Is It Honest to Use a Land Trust?
Recently I was talking to a real estate investment club owner about speaking to his club regarding Land Trusts. He said, “We do not believe in using Land Trusts because they are dishonest.” He then went on to explain how someone had come to his club and spoke about Land Trusts and that led him to believe that the use of a Land Trust was for deception and taking advantage of people.
I told him that I was sorry that he had been misinformed about Land Trusts that he should reconsider their use and benefits. So, let s review why it is important to NOT have your name in the public records as owner of property:
- A group of people may be purchasing several properties for a special purpose and it may be that the desired result can be best accomplished if the objective is not made public.
- Co-owners might desire that the interest of each beneficiary must be kept private.
- An individual owner might not want to be hassled with inquirIes regarding the property.
- A real estate investor might not want his competitors to copy his acquisition techniques.
- Real estate investors do not want their tenants to know they are the owner of the property (helps with day-to-day management).
- Co-owners want to know that a lien or judgment or divorce of one owner will not affect the title to the property.
- Out-of-state owners can avoid probate and other legal issues upon death smooth transition of succession.
- A group of heirs can inherit a property held in a Land Trust with ease of management (by the director) and no need for a partnership agreement and partnership tax return.
- Co-operative housing corporations may elect to hold title to their land and buildings in a Land Trust. They could then issue beneficial share to their residents in place of stock certificates simplifying control and record keeping.
- The Trustee signs the mortgage that gets recorded preventing the debt from showing on the borrower’s credit report.
This is not an exhaustive list. If you’d like to know 40+ more reasons to use a Land Trust, text the word REASONS to 206-203-2005. My free report, Reasons to Use a Land Trust, will be delivered to your e-mail inbox.
Recently I spoke at the Memphis Investors Group and it was a great experience. The people were very nice and obliging. We ate lunch and dinner together and talked about the many benefits of holding title to real estate investments in a trust. Then, on the following Saturday I conducted an all-day training about Land Trusts. The people of Tennessee are very interested in protecting their assets and being more private with their real estate investments.
I cannot say enough about the professionalism and commitment these nice people showed me during my stay in Memphis.
Does a Land Trust Have to File a Tax Return?
I am constantly challenged as to whether or not a Land Trust has to file a tax return. Attorneys, accountants and other professionals try to tell me (and their clients) that if you put your property into a Land Trust the Trust will have to file a return with the IRS. The problem is that most professionals are used to other kinds of trusts (that do have to file a tax return) and not the Illinois Type Land Trust.
This is not to say that all Land Trusts ARE Illinois Land Trusts, just that they are like an Illinois Land Trust. Nonetheless, no matter in which state you form your Land Trust, a Federal tax return is NOT required.
And for you skeptics out there, here is the section of the IRS code that deals with this subject: Revenue Ruling 92-105 and IRS Code Section 677.
(Image by Michal Jarmoluk from Pixabay)
A Separate Land Trust for Each Property
I have been telling people for years and years that they should put each property they own into a separate Land Trust so all properties are insulated from each other. There are many benefits to following this philosophy and this posting will discuss one of those benefits.
When you put a piece of real estate into a Land Trust any liens or judgments against the beneficiary do not attach to the property (unlike when a person holds title in their name directly). Furthermore, if someone tries to sue the Trustee of the Land Trust, they must first FIND the Trustee (all of our Trustees located are outside of the state in which the property is located, have different last names than the beneficiaries, and have listed P.O. Box addresses on the Deed to Trustee). If the Trustee cannot be found it is possible to sue the Trust via a publication in the newspaper in the county in which the property is located. But, this just adds to the trouble and expense of the plaintiff.
Unlike the LLC structure, owners (beneficiaries) of a Land Trust are NOT made public anywhere. If the LLC is managed by a “Manager,” some states provide for only the Manager’s name and address to be publicly listed.
