How To Set Up a Land Trust For Each Investment Property You Own

Setting up land trusts for each investment property you own is essential. One benefit of the land trust is to keep ownership of the property private. This way, the land title office can no longer let the whole world know that you own the property. Many people can enjoy privacy of ownership and do so for a few different reasons. The benefits are below:

You can keep ownership of one or more properties private.
You have the ability to transfer ownership of one or more properties to someone else easily.
You can avoid probate on one or more properties you own.
You can have many owners of one or more piece of property.
The owner keeps tax advantage.

Land Trusts Can Help Avoid Moving the Investment Property Title To and From More Than One Name

Although the above five benefits are the main reasons for setting up land trusts for each of your investment properties, doing so can help in other ways as well. One way setting up a land trust for each of your investment properties can help the owner is by avoiding "churning" of the title. Churning means that the title goes through many different hands in a short time period.

The thing about the title going from one hand to the next and the next and so on is that a lender will not think twice about denying lending money for the property. This is because they may think that the title is going through many different hands really fast so as to make the investment property look like it is worth a lot more than it really is. This is why it is good to set up a land trust for your properties.

How to Set Up Land Trusts for Multiple Investment Properties

You can create land trusts for multiple properties by using two legal documents. Before you start with the documents, first you need to decide the name you are going to be using for your properties. Once you find a trusted friend or family member, you then see a land trust attorney who will draw up a contract that states what is happening and the rights of both parties, you and your land trust.

Once you both look over this document and you both sign it, you then need to record the trustee deed. However, once these two steps are done, the world will no longer be told that you own any of the investment properties you own. Once this is done, you can enjoy all of the benefits mentioned above of using a land trust for each investment property you own.

Find Out if a Land Trust is Legal in Your State

For years now, I’ve been telling people to use land trusts for their real estate investments. Not only does it provide protection from creditors but it also prevents them from using the Uniform Fraudulent Conveyance Act to access your assets. It’s also a great way to discourage would-be litigators from suing you since your name never appears on record that you own anything.

I’ve been talking about the importance of using land trusts for years now. One of the questions I keep getting is: Which "land trust states" will recognize this legal entity?

What States Allow Land Trusts?

Only six states have a land trust statute on the books. These states include:

Indiana
South Dakota
Florida
Hawaii
Virginia
Illinois

This doesn’t mean that you can’t form a land trust if you don’t live in these states. Most states without the legal structures in place defer to the Illinois Land Trust statutes to determine validity and case law. Apart from Louisiana, you can hold land in trust in any of the other 49 states and the District of Columbia. This has to be done in accordance with the law of any of the foregoing states given that the beneficiary, trustee, or the property is based there. The states of California, Colorado, Missouri, and Nevada have trust laws that allow trustees to hold title to property for a NAMED TRUST (note that it’s just a trust, not a land trust).

With the guidance of a knowledgeable lawyer, you can actually form a land trust in most states, even in Louisiana. The state still has the old French Civil Laws that will need an expert to navigate. One of the hurdles you might have is getting a good attorney in your state who’s well versed in land trust matters.

How to Go About Setting Up the Land Trust

To start setting up your land trust, deed the piece of property you’re buying to a friendly nominee. Should you run into problems down the road where the title company rejects your land trust, they will be able to recognize the last person in the title – the nominee. Thereafter, direct your nominee to sign a deed directly to your new purchaser. But there’s a catch to this approach – you need to be certain that your nominee will be around for the long haul. This is why you might want to consider a appointing close friend of family member as the nominee.

To avoid problems in future, you might want to have the grantor execute two deeds – one for the land trust (using trust deed language) and the other directly to the grantee. The deed to the grantee is a failsafe to be used if the land trust is found to be defective by your state law.

Interested in learning more? Check out our article The Benefit of Using a Power of Attorney With a Land Trust.

The Personal Property Trust: An Overlooked Asset Protection Tool

Asset protection is a crucial component of financial planning for any real estate investor. There are many tools you can use to keep your property out of the clutches of creditors and would-be-litigants, and we’ve talked about some of them.

While Land Trusts, Series LLCs, and anonymous trusts are some of my favorite tried-and-true asset protection methods, a financial planning tool that doesn’t get as much attention as it should is the personal property trust.

With this article, we're going to change that!

What Is A Personal Property Trust?

In general, a trust is a type of legal arrangement where a trustee holds title to specific property and manages it for the benefit of the trust’s beneficiaries. Trusts can be revocable, which means the trust can be altered or canceled at any time while the person establishing the trust is still alive. They can also be irrevocable, which means they cannot be modified or revoked.

Like a Land Trust or living trust, a personal property trust is a type of revocable trust. Whereas the Land Trust is used to hold real property, the personal property trust is used to hold title to personal property assets such as vehicles, boats and mobile homes.

Whenever an asset needs to be registered and included in public records, you can use a personal property trust to keep your ownership information private.

Since trustees must manage the trust assets as directed by the trust instrument, you can use a trust to transfer legal ownership and protect your identity while essentially maintaining complete control over the trust property. Generally, the sale of trust property requires approval from the beneficial owner, and the trustee cannot make the decision alone. Naming yourself as the beneficiary of a personal property trust can keep you in control of your assets.

What Are The Benefits Of Putting Your Property In A Trust?

