transaction with the trustee or an affiliate. An example is investment in propriety mutual funds sponsored by the trustee institute for which it earns fees.
  • The opinion preparer must confirm (or assume) compliance with the steps necessary under the trust agreement or applicable law to authorize the action taken.

New York does recognize business trusts in the General Associations Law:

“A “business trust” is an association operating a business under a written instrument or declaration of trust, the beneficial interest of which is divided into shares represented by certificates.”

A business trust doing business in New York must file a certificate of designation of the Secretary of State as its agent for service of process. An association doing business in New York may not maintain a suit in New York until it complies.

However, the requirement for filing a certificate of designation should not make a business trust a registered organization for the purpose of the Uniform Commercial Code since the trust is not “formed or organized” by the filing of the certificate of designation so the filing is not of the trust’s “organic record.”

Rule Against Perpetuities. There is a statutory exception in New York to the application of the Rule against Perpetuities to an “investment trust,” defined as an unincorporated trust or association managed by trustees not holding any property for sale to customers in the ordinary course of its trade or business, having transferable shares or certificates of interest offered for sale to the public, if the instrument creating such trust provides that it may be terminated at any time by action of the trustees or by affirmative vote of the beneficiaries having a specified percentage of interest therein.