The bottom line to all of this is it is best to hold title to your real estate investments in separate Land Trusts (and perhaps make your LLC the beneficiary of the Trusts). If you held title to all your properties in one LLC and it was sued and a judgment was obtained . . . a lien would attach to all properties held inside the LLC. Whereas, if each property is titled in a separate Land Trust, a judgment against the LLC beneficiary would not affect the title to each property (because the LLC does not hold title to the property . . . just a beneficial interest in multiple Land Trusts which constitute personal property interests not real property interests.
Sell the Beneficial Interest in a Land Trust, Not Real Property; Here’s Why
We Dove Deep in This Podcast
You’re going to get a lot of nuggets out of this conversation.
This podcast is different from many which I’ve done. Hosts Michael Bazzell and Justin Carroll were already familiar with Land Trusts, and Michael had already gone through my course and created a Land Trust. They started with a lot of knowledge. Therefore the questions they asked took our conversation into uncommon and important topics. This is stuff you’re not going to hear just anywhere, folks!
We discussed the difference between a Land Trust and a living trust and why you want to put each real estate asset into its own Land Trust. I gave them a personal example of what I describe as “legalized blackmail.”
You’ll also hear Justin, Michael and I cover why not every LLC is going to shield you. Michael and Justin also asked me to suggest a structure to protect against frivolous lawsuits.
Are you talking to your loved ones and family members about estate planning and privacy? Listen to our conversation about the importance of educating family members. If you’re not having this dialog with those dear to you, it could cost you . . . and them! Plus, I include a personal tip, what I call “Dad’s Last Lecture.”
One of Justin and Michael’s great questions was “What’s the biggest mistake” I see people make when creating when creating your their Land Trusts. Listen to this podcast, and you’ll know how to avoid it.
Finally, Michael and Justin ask me a question which they pose to all their guests. They ask what I’d tell the person who doesn’t think privacy is important, because they’ve “got nothing to hide.” My response is a story which came from one of my students. Believe me, you don’t want to find yourself in her position!
Can I Use a Land Trust in California?
California is a community property state, and in that respect it differs from many other states.
California Land Trust property is NOT subject to dower, community property or other marital rights of beneficiaries. As a result, instruments dealing with title to property held in trust need not be signed by both spouses, only by the Trustee of the Land Trust.
In a state that has over a 60% divorce rate, being able to continue to operate a property despite ongoing marital strife can be a real benefit to both parties. Any property divisions will only apply to beneficial interests in the Land Trusts, not in the assets of the trusts, so the trust can continue to generate income while the spouses argue over who gets what.
Are You Attracting Identity Thieves?
When you buy a house (to live in or to rent out) and finance it with a mortgage that gets recorded at the courthouse, you are asking identity thieves to become a part of your life!
The average person does not think about it, but when you finance a property that is secured by a mortgage there is an incredible amount of personal information about you that is published in your local county tax records office. Tax and mortgage records are a breeding ground for identity thieves. Here is a list of some of the information an ID thief can get from the county records website (they do not even have to drive over to the court house!)
1. Your full legal name
2. Any maiden name, nickname or aliases
3. Your home address (assuming you do not use a PO Box)
4. Your mailing address (if it is different from your home address)
5. Your phone number and your personal contact information (such as your work info)
6. The type of mortgage you have on your home, how much you borrowed, what the terms of the loan are, how much you paid for your home, etc.
Besides Identity Thieves, you are also prey to nosey neighbors, unhappy ex-spouses, disgruntaled employees, jilted lovers, co-workers and anyone else with a computer and a desire to cause you trouble.
If you use a Land Trust to hold title to all your real estate holdings, none of the above will matter to you.
It is your move.
Congratulations to Asset Protection Services of America!
Asset Protection Services of America (A.P.S.A.) with whom I partner, has received another award! Two years in a row they have been selected for the Best of Carson City Award in the Business Consultants category by the Carson City Award Program.
Those who purchase my Land Trusts Made Simple® course receive a free consultation with this award winning business, among the many benefits which come with the course.
Just another way I heap on the value and give more than I'm paid for to my students and customers.