The primary benefit of using a personal property trust is privacy. When you place your assets in a personal property trust, public record registrations will show the trust as the owner instead of listing your name. If you choose a privacy-protecting name for your trust, there will be no indications in the public record that you own the property.

A few additional benefits of using a personal property trust include:

Protecting your assets from lawsuits and other creditors
Avoiding the expensive probate process when leaving assets to trust beneficiaries
Flexibility in the types of personal property that can be placed in a personal property trust
The ability to retain control over trust property
The option to add and remove property from the trust

When Should You Use a Personal Property Trust?

As a real estate investor, there are several ways you can take advantage of the protections offered by a personal property trust. Here are a few of the most beneficial ways to use personal property trusts to help keep your real estate investments safe and private.

Mortgages

One of the most common uses of personal property trusts is to hold mortgages, since the ownership information for this type of asset can be found through a public records search. As a real estate investor, you may want to consider creating a separate personal property trust for each property for which you have a mortgage. This strategy will allow you to keep your ownership information private and avoid links between your various properties.

LLCs

Savvy real estate investors often use an LLC to own real estate directly or name an LLC as the beneficiary of a Land Trust. To add another layer of separation and anonymity to your asset protection strategy, you can use a personal property trust to hold your membership interest in the LLC.

If you use an LLC as part of your real estate asset protection plan, it’s important to remember that, in most states, LLC membership is included as part of the public record. One way to keep your LLC interests private is to list a personal property trust as the LLC member and name yourself as the trust beneficiary.

Vehicles

Any vehicle—including cars, trucks, and motor homes—that must be registered with the Department of Motor Vehicles is generally part of the public record, which can make your personal data open to public search. You can avoid this by titling your automobiles to a personal property trust.

Given its various uses, a personal property trust can be a valuable tool for real estate investors, as well as people who haven’t caught the real estate bug (yet). No matter how you use your personal property trust, it is a practical but often-overlooked component of a successful asset protection plan. When deciding what financial planning tools are best for your real estate investment plan, it’s vital that you seek the input of an experienced asset protection attorney.

How a Land Trust With LLC As Beneficiary Benefits Property Owners and Investors

Having a land trust is a good idea for property owners and real estate investors. Land trusts are especially a good idea in case you own more than one property and don't want everyone to know you own so many properties.

You can choose whoever you want for your land trust. However, it should be someone you know and trust since your property title will be going to them to keep it safe and private for you. While your property is in a land trust's name, no one can see that you own it. For example, the title company cannot announce in the local newspaper that you own property (like they do with everyone else).

How to Start a Land Trust For Privacy and Asset Protection

First, you have to choose someone or a certain business to be your land trust. You don't have to choose an individual if you can't find one to do it for you. You also have the option to choose a business if the business owner agrees to do it.

Whichever one you choose, you need two legal documents for the land trust. The first legal document is a trust agreement between the owner of the property and the person or business who will be the land trust. The second legal document is the deed of the property from the owner to the trust.

Although the land trust will be holding on to the deed of the property, they will not be the owner of the property and will not receive any benefits from holding the deed and having their name on it. The owner still has all rights. The land trust is just for privacy. The trust agreement is also private and only you and the land trust know about the agreement.

Land Trust With LLC As Beneficiary for Privacy and Asset Protection

Although a land trust is for privacy and asset protection, a land trust does not receive the benefits that an LLC or a business does. However, if someone falls on your property and gets hurt, the beneficiary will be held responsible. This is the main reason to use an LLC or a regular business to stand in as the beneficiary of the property. The reason for this is that LLCs and other businesses are protected from something like this happening.

That was just the first reason for obtaining an LLC or other businesses as a land trust. The second reason to do so is because they receive tax benefits. This means that the transfer of the property can be done tax-free.

A third reason to use an LLC is that many attorneys and accountants don't even know what a land trust is in many states. Because of this, you won't have to worry about litigators looking at your property and thinking you have deep pockets. This way, they won't be trying to file a lawsuit against you.

How To Hide Ownership Of A Company: 3 Simple Steps

The main reason you might want to know how to hide ownership of a company is to prevent lawsuits.

I'm going to talk about the concept of anonymity, and one of the most effective tools for maintaining your anonymity is the Anonymous Trust. When set up correctly, the anonymous trust can be extremely effective at hiding ownership of your company—which in turn prevents you from being sued.

Here are three simple steps you can follow to hide company ownership and prevent lawsuits.

Step #1: Form an Anonymous Trust For Your Business

The Series LLC reduces your liability exposure, which effectively limits the potential damage a lawsuit can do to you. What it doesn't do is stop the lawsuit from happening in the first place. On the other hand, an anonymous trust can. If you truly want to make your company litigation proof and protect your assets, you need an anonymous land trust.

The probability of a lawsuit happening is based on three separate components: legal, factual, and financial. An anonymous trust will attack each of those motivating factors. What this does is reduce the chance of a lawsuit happening in the first place.

Step #2: List Your Anonymous Trust as a Member of Your LLC

Yes, believe it or not, you can do that, at least in America. (You have several options when it comes to structuring your business assets.) Anyway, this tactic targets the financial component of a lawsuit.

Why?

