Why do I recommend to my students that they think about situs and out-of-state Land Trusts? In my Land Trusts Made Simple® home study course, I discuss the advantages of using an out-of-state trust to hold the title to the property in your state.
Situs refers to the primary place of the trust’s administration. It is the state whose laws apply to the trust or the state that has the primary jurisdiction over the trust.
First, the Disadvantages
Why is this important? I find most people form a trust in their home state where the property is located with an in-state trustee. What they don’t realize is they are setting the jurisdiction of the law that controls the trust. With this formation, they have identified their home state as having jurisdiction.
This plays into the hands of a contingency fee attorney. It makes a lawsuit against the trust easier. It is also less expensive for her or him to pursue. If the cost to your opponent is less, that can mean more legal fees for you.
Here Are the Steps I Teach to My Students
I teach my students to form a Land Trust using out-of-state trust law with a Trustee in the same state. This way, you are setting the administration of the trust in that state. This is very important! If a lawsuit is initiated against the trust, the state law in which the trust is situs will prevail.
In other words, the Plaintiff would need to take legal action against the Trust in the state of its situs. The Plaintiff would then be subject to the laws of that same state.
The out-of-state situs you chose may be more defendant-friendly than the state the Plaintiff or his or her contingency fee attorney would prefer. This might cause them to move along in search of an easier target.
Now you can see why I suggest that you use an out-of-state trust! It often gives you more wiggle room in the law, no matter what state you live in, to control the Trust Agreement you created.