Massachusetts trusts (also known as common-law trusts, business trusts, or unincorporated business organizations) are a unique type of trust used by individuals to run a business outside the normal legal entities such as a corporation or partnership. Massachusetts trusts can be made in many states and in other countries, not just in Massachusetts. Generally, Massachusetts trusts are characterized by being owned by multiple individuals with each having liability only up to the amount of their investment, similarly to shareholders of a corporation. The trust is managed by a set of trustees that must follow extensive rules in the creating documents and often bylaws that may not exist in other kinds of trusts. These trusts differ greatly from most other types of trusts, having characteristics resembling corporations, trusts, and partnerships.
States and the federal government differ greatly in their definitions and treatments of Massachusetts trusts given their unique aspects that challenge the normal trust and corporate governance rules that might apply. One issue lies in the legal status of the trust with some declining to give Massachusetts trusts legal status at all while others allow them the full range of legal statuses including the capability to be sued directly. Another difference is some states allow “shareholders” of a Massachusetts trust to sell or transfer their share of the trust while others limit trust ownership to traditional trust rules preventing such a transferring of ownership. Other difficulties, such as those arising from tax or property law, cause states to treat Massachusetts trusts in very different ways.
The term Massachusetts trust arose from individuals using the trust form in the early 1800s to avoid certain corporate laws regarding the investment in real property in Massachusetts. Most of the early Massachusetts trusts and many to this day are used for real property investment purposes. This form of trust lost its popularity overtime as governments incrementally eroded away the tax and governance benefits of a Massachusetts trust.
[Last updated in February of 2022 by the Wex Definitions Team]
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