Land Trust Blog

There are nearly 100 million lawsuits filed every year in the United States. Landlords are probably the single most sued classification because of the misconception that all landlords are RICH! Another reason why landlords are such an easy target is the fact that it is so easy to find out what they own. If you were going to sue someone, wouldn't it make sense to investigate the potential assets of the person you are going to sue first?

Most landlords/property owners walk around with a big target on their back because almost all of their hard assets can be discovered by a simple computer search of the local county records. You (or your attorney) do not even have to leave the comfort of your home or office to find out every piece of property that a landlord owns. Why? Because most landlords/property owners hold title to their assets in the own personal names! This is like walking around with a financial statement imprinted on the back of your shirt! Once your assets are known it is not hard to estimate the lawsuit satisfying equity.

Let us take an example of why you should NOT hold title to real property in your name or jointly with others. Case-in-point:

A few years ago I sold out of a real estate investment and took a note back for part of the proceeds. The buyer defaulted on the note and I took him to court. After winning a judgment against the buyer I recorded a "memorandum of judgment" in the county where I knew he owned property (how do you think I found out what he owned?). The memorandum filing was like putting a blanket over everything he owned in his name or with others. He could not make a move without dealing with me first.

As luck (mine not his) would have it, I received a call from a local title insurance company that was trying to close the sale of a property. The problem was that my judgment was a "cloud on the title." As it turned out, the man I had a judgment against owned a property jointly with his daughter. The daughter was trying to sell but could not because of her dad's judgment to me.

After some conversation, I agreed to release my judgment (on that property only) in exchange for ALL of the daughter's equity. This allowed the sale to go through but did not provide any equity to the daughter. I suspect that dad and daughter had a very uncomfortable conversation after closing.

The point here is that if the dad had just put all of his (and his daughter's) real estate holdings into separate land trusts, it would have allowed the sale to go through without my knowledge!
This example is just one of a huge number of reasons to use a land trusts in all that you do with real property.

There are a lot of bloggers out in internet land talking about using Land Trusts to avoid seasoning requirements and accomplish double closings. Here is a real life case study you can learn from and use for your own double-deals.

In May I was contacted thru email by a seller in distress. The seller and his wife saw my "we buy houses FAST" insert on the bottom of one of my FOR RENT signs and went to my "seller's website" to submit their house information. Once I received their email outlining their situation I called them to make an appointment to see their home. The sellers were in the process of moving out and "leaving the house behind." They had already missed their first house payment and had stopped paying their homeowner's insurance premiums.

I called their lender with them at the kitchen table. We were put thru to the "short sales department" and were told to submit various documents for consideration of a less than full loan payoff. After a month of phone calls and paperwork we closed the deal. Here's the rub.

The buyer under my contract to acquire this property was my Land Trustee. Prior to closing I came to an agreement with a third party buyer who wanted the house to rehab. At closing I assigned my beneficial interest in my Land Trust to the third party buyer and HE closed the deal. This prevented me from having to close the deal myself (and incur closing costs) and then re-selling to my new buyer. Therefore, my net profit was the same as my gross profit.

This method of using a Land Trust also prevented the lender from objecting to the deal as the buyer (the Land Trustee) remained the same throughout the transaction. If you want to do these kind of double-deals, be sure to use a Land Trust for maximum profit and efficiency.

Most Land Trusts are set up for privacy purposes with the Grantor as the Beneficiary. This model is the extent of most attorney's and advisor's knowledge about how to set up a Land Trust and what the benefits are. We sometimes see attorneys set up Land Trusts for their clients with the client's name and or social security number in the name of the trust. This is not smart!

Since the primary purpose of a Land Trust is to hide ownership of the property's title, it makes no sense to use any identifying marks of the person in control of the Trust (the beneficiary). However, some individuals want more anonymity than others and are not satisfied with merely one degree of separation from the Trustee.

Since the Beneficial Interest in a Land Trust is PERSONAL PROPERTY one Land Trust cannot be the Beneficiary of another Land Trust (Land Trusts can only hold title to real estate interests). However, a Personal Property Trust CAN be the Beneficiary of a Land Trust.

The way to structure this scenario is to make the Trustee of the Personal Property Trust the Beneficiary of the Land Trust. The ultimate "owner" in control of this labyrinth would be the Beneficiary of the Personal Property Trust. What might this accomplish for you?

First, if the Land Trust is holding title to real estate that is located in a state with an income tax, any profits passed through the Land Trust to the Personal Property Trust would not be taxed (assuming the beneficiary of the Personal Property Trust is domiciled in a non-income taxed state). This would save the investor an amount equal to the income tax rate imposed by the state where the property is located.

Furthermore, if the property is located in one state, the Land Trust is domiciled in another state and the Personal Property Trust is located in a third state the amount of legal fees required to "crack" this structure would be prohibitive. Now you can see why conventional thinking about Land Trusts is folly. Learn all you can about Land Trusts. They will serve you well.

This Blog is intended to provide accurate and authoritative information with regard to Land Trusts. It is offered with the understanding that author is not engaged in rendering legal, accounting or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be retained. Every effort has been made to reflect current law and interpretations as of the date of publication of this Blog. However, this is a dynamic field of endeavor in which new laws are enacted, tax laws are constantly changing, and old laws precede case laws, Revenue Rulings, and Treasury Policy. Readers are advised to proceed with caution before implementing the strategies contained herein and to consult with appropriate professional advisors prior to committing time and financial resources as a result of the material contained in this Blog.

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