Trust Beneficiary; Equal to Timeshare Interest Ownership, or Just Another Timeshare Trick?
Many recent timeshare interest purchasers report that upon attending a timeshare presentation and making a decision to purchase an interest, they were then instantly given the option to have their freshly purchased interest voluntarily transferred into a Trust to hold the actual ownership of the interest, and in exchange, the buyers would become ‘Trust Beneficiaries’ of the existing Trust. The benefits, they were advised, would include allowing them to have relatively unrestricted access to the Resort’s entire collection of resorts within that Trust portfolio, thusly allowing them to vacation at any one of a number of those included resort locations. These buyers were apparently not advised of any particular downside to Trust ownership, and many, if not all, purchasers permitted the substitution, comforted presumably by the concept that being a ‘trust beneficiary’ was comparable to, if not perhaps an even better deal than actually owning their timeshare interest outright!
In most situations, beneficiaries of a trust occupy an enviable position via the fact that a trust ‘corpus’, literally the ‘body of the trust’, has been formed consisting of assets, cash, or a combination thereof. At this point, the trust document has been formally created and executed, often involving a financial institution such as a bank or trust company, the trustee has been appointed to implement the duties as created by the trust document and by law, and a trust beneficiary or beneficiaries have been identified to receive distributions from the trust. We’ve all of course, heard the term ‘trust fund babies’, usually meaning those children of wealthier families who, by virtue of their families accumulated wealth, have had monies and/or other assets set aside for their benefit. Further, a trustee has been formally appointed whose legal duty it is to follow the specific directions laid out in the trust document (the legally binding document that created the trust and provided for its funding) and, over the duration of that trust, it is that trustee’s duty to distribute the income and assets belonging to the trust to the beneficiaries of the trust per the written trust terms. Of course, other types of trusts exist as well, but for most of us, this is the one we are most familiar with.
Statutory law (in Florida, it’s F.S. 736.0801 et seq.), defines duties of trustees, including duties of good faith and loyalty, and provides for administration of those duties solely in the best interest of the beneficiaries. It’s often said that trustees have a ‘fiduciary’ duty to act at a level of care even higher than if they were administering their own investments. It is therefore little wonder then that the majority of timeshare interest purchasers were initially quite comfortable in assigning their timeshare interests that they were literally in the process of purchasing, over to their new trustee instead. At that time at least, it most likely seemed a distinction without any real difference.
However, in the topsy-turvy timeshare world, appearances are, at times, not quite what they initially seem to be. With no real ability to review purchase documents in advance of the closing, or to have those documents reviewed in advance of their purchase by their lawyer or accountant, the purchaser is trusting that their property interests are being protected by the commissioned sales staff. However, those numerous preprinted purchase documents are in fact drafted for the benefit of the developer, not the purchasers. Since the trust documents are also created by that same group of lawyers who drafted the purchase documents, they well knew that the non-payment default language built into the trust would quickly eliminate those ‘trust beneficiaries’ who fell behind in their payments, and further that any duty owed by the trustee would be entirely eliminated along with the termination of that particular trust beneficiary’s trust interest. In addition, terminating a trust beneficiary interest is far simpler to accomplish than terminating a property interest since, unlike a real property interest, the trustee can simply terminate that trust beneficiary status internally with no legal requirement to file any form of formalized foreclosure procedure! In a more typical trust, as described above, those ‘trust baby’ beneficiaries have no financial obligation to the trust and therefore, trust beneficiaries are not eliminated until, they have received everything they were entitled to under the terms of the trust. Therefore, the fiduciary duties the trustee owes to those individuals typically remain in place for the entire duration of the trust.
In summary then, there may be no discernable advantage to have your timeshare interest held in a trust, but there certainly is an advantage to the developer to you not directly owning the timeshare interest that you initially intended to purchase!