Because lawsuits only happen when a plaintiff believes they have a reasonable case for seizing assets to cover damages. If there's nothing they think they can seize from you, they won't sue you.

The anonymous trust structure enables you to hide company ownership by listing your company as a member in your LLC’s Articles of Incorporation. Another advantage of an anonymous trust is that you don't have to file it with the state. This means the people who want to sue you won’t be able to access your ownership information in the public records.

There will be nothing to associate the assets with your name, shielding you from potential legal action.

Note that you can use this strategy with any type of LLC, including the Series LLC.

Step #3: Allow Uncertainty to Work Its Magic

People sue you because they want your money. Most of the time the people suing you have little to no money in the first place. And if they don't have enough money they can't pay a lawyer to sue you.

People usually get around this obstacle by offering their lawyers part of the settlement. This means it's up to the lawyer whether or not you get sued.

If a lawyer is uncertain about whether you own assets worth anything, they won't waste their time trying to sue you. After your anonymous trust is in place it will be next to impossible for someone to determine what you own.

No lawyer is going to spend months or years trying to figure out what you own, period. I would know, I'm an attorney myself.

I hope you enjoyed this article. If you want to hide company ownership, make sure you do it right. To learn more about setting up an anonymous trust, visit our Land Trust hub or take our investor's quiz and find out if engaging with us is a good option for you.

Introducing The Anonymous Trust LLC

One day you're living life, enjoying the profits from your real estate investments. The next day you're trying to figure out how you got sued. That's life.

And that's why creating an anonymous LLC for your business is so important.

One in Four Americans Will Be Sued

According to a Clements Worldwide study, Americans face the greatest risk for being sued. The risk is even higher if you own real estate. Are you willing to roll the dice on your future? Investing in real estate without asset protection is like betting against the house. You might come out on top, but you're more likely to lose everything.

Asset protection was a tool of the rich for generations. Regular folk usually weren't aware of strategies to protect wealth (such as the anonymous trust LLC), or they were unable to afford it. Today these techniques are accessible to everyone, thanks in large part to the introduction of two new legal structures.

The Series LLC Structure

In the past, investors held companies under their name or a single entity. This created a jackpot scenario, where successful litigators could access the person's entire wealth. Savvy investors would spread assets between multiple entities, but creating and maintaining a host of businesses proved too expensive for most.

The series LLC changed the way assets are held. It makes it possible to spread assets across multiple holding companies, but reduces the filing and management expense to that comparable with a single LLC. For more information, learn the basics of the LLC structure.

The Anonymous Trust LLC Structure

The problem with a series LLC is that you can still be sued one property at a time. It doesn’t make you invisible. This is where an Anonymous Trust LLC comes into play.

Using a trust in this manner allows you to hide the ownership information of your company, including its assets. As a result, plaintiffs are unable to identify you or target you based on whatever juicy assets may be ripe for the picking. That information is invisible.

A Lawsuit Can Affect More Than One Property

Just because your assets are wrapped up in a traditional LLC doesn’t mean you’re protected. Unlike the series LLC, where your assets are spread out individually, a traditional LLC groups assets into one basket. While there are some legal benefits to a traditional LLC, it still leaves you vulnerable to attack.
In any case, here's a short list of what you should and shouldn't do.

Asset Protection "Do"s and "Don't"s

1. Don't Hold Property Under Your Name

Individuals have the least protection of any entity. Maintaining ownership status as yourself is the worst possible scenario and leaves you open to the maximum level of risk. A simple mishap, such as someone slipping while on your property and being denied insurance coverage, could result in a devastating legal battle and even wipe out your life savings.

It’s essential to create a company structure to hold your assets separate. This will make your legal person litigation bullet proof.

2. Don't Hold All Property in a Traditional LLC

While this is a much better scenario than personal ownership, it still leaves you exposed to losing everything under the LLC’s ownership. Which means you could lose all your assets, not just one.

A series LLC, on the other hand will offer twice as much protection.

3. Don't Leave Yourself Exposed Because You’re A “Good Person”

Lawsuits have nothing to do with whether you mean well. Instead, most lawsuits are based on accidents and misunderstandings, not fraud or malicious intent. The purpose of asset protection is to provide coverage when things don’t go as planned. Ask yourself: “Would I be comfortable giving them access to my bank account or credit card?”

4. Do Get Professional Legal Advice

It's hard to tell if your LLC was filed correctly, but there are some common areas that account for the majority of mistakes:

Was the LLC properly formed and maintained (requires an operating agreement and yearly state filings)?
Did you properly sign for all the contracts and business dealings?
Have you filed the appropriate franchise taxes to maintain good standing?
Are all records, including accounting and banking information, current and accurate?

A single technicality can invalidate your protection, which is why we always recommend consulting a specialist in the field.

Insurance Won’t Protect Your Investments

Insurance companies are in the business of collecting premiums, not protecting their clients. They routinely look for ways to deny coverage as a way of lowering their costs.

It’s always a good idea to have an insurance plan, but you shouldn't assume they will pay by default. There are a variety of ways your coverage can be reduced or denied. These range from state and local policies to your payment status or specific instances surrounding your claim.

Are You Sure You Can Count On Your Insurance Company?

Successful investors are experts and managing risk. Purchasing insurance is a good example of this, but having a Plan B takes things to the next level.

