You’ll be interested in this insightful e-mail exchange I had with one of my Land Trust University (LTU) students. He wrote to me with questions about asset protection. Specifically, he wanted my perspective on ideas about Trustees, Beneficiaries, and anonymity he had heard from his friends.
Let’s Begin
LTU Student:
Couple of quick questions for you. I’ve been chatting about your recommendations for Land Trusts with some colleagues of mine. Both of them have been using Land Trusts for many years. They gave me some interesting feedback that I wanted to run by you.
One of them recommended I be the Trustee for all my Land Trusts. The theory behind that is if you get sued, the attorney will sue everyone and everything they can – Trustee, trust, and eventually the Beneficiary and the officers personally. If you are sued as the Trustee you would be cleared personally right up front in the lawsuit as the Trustee has no liability for anything. At the point at which the attorney figures out who the Beneficiary and the officers are, you would have already been cleared personally, so no suit can be brought against you as an individual at that point. It sounds logical, but I was wondering what you thought about that. It goes against everything you are teaching, though.
Mr. Land Trust®:
I totally disagree. First, I believe you should NEVER be the Trustee of your own Land Trust for many reasons. The odds of being sued are low but possible, and the benefits of using a third-party Trustee for your Trust are immeasurable.
Privacy of ownership is the first benefit. I have been a landlord for 54 years . . . 20 of those years I had two little girls growing up in my house . . . the last thing I needed was some tenant that I was evicting looking me up online as the Trustee of my own trust for the property he was living in, looking up online where I lived, then coming to my house and my 7-year-old daughter answering the door. Those are REAL risks of owning real estate in your name personally OR as your own Trustee.
Additionally, I do not agree with the theory above that being sued as the Trustee would absolve you from being sued as the Beneficiary. Your status as a Trustee is totally different from your status as an individual . . . in other words, you can be sued both ways. Adding to this, I would never suggest that you personally be the Beneficiary of a trust holding title to investment real estate. The liability flows through the trust to the Beneficiary, and therefore, you should have a corporation or LLC as the Beneficiary.
LTU Student:
One of them was also concerned about all the smokescreens that we put up to keep attorneys from even figuring out who the Beneficiary is.
He said that kind of stuff appears fraudulent to judges and that they have the power to revoke these trusts and remove all that protection anyway. If a judge thinks you’re trying to hide stuff, they may do that. This guy has been sued before and has first-hand experience with this, so what he says definitely bears some weight with me. What is your take on that? I think I remember you saying you’ve been sued before so what has been your experience?
Mr. Land Trust®:
Yes, I was sued once over a hotel/office building complex that was under construction. While it is true that a judge can reverse just about any structure, and your alternative is to “appeal” his decision, how you set things up and present yourself to the public is important.
This is why I am always repeating to my students, “Old and cold matters.” I stress the need for asset protection now, before the need arises. You can’t buy fire insurance while the building is burning. It’s also why I encourage students to have their Trust Agreement notarized. When a judge sees that a Trust Agreement was formed months and years before a suit was filed, it is more challenging for them to declare the defendant was trying to “hide stuff.”
Another practice critical to the way you present yourself is to NEVER tell people that you did something for “asset protection reasons.” You always want to default to the main reason you do anything . . . that is, “estate planning.”
Using a trust coupled with an LLC will not prevent you from being sued. It is designed to discourage frivolous lawsuits and slow the process, making B.S. lawsuits more expensive than they’re worth.
There are other types of trusts that do guarantee you no lawsuits (at least not against your assets). They are expensive to set up and can cost as much as $45,000. If you’d like to know more about these, e-mail me.
LTU Student:
Thanks for the quick response. I do have an LLC as a Beneficiary of my trusts, but I am the manager of that LLC, so my name would potentially get included in a lawsuit eventually, even if I wasn’t the Trustee. What you’re saying makes sense – I’m a different guy as Trustee than I am as manager of my Beneficiary LLC. I love everything you teach with respect to anonymity. The part that scared me is the judge revoking the trust and everything we worked so hard to put in place if he thinks we’re trying to game the system. I am currently not the Trustee of any of my Land Trusts and don’t intend to be, but I definitely wanted to get your opinion.
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