In previous postings on this blog I have discussed the problems with making an LLC the Trustee of your land trust. This posting will discuss the benefits, problems and pitfalls of using a Limited Liability Company as the Beneficiary.

In general, I like the idea of using an LLC, Personal Property Trust or Asset Protection trust as the beneficiary of a land trust. Not only are you creating another "level" for your adversary to penetrate but, you could be creating another legal jurisdiction for your adversary to to deal with (assuming the entity representing the beneficial interest has a situs in a state other than the situs of the land trust and the property held in the land trust). 

Many people set up Limited Liability Companies for asset protection. In fact, a lot of attorneys will recommend that the real estate investor title their investments in an LLC for "asset protection" reasons. We have discussed previously why we do not use LLC's as the front line of defense (we do not title our real estate in the name of an LLC). However, clarification is important regarding the benefits of using an LLC as the beneficiary of a land trust.

The legal theory behind the asset protection benefit of an LLC is based upon protection of one member (of the LLC) from another. In other words, a charging order could be obtained by one member's creditor but the creditor could not force the sale of the LLC assets to satisfy the judgment. This theory assumes a multi-member LLC. Some courts have ruled that the creditor COULD force the liquidation of the LLC's assets when there was only a single-member in the LLC. So, the lesson here is to make sure that you have a two-member (or more) LLC. How can you do this and not involve strangers or others that you really do not want to business with? Simple, members of an LLC can be individuals as well as entities. Therefore, you could have you and your spouse as members or you and your spouses's personal property trust as members. Or, any combination of individuals and entities...just so long as you have at least two members!

 

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