Let’s go through a fictional scenario. Imagine one of your newly acquired properties has a rotting staircase and someone accidentally trips and breaks their toe.

Most people would expect the insurance company to cover this unfortunate incident, but this time the insurance company fights back. They claim you exhibited gross negligence and are individually responsible for your guest’s injury.

This lands you in a tricky situation. The best case scenario is to endure a series of stressful negotiations and come out on top. Unfortunately, this doesn't always occur and you could be left holding the bag, exposing your life savings and assets in the process.

Smart risk management requires good up front decision making, such as purchasing a solid insurance plan. But it also includes having a plan for when tragedy and the unexpected strikes. In this case, it means not only carrying insurance, but protecting yourself from potential failure of your insurance.

You Can Be Fully Protected Within A Week

Did you know it's possible to create a scalable company plan in as little as a week? This plan includes both the company setup and the transfer of properties to the new legal structure, and the benefits are legion.

Compared to traditional structures, our asset protection plan provides a layered defense against lawsuits. Not only do we split your assets across various holding companies, but we veil your wealth in anonymity. This strategy makes you unappealing to most would-be plaintiffs and makes your assets inaccessible to the rest.

Most people struggle to pay the upfront costs of a lawsuit and agree to split the winnings with their attorneys. An asset protection plan for Royal Legal Solutions costs less than the typical attorney fees for a single lawsuit and lasts for a lifetime.

Lawsuit prevention is important, but cobbling together a complex network of business entities can be difficult and expensive. Each LLC requires its own filing expenses and management. It adds up fast and the maintenance doesn't scale. Compare that to our custom solution, which provides no hidden costs and comprehensive service. If you want to learn more, contact us today.

Can A Land Trust Borrow Money to Buy Property? Finance Your Next Investment

There are many advantages to setting up an anonymous Land Trust for your real estate investments. Did you know that you also can use these trusts to borrow money to buy additional property?

In this article, we will examine the advantages of a Land Trust mortgage and how to obtain one.

What is a Land Trust?

Over in our Tax, Legal, & Asset Protection Secrets For Real Estate Investors mastermind group, you'll hear me recommend this type of asset protection pretty often, but before we go much further, let’s make sure we are clear on some definitions.

A Land Trust is a legal entity that has control over a physical property and other real estate-related assets at the instruction of the property’s owner. As a living trust—one that is created during your lifetime—a Land Trust is typically revocable, meaning it can be amended or terminated at any time.

A Land Trust can protect both your assets and your privacy and prove to be a valuable part of your estate plan. Let’s say you own an investment property. If you deed the property to the trust, your name comes off the property deed as the owner, and the trust becomes the owner.

The terms of a Land Trust can be unique to the type of real estate it owns. You, as the grantor, then choose someone, called a trustee, to make sure your instructions in the trust agreement are carried out to benefit your heirs (beneficiaries). The trustee can be a friend or a relative, your attorney, or a professional appointed from a financial institution.

Unlike a will, which is a public document, a living trust is private. No one can know the details of your Land Trust other than the trustee.

What Is A Land Trust Mortgage?

Now, let’s say you want to borrow money to make improvements or preserve assets that are held in a Land Trust. Or maybe you need to refinance a property held in the trust. As long as the trust is revocable, you can apply for a mortgage.

Not all lenders extend loans on trusts, so your first step is to notify the lender that the property is included in a trust and provide them with a copy of the trust agreement. If the lender is on board, you’ll next need to check the trust deed to determine if the trust allows the trustee to take out a mortgage on the property. (It is not always the case.) You’ll also need to confirm that the trust allows the property to be used as collateral or security for a loan.

How to Obtain Financing Through Your Land Trust

If the trust does allow the loan, the trustee will need to sign the mortgage or a promissory note. The note stipulates that the trust will be responsible for paying back the loan and that the refinanced property will be used as collateral for the loan. If the trustee won’t be signing personally, you will have to apply for the loan and sign the guarantee or the note.

If the trust doesn’t allow for the loan, the trustee cannot sign the mortgage. If the property can still be used as collateral, however, the lender may require you to re-title the property. This requirement means you will have to take the property out of the trust and return it to your personal ownership before you can take out a new loan.

This process requires the preparation and recording of two deeds with your county recorder or registrar. One deed takes your property out of the Land Trust, and the other one puts it back.

Some lenders will accomplish this deed paperwork for you, or you can ask your attorney to handle it. Your attorney should then draw up a document that states the property can be used as collateral on the new loan.

Suppose your property is already in a Land Trust and you want to borrow against the beneficial interest. In that case, the lender must serve a Notice of Collateral Assignment on the trustee. Then the trustee will write an acknowledgment of the assignment. When this situation occurs, the trustee cannot transfer the property’s title in the trust or encumber or mortgage it without the lender’s written consent.

Now, here are the five steps the lender will take before granting the loan.

The lender will review the trust instrument, also called a deed of trust.
The lender will confirm the identities of both the grantor and trustee.
The lender will establish whether the trust grants the trustee power to borrow money and pledge or encumber trust assets.
The lender will determine if the trustee needs to sign a trustee certificate to stipulate the trust’s terms and confirm the trustee’s authority to apply for a loan.
The lender will require the deed on record as legal evidence that the trust actually owns the property. (You’ll need to provide the deed on record for this step.)

