I’ve been using land trusts to take title of real estate for over 23 years. Like most people, I was very confused as to how the land trust works and if I really owned the property.
The best way I can explain the benefits of a land trust that is properly used is to reprint a recent article written by Dyches Boddiford.
Dyches is a national seminar speaker, a CPA and he may even be an attorney. More important to me, he was one of the 35 mentors along with myself selected by the late great Jack Miller as Masters of Entrepreneurial Arts.
What I admire most about Dyches is the way he is able to break down what appears to be a complex issue and create a workable solution.
So, if you’re going to buy a property for personal use or investment, or if it is going to be owned by your retirement account whether a self directed IRA or a solo 401(k) by all means use a land trust. I have used them in twelve states and if you searched my name in those states, you would not know I ever owned a house there.
A word of caution: land trusts are not used to avoid income taxes. The beneficiary is responsible to pay taxes unless the beneficiary is a retirement account.
Here’s the article from Dyches with his website so you will be able to get more information from him.
How can Land Trusts Benefit you?
The land trust is an agreement that allows real property to be held privately. That way, your name or your entity’s name does not show up on the title in the public records.
Follow me here. Say you have $1 million insurance coverage for liability. You hit an attorney in the cross-walk with your car. Will he settle for the insurance limits or will
he sue for more? Or what if your insurance company denies your claim for some reason? How much will the suit be?
Well, that usually depends on how deep he thinks your pockets are. If you own property in your own name, the lawyer suing you will easily find your house and any other
properties you own in the public records. This could easily become a $3 million suit.
Before you even know you will be sued, the opposing attorney could have the sheriff park in front of your house, knock on your door while you are eating dinner and hand you your lawsuit in front of all your neighbors!
But, if you have your property in a land trust, your ownership is hidden. Your land trust is not filed in the public records. Your ownership private stays private. No one knows you are the beneficiary but you.
Elements of a Land Trust
The land trust has four elements:
- Settlor – This is the person, usually you, who creates the trust.
- Trustee – The Trustee’s control is limited by the terms of the trust. This can be a trusted friend, sister or an in-law or other family member. It is best to choose someone without your last name to increase your privacy.
- Beneficiary – This is who receives the benefits of the trust. This could be you or someone else. One of your companies would make an excellent beneficiary. There can be more than one beneficiary if desired. The beneficiary has all of the control. The beneficiary can direct when property is bought and sold. The beneficiary is the one who can refinance the property or can collect the rental income from investment properties.
- Trust corpus – This is the real property held by the trust.
Properly structured, the trust is transparent for tax reporting. So there is no loss of benefits or additional accounting. But you have achieved is privacy of ownership.
What Will your Lender Say?
Again, properly structured, the Garn-St Germain Depository Institutions Act of 1982 specifically provides that you can place your property in a land trust without triggering the due-on-sale clause. That means you can transfer mortgaged property to a land trust without interference from the bank.
This is the case as long as you as borrower remain a beneficiary, the property consists of four or fewer dwelling units, and the trust is revocable and does not convey rights of occupancy to others.
Where Can Land Trusts be Used?
Land trusts have been used in all 50 states. Where state statutes do not specifically provide for a land trust (most states), the land trust is treated as a contract between the settlor, beneficiary and trustee. And a few states require additional duties of the trustee.
An attorney, Lee Horner, tells a story of a law suit where a person was bit by a dog that was not even supposed to be on the rental property. The person hired an attorney to sue.
Since the property was in a land trust, they were required to serve papers on the trustee. But the trustee could not be found since they were out of state. Of course, with no trustee to depose, they could not discover that the beneficiary was an LLC in a third state.
The plaintiff could still possibly use service by publication to get a judgment and then get the property.
But there was a loan on it by a company in a fourth state. After a while the frustrated attorney told their client to forget it and the suit was dropped.
This is just to show what can be done and your land trust does not need to be this involved…
Phone: (707) 996-6411
The funny thing about land using a land trust is they take almost three minutes to create when you have them in a word document. In the last 25 years we have created thousands of these because every time we buy a house, we place it in its own separate land trust.
Believe it or not, most attorneys are not even familiar with this title holding entity.
Recently, I was interviewing real estate attorneys in Georgia and this one guy said he’d been practicing law for 35 years, and if they existed he’d know about them. My response, “Just because you don’t know about that doesn’t mean they don’t exist.” I think I told him to quit practicing and start doing something to earn money. But isn’t that the truth? When we don’t know about something, we don’t think it exists or immediately don’t trust it – no pun intended.
Take the time to learn the information that impacts your financial well being. We live in a litigious society and everybody wants what you have, and they will take it if you don’t protect yourself.