Trust Agreement

A trust agreement is an arrangement whereby one person (the settlor) transfers assets-such as money, real estate, or rights-to another (the trustee) so that the trustee may manage them in their own name but exclusively in the settlor’s interest. In real estate law, the trust agreement is primarily encountered at the notary’s office for payment processing during the purchase process, as well as in the fiduciary management of real estate by authorized representatives. It protects all parties involved from conflicts of interest and abuse-but requires careful drafting of the contract.

Escrow Account in Real Estate Purchases: Security for Both Parties

The most well-known application in real estate law is the notarial escrow account: The buyer does not pay the purchase price directly to the seller, but rather into an escrow account managed by the notary. The notary only transfers the funds to the seller once all conditions have been met-in particular:

• Entry of the notice of transfer in the land register in favor of the buyer
• Availability of consents to discharge for existing mortgages and encumbrances
• Submission of all required approvals (official clearance certificates, consents under condominium law)
• No entry of unexpected encumbrances after notarization

This model protects the buyer from losing the purchase price if the seller becomes insolvent before the transfer of ownership is complete. At the same time, it protects the seller, who can be certain that the funds are actually available. The notary acts as a neutral trustee for both parties and is personally liable for proper administration.

In modern practice, the escrow account has become less common for straightforward purchases-direct payment following the notary’s notice of due date is sufficient in most cases and is more cost-effective. However, the escrow account remains the instrument of choice when special risks are present (release from encumbrances, community of heirs, real estate development contract).

Real Estate Trust: Management on Behalf of Third Parties

In another sense, a real estate trust refers to the management or even the formal holding of a property by a trustee who, although registered as the owner in the land registry, holds and manages the property exclusively on behalf of the trustor. This arrangement is used for:

• Foreign investors who do not wish to be directly registered in the German land registry (e.g., for tax or corporate law reasons)
• Complex inheritance arrangements in which a trustee manages the property on behalf of minor or legally incapacitated beneficiaries
• Anonymity concerns among celebrities or entrepreneurs who do not wish to make their real estate holdings publicly traceable

This arrangement carries significant risks: In the event of the trustee’s insolvency, the property may become part of the insolvency estate, as the trustee is formally listed as the owner in the land registry. A detailed and legally sound contract is therefore essential-including the registration of a security mortgage or priority notice of conveyance in favor of the settlor in the land registry, which takes priority in the event of insolvency.

Trust Agreement and Notarization

Trust agreements concerning real estate or rights equivalent to real property must be notarized in accordance with § 311b BGB. An informal trust agreement regarding real estate is void-even if all parties involved consider it binding. The notary reviews the agreement for legality and advises both parties on the legal consequences.

We also recommend insisting on the involvement of an attorney specializing in real estate law, who will review the contract structure in advance to ensure it is suitable for the intended protective purpose. In particular, the question of whether the trust structure is recognized for tax purposes and whether it offers sufficient protection against the trustee’s creditors requires expert advice.

Practical Tip for Property Owners in Nuremberg and Franconia

In Nuremberg, nearly all real estate purchase agreements handle the payment of the purchase price via a notary escrow account or direct payment following a notice of due date. A direct payment model without any trust protection and without prior notary confirmation is an absolute exception in the region and should be critically scrutinized by buyers-anyone who pays before all conditions are met is taking a significant risk.

We recommend that buyers clarify the following before signing the purchase agreement: Under what specific conditions does the notary declare the payment due? Has the priority notice of conveyance already been registered at this point? Are there existing land charges that must be paid off from the purchase price, and has the seller’s bank already provided authorization for their cancellation? These questions are at the heart of escrow protection in real estate purchases.

Frequently Asked Questions

Is the notary’s escrow account the same as a trust account?

Yes. The notary’s escrow account is a trust account held by the notary in their capacity as a neutral trustee for both contracting parties. The funds in the escrow account do not legally belong to the notary and are not part of their estate in the event of insolvency-they are held in trust for the beneficiary (the buyer until the due date, the seller thereafter). The notary is personally liable for proper administration and is covered by the legally required professional liability insurance. The Bavarian Chamber of Notaries monitors the administration of escrow accounts through regular audits.

What does a trust agreement through a notary cost?

The notarial certification of the escrow agreement is governed by the Court and Notary Fees Act (GNotKG) and depends on the transaction value (=market value of the property held in escrow or the amount held in trust). In addition, there are administrative fees for managing the escrow account (custody and disbursement). For a purchase price of 400,000 euros, the handling fee is typically 500-1,000 euros in addition to the other notary fees. These costs are usually borne jointly by both parties or allocated as agreed in the purchase contract.

Can a trust agreement be concluded without a notary?

For real estate: no. Escrow agreements concerning a plot of land or a condominium are subject to formal requirements under Section 311b(1) of the German Civil Code (BGB) and must be notarized. An informal escrow agreement regarding real estate is void-even if all parties involved consider it binding. Trust agreements concerning money (e.g., simple settlement of the purchase price following a notary’s notice of due date), on the other hand, can be entered into without notarization, as they do not constitute a disposition of the property itself.

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