Advantages of Land Trust Mortgages

Borrowing money on property held in a Land Trust gives you more options than a conventional loan can provide. In addition, selling property held in a Land Trust to current tenants is often more secure and less risky than conventional sales.

In addition to maintaining your privacy as an investor, you also can avoid transfer taxes because the sale of a beneficial interest in a Land Trust does not involve the property itself. Another advantage is that tax assessments are lower because the sale price of the property is not publicly available for real estate assessors to view. You also can skip lengthy and costly probate procedures after the death of an owner.

What About The Due On Sale Clause?

Many investors worry that they will sacrifice their anonymity by triggering the due on sale clause if they finance a property purchase through a Land Trust. This clause in a loan or note states that the full balance of a loan may be called due upon sale or transfer of ownership of the property used to secure the note.

It's important to understand that banks rarely invoke the due on sale clause if mortgage payments are being made regularly on a property. After all, banks profit from your mortgage payments.

You are able to transfer your property or obtain better financing for an investment property without the worry of triggering this clause. Here are the basic—and perfectly legal—steps to take.

Consult your lawyer.
Buy property in your own name for optimal loan terms.
Transfer your property into a Land Trust.
Move the property from the trust to an anonymous LLC.

I like to encourage my clients with this advice–a Land Trust is simply a tool for an investor. You can use this tool to protect your anonymity, prevent frivolous lawsuits, or manage certain pieces of property. Yes, an unethical person can use a Land Trust in a dishonest way, but that reveals more about that individual’s integrity (or lack thereof) than it does about the Land Trust as an investment entity.

Finally, if you’re seeking to obtain a loan against your Land Trust assets, you’ll need the advice of an expert trust administration attorney. Our dedicated professional team at Royal Legal will prevent you from taking any action that might harm the assets of the trust.

Note: You also may be interested in our article about S Corp distributions here.

Land Trust Mortgages: How To Borrow Money Using a Land Trust

I’ve been harping on for years about the importance of setting up a land trust for your real estate investments. Today I want to touch on one of the issues many real estate investors struggle with – how to borrow money using a land trust.

There are times when you may want to borrow money to make improvements or preserve assets held in a land trust. There may also be a need to refinance the property at some point. You need to make sure that the trust has the power to borrow money. It may not always be the case and this is normally covered in the trust deed.

Let me get right into the mechanics of it all.

What Do I Need to Get a Mortgage Loan Using a Land Trust?

The first step you’ll need to take is to have the trustee sign the mortgage or note. However, you will need to apply for the loan and sign the guarantee or the note since the trustee won’t be signing personally.

Alternatively, if you have your property in a land trust already and want to borrow money against the beneficial interest, then the lender will need to serve a Notice of Collateral Assignment on the trustee. The trustee will then write an acknowledgment of the assignment.

When this happens, the trustee is no longer able to transfer title of any property held in the trust or encumber or mortgage the property without the lender’s written consent.

Here are the five things the lender will be looking for when granting the loan:

The lender will need to review the trust instrument.
The lender will need to confirm the grantor and trustee identities.
The lender will need to establish whether the trust grants the trustees power to borrow money and pledge or encumber trust assets.
The trustees may be required to sign a trustee certificate reciting some key terms of the trust and confirming the authority of the trustees to take out a loan.
The bank will need evidence that the property is actually owned by the trust. For this, you will be required to provide the deed on record for review.

If you’re seeking to obtain a loan against trust assets, you need to consult with an expert trust administration attorney. You do not want to take any action that might potentially harm the assets of the trust.

You may also be interested in our article that answers the question, "Can I take a loan from my S Corp?"

Preserve Anonymity by Using a Land Trust to Buy and Sell Real Estate

Do you want to buy or sell real estate properties? Using a land trust is a good idea because it protects your interests. A land trust is a legal entity that holds a title to real property in a name other than its own.

Owning real estate is an excellent way to make money. But the taxes and the fees you have to pay for it are often high. You can avoid these costs by using something called title insurance. When you own more than one property, you may have to pay these fees repeatedly as time goes on. But there is a tool that can help you reduce that cost. Read more here to find out when the best time is to set up a land trust.

There are three primary kinds of land trusts, each with its structure and way of working. These include a real estate investment trust, a conservation trust, and a community trust.

A real estate investment trust is an organization that buys the property. The trustee, in this case, is a legal entity that works on behalf of the beneficiaries.
A conservation trust is a private, nonprofit organization that buys the property and builds easements to stop people from developing certain areas.
A community trust is a group of people who want to acquire low-cost housing. They buy the land and build the home, then sell it for a lower price.

Do you want to learn more about the hows and why of a land trust? Check out "The How, The Why, and The Basics of Land Trusts."

Remaining Anonymous Is One Of The Many Advantages

You might be worried about other people coming to your door to sell you something, or you don't want real estate investors contacting you--leveraging the anonymity of a land trust is ideal. You can put your property in someone else's hands.

In real estate, it can be hard to avoid sales calls from companies. To prevent this, you might want to remain anonymous so people won't find you. The trustee is not allowed to tell people your name unless a court says that they can. The anonymity will help you avoid people who might disrupt your day.

