Pat and Mike, unrelated individuals, owned a commercial building as tenants in common. They transferred the building to a trust (“T”) with a bank as trustee and themselves as beneficiaries.

The trust agreement provides that the purpose of the trust is to empower the trustee to act on behalf of the beneficiaries as signatory of leasing agreements and management agreements, to hold title to the property, to distribute all trust income to the beneficiaries and to protect and conserve the property. The trustee cannot buy or sell any real estate or mortgage the property.

Pat and Mike’s interests in the trust are evidenced by certificates that are transferable only upon death or by unanimous written agreement of the beneficiaries. Also, no additional contributions may be made to the trust.Pat and Mike must approve all agreements entered into by the trustee and they are personally liable for all debts of the trust.The trust will terminate upon sale of substantially all its assets or upon the beneficiaries’ unanimous agreement.Pat and Mike directed the trustee to sign a net lease of the property to Z corp. for 20 years. Z corp. may alter the property only with the trustee’s consent. The trustee can approve alterations of the property by Z corp. only if the alterations protect and conserve the building or are required by law.

a. Determine what type of entity T will be considered for tax purposes.

b. How would your answer change if the trustee were empowered to accept contributions of contiguous parcels of land or raze the building?