On September 1, the Arizona Court of Appeals issued an opinion in Williamson v PVOrbit, Inc. (1 CA-CV 10-0390) that’s worth reading for the instruction given that sometimes is not well understood in the community. PVOrbit filed a mechanics’ lien under the statutory scheme but would not listen to the argument of the Williamsons that “he and she” held the residence in trust as Trustees. Because PVOrbit thought that the fictitional entity, the Trust, owned the house, it would not acknowledge the application of a statutory exemption to the mechanics’ lien filing right – the exemption for a natural person holding legal or equitable title to the home and occupying it.The exemption is found in ARS Section 33-1002(A)(2). In short, PVOrbit contended that the Trust is not a natural person, so the exemption barring the filing of a lien was not available to the Williamsons. The trial court agreed with the owner couple, and PVOrbit appealed.
The Court of Appeals cited the common law rule – that in a trust situation, Arizona Trustees hold the legal title to the property in the trust, and Beneficiaries hold equitable title. Otherwise stated, the Trust itself, being a fiction, owns nothing. This is a statement that is counter-intuitive for a lot of folks who hear the expressions “putting property into the trust” or “funding the trust.” I’ve noticed that for some reason folks who have moved here from out of state especially tend to believe that Trusts own assets and trustees are mere fac totems. Whether that may be true elsewhere has no application in Arizona. The Trustees own title to, and hold the assets for the benefit of, the Arizona Trust’s beneficiaries. Therefore, if you’re counsel for the Trustees, or you’re seeking to have counsel fund your trust, the conveyance documents, whether a deed, a bill of sale or anything else passing title, need to recite the transfer like this:
“To John Doe and Jane Doe, as Trustees of the Doe Family Trust under Trust Agreement Dated June 15, 2010, and not personally.” Deeding something to “The John and Jane Doe Trust under Trust Agreement dated June 15, 2010” is just going to cause someone (this time, ironically, the contractor that filed the lien) misery down the road. The Mechanics’ Lien here was found to violate ARS 33-420, the groundless lien statute, due to PVOrbit’s disregard of the statutory exemption for an owner-occupant.