Your Property Is Protected From Liability

Being a real estate investor makes you an attractive target for lawsuits. People who want to litigate will know how much you paid for your properties and use that information to gauge your wealth. It may be that those people will use that publicly available information to take money from you by filing a lawsuit against you.

A land trust is an excellent way to keep people from finding out how much money you have. It is important to remember that a land trust will not protect you from every person, but it will help.

Prevent The Due-on-Sale Clause

When the lender chooses to sell the property, they can use the due-on-sale clause to collect the entire outstanding debt of a property holder. This clause might prevent you from making investments with the flexibility you require as a real estate investor. A land trust prevents you from having to pay the total amount due on sale.

However, this is not a rule for everyone. There are limits to it:

commercial property
properties with more than four residences

It's Simple To Transfer Property Ownership With A Land Trust

A land trust is when you give someone else your property. When both the grantor and beneficiary are still alive, then it is simpler to transfer. Some jurisdictions might use a land trust for tax reasons.

Should you need to change your company or break it down, it will be easier to put the land in the hands of a trust.

You Can Use A Land Trust To Sell Real Estate

There may come a time when you need to sell land held in a trust; the procedure will be the same as when selling a non-trust property. The only difference is that people will see the name of your trust instead of your given name.

When the time comes to sell your property, you need to study the trust agreement. You can sell assets of a trust if the trust agreement allows for the sale.

You will want to answer the following questions before selling with a land trust:

Do you have the legal right to sell this property?
What happens when a land trust sells real estate?

Do You Have The Legal Right To Sell This Property?

Sometimes there are many titleholders in a land trust, so it might be hard to sell all assets. The trustee will negotiate with other people in the trust, sometimes buying out someone else's share for an acceptable price.

However, people can't buy your property if they don't know who you are. In the case where the trust is only one person's property, then it doesn't matter, and you can sell off all your assets without anyone stopping you.

What Happens When A Land Trust Sells Real Estate?

Like any other real estate investor, a seller strives to achieve the highest possible price on each transaction.

The money is converted into a personal property trust when a transaction is completed. Then, the land is transferred from the trust to the new owner. It protects the funds for the beneficiaries while maintaining everything as it was before.

Final Thoughts

We hope this post has helped you to learn more about investing your money in land trusts. You have worked hard, and it is essential to keep your money safe. You can make sure that you keep your money safe and make a profit by investing in real estate through intelligent use of land trusts.

When you decide the time is right to use a land trust for your property investment, talk to a lawyer with experience with this kind of agreement. Finally, if you still have questions about land trusts, check out our detailed Land Trust FAQs.

Five Commonly Believed Land Trust Myths Dispelled

A land trust is a legal entity that is designed to protect the land from creditors. It does this by keeping land out of the owner's name and placing it in the land trust's name. Real estate investors have used these structures since the late 1800s when investors bought the land up left and right.

Savvy real estate investors created land trusts as an asset protection tool for wealthy landowners who were worried about losing their land due to lawsuits or other factors that could lead to bankruptcy. There are many misconceptions about these entities that people believe are true because they have repeatedly heard them—even though they aren't based on any facts!

In this article, we will explore five myths about land trusts and dispel them once and for all.

Myth #1: Land trusts are too expensive for real estate investors to use.

This is entirely false. While wealthy landowners have used land trusts in the past, there is no reason why real estate investors can't use land trusts today. Land trust registration fees are much lower than you might think!

People fail to understand that these trusts are not only for the wealthy landowner—this couldn't be further from the truth. Anyone can use a land trust to protect their land, no matter how much money they have in assets.

Do you have questions about setting up a land trust? Check out our article about the basics of land trusts. We answer the "how" and "why" of what you need to set one up to protect your assets.

Myth #2: Land trusts are a scam.

Land trusts have been around for over 100 years, and there is no evidence that they are a scam. They cannot be used for fraud or land grabs when land is being purchased. In addition, land trusts work if you buy with a spouse/partner.

Land trusts involving real estate are not always used by landowners alone. Many land trusts involve more than one landowner or even spouses/partners who must own the land together. The belief that only a single person can buy into a land trust is a persistent misconception that stems from the fact that some land trust providers don't allow multiple names on their forms.

This is easy to get around—write an addendum! Addendums are additional documents that can be used to modify an existing document such as a land trust. For instance, you could add information that would protect against tax liens or judgments in the land trust agreement itself.

There are multiple benefits to leveraging a land trust. We invite you to research those value-added benefits further here.

Myth #3: Land trusts are too tricky to set up.

Many land trust providers have excellent customer service, making it easy to get the land in your name, out of your name, and into a land trust.

An associated misunderstanding is that land trusts must be a specific size—some people believe that if your land doesn't meet a minimum requirement, land trusts won't shield it from creditors. That is not true either!

Maybe you have heard that land trust documents require a lot of paperwork and filings—false again! While it does take some time every year or two to update land trust documents, it's not nearly as strenuous or time-consuming as you might imagine.

Myth #4: Land trusts are only for large land purchases.

This isn't true! Many land trust providers have an option to choose which parcel of land you want to protect, so it's possible to register one on land parcels that range in size from one acre up to thousands of acres.

The misconception is that land trusts are only helpful for wealthy landowners—while the upper class initially created land trusts, anyone can use them today! They offer asset protection to real estate investors who want to keep their land protected from

Moreover, some people think that land trusts don't protect real estate assets from lawsuits or creditors—this myth stems from the fact that land trusts are not always public knowledge.

As a real estate investor, you can structure land trusts to ensure the landowner's name is never publicly available. This doesn't mean land trusts don't protect the land from lawsuits or creditors—they do!

Do you think that you may need to set up a land trust? Find out if you are eligible and can benefit from setting up a land trust.

Myth #5: Land trusts are only for land.

Another common misconception about land trusts is that they can only protect the land. This isn't the case at all! You can own almost anything under a land trust today. These structures have become more common in recent years, so the costs have gone down significantly.

Conclusion

In conclusion, land trusts are not scams or land grabs—they're fundamental, valuable tools that can be used to asset protect your land. They are not only for the ultra-wealthy but also for real estate investors.

They can help investors to protect the land from creditors, lawsuits, and other land problems. There are many myths about land trusts that can be dispelled with simple research!

Still, have questions? Check out our land trust FAQs for your answers.

Should Rental Property Be in an LLC or Trust?

Should rental property be in an LLC or trust? Unfortunately, the answer is not as straightforward as you might think.

Whether you’re planning your will or setting up a company to manage your growing real estate portfolio, you need to know exactly what type of entity you should use to shield your properties from legal trouble. If you make the wrong decision, you could potentially expose your holdings to unnecessary risk, costing you hundreds of thousands of dollars down the road (or, at the very least, giving you a big headache).

So, first, let’s start with a basic definition of "LLC" and "Trust" as they apply to real estate investing.

(If you just want the pros and cons of each option, feel free to scroll down to the bottom of this article).

Why Use an LLC to Hold Your Rental Properties?

An LLC is a limited liability company.

It’s one of the most popular legal entities that a person can set up to operate their business. You don’t need any employees or a board of directors, and you can use it to separate your business assets from your personal finances. That way, if you ever find yourself on the losing side of a lawsuit, the only assets you’ll be forced to give up are those assets held within the LLC (in this case, your rental properties).

If someone sues you and wins, they can’t take away your personally-owned assets (like your car, primary residence, and your kid’s college fund).

Sounds like a pretty sweet deal, right? You could theoretically make some risky moves with the assets you put under an LLC and then dissolve that LLC in case you get into any trouble. The only risk is the asset, right?

Well, not so fast. There are some instances when your personal assets might be at risk, and you definitely shouldn’t start an LLC for the sole purpose of doing something nefarious.

When Does an LLC Fail to Protect Your Personal Assets from Lawsuits?

There are a few instances when, if you use an LLC to hold your rental properties, you’d be putting both your rental properties and personal belongings at risk. Those instances include:

You make a personal guarantee on a debt. When you sign a contract for certain loans, including, in some cases, mortgages and home equity loans, you might have to make a personal guarantee to pay it back. That means that you’re on the hook to pay down the debt even if your business doesn’t perform. Lenders will often require you to make a personal guarantee if your LLC doesn’t have a long-established credit history or cash flow.
You sign a contract with your name, rather than your title with the LLC. Always sign contracts as “John Doe, CEO of Rental Properties LLC,” never just “John Doe.”
You mix up your personal finances with your business finances, or you fail to observe the requirements of your LLC in your state. Keep separate bank accounts and credit cards for your business and personal finances. As soon as you use your business credit card to buy groceries, a lawyer is going to make the argument that you’re using your LLC to protect your personal assets.

Furthermore, an LLC can create a kind of avalanche effect. As soon as one property is attacked under an LLC that holds multiple rental properties, your entire portfolio can take a hit.

Why Use a Trust to Hold Your Rental Properties?

You’ve probably heard about trusts as they relate to estate planning. By putting certain assets in a trust, you can guarantee exactly how and when they’re distributed. This way you can avoid a solid chunk of estate taxes, since the assets in a trust aren’t considered your personal property, or even protect your assets from heirs that are likely to mismanage them.

One solution is putting all of your properties under separate trusts. There are a few different types of trusts: revocable, irrevocable, pay-on-death (POD), and living trusts. For our purposes, we’re just going to focus on revocable and irrevocable trusts.

Revocable trusts allow you to control the assets during your lifetime. These are still considered personal assets, and they’ll be included in your estate taxes.
Irrevocable trusts transfer legal ownership to a trustee, who then oversees the exact details of how the asset should be treated according to the trustors’ will. Since this is no longer technically part of the trustor’s property, it isn’t considered in estate taxes.

What are the Benefits to Using a Trust Versus an LLC?

What are the benefits to putting your rental properties in a trust rather than an LLC?

Just like an LLC, putting your property in a trust can separate your personal assets from your business, so that if you run into legal trouble, you won’t have to forfeit your personal belongings.
It can cut down on estate taxes.
It can distribute liability. If you set up an LLC, you’ll definitely need to buy liability insurance on top of it. Even then, you could potentially lose all of your properties in a single lawsuit. If you put the properties in individual trusts, you spread out that liability.

Should You Put Rental Property in an LLC or Trust?

So, to review, what are the pros and cons of each option?

Putting Rental Property in an LLC Pros

One of the most popular ways to form a corporation. Therefore, it should be easy to file the requisite paperwork and even find guides online to help you with the specifics.
Separates your personal assets from your business assets.

Putting Rental Property in an LLC Cons

You could potentially lose all of your properties in a single lawsuit.
If you don’t follow the requirements for incorporating an LLC (like holding annual meetings and keeping your personal finances completely separate from your business finances), you could open up a lawyer to “pierce the corporate veil.” If this happens, they’ll be able to prove that you’re just using the LLC as a protection from liability while treating it like personal property.
In short, you could open up not only your rental property to potential issues, but your personal property as well.

Putting Rental Property in a Trust Pros

Effectively separate your personal property from your business assets.
By putting each property in its own trust, you can disperse liability.

Putting Rental Property in a Trust Cons

Might require more time and resources.
Less straightforward than simply setting up an LLC.

Estate Planning For An Irresponsible Child

Having an estate plan in place is one of the most important gifts you can give your children. You've worked hard to build up assets that will help them in the future.

But a difficult question that is on the mind of many investors we work with is, "How can I prevent one of my kids from wasting their inheritance?"

Your concern may come from your child's reckless overspending, or your worries could be rooted in your child's history of substance abuse or destructive relationships. This article will offer tips for estate planning for an irresponsible child.

The Living Trust: Your Bulwark Against Irresponsible Behavior

Although a will lays out how your assets will be distributed, a trust is often a better option for many families. A trust is a valuable estate planning tool that allows you to deposit assets, including cash, property, and other investments, into the trust account during your lifetime.

There are two main types of trusts – testamentary and living. A testamentary trust is created after your death by your will, while a living trust is established during your lifetime.

A living trust is usually revocable, meaning it may be changed during the trustor's lifetime, and it becomes operational at the trustor's death. Unlike a will, a living trust does not have to go through probate court. Your assets can be passed immediately and directly to your named beneficiaries.

How is a trust a solution for an irresponsible heir?

When you create a trust, you give another party (your trustee) the authority to handle your assets for your beneficiaries' benefit. You can select a trusted friend or family member to serve as your trustee. Your trustee could also be your attorney or a financial institution.

Understanding living trusts is an important way to protect your assets from misuse. While your assets are in the trust, they are safe from a beneficiary's irresponsible spending and any other relatives or in-laws who may want to misuse your assets.

Different Ways to Structure A Trust

Trust assets may be distributed to your children with regular installments giving you a level of control over their use. Depending on your financial and family situation, there are several different ways to structure a trust.

Age-Based Trust. You can set up the distribution of the trust based on your child reaching a certain age.
Annuities. With this type of trust, the inheritance is distributed over time based on a schedule that you establish.
Incentive Trust. Also called a Pay for Performance Trust, this type allows you to set conditions your children must meet in order to obtain their inheritance. It could be earning a degree, achieving specific life goals, or whatever you deem appropriate.
Income-Matching Trust. This type of trust matches annual distributions to all or part of your child's earned income.

You also can use a trust to provide non-monetary assets for your heirs. You could place a home in a trust, for example. However, since we're on the subject of irresponsible children, you might want to place the home in a trust that stipulates that any money from its sale must be reinvested in another house.

The Spendthrift Provision

Another answer to the problem of estate planning for an irresponsible child is to include a clause known as the "spendthrift provision" in your trust. A spendthrift clause limits the transfer of a beneficiary's interest in the trust assets.

A spendthrift trust directs the trustee on how to distribute the beneficiary's entitlement. Limitations might include paying only for a beneficiary's basic living needs or making only limited payments directly to the beneficiary.

A spendthrift trust might be useful if the beneficiary has a history of

mismanaging money
having addictive behavior
being easily deceived or defrauded
falling into debt with creditors

Each spendthrift clause is written according to the trustor's specific preferences. For example, the clause can include protection of the trust assets if your child goes through a divorce. In some cases, the trustee of a spendthrift trust can cut off benefits to a beneficiary. The benefits could be distributed to that child later or paid to another beneficiary instead.

The trust document can also spell out that the trustee only makes payments on the beneficiary's behalf and may withhold direct payments of cash from the beneficiary.

Individual states vary on the extent of the protection they allow under a spendthrift clause. For example, some states allow creditors access to a trust with these clauses. Some state laws also allow for alimony or child support payments under the provision.

For the strongest protection, aim to be as specific as possible on the conditions under which your assets are to be distributed. Here are two examples:

Distributions will be made only if your child is gainfully employed or making steady progress toward becoming gainfully employed.
Distributions are not to be used for certain items, such as a car, unless the beneficiary has the means to pay for the vehicle's upkeep.

The spendthrift provision must be worded very carefully to avoid placing the trustee in a difficult situation. An overly strict clause could prevent your child from obtaining money when there is a genuine need. On the other hand, a too lenient clause leaves a trustee having to deal with an angry heir demanding their assets.

How to Set Up a Spendthrift Trust

Your lawyer will help you create a spendthrift trust that fits your particular needs. Here are some questions you should be ready to answer:

When and under what circumstances do you want the trust to end?
If a beneficiary's circumstances change, what should happen to the trust principal?
Do you want to allow for special payouts if the beneficiary faces large expenses, such as a prolonged illness or college tuition?

You've worked hard to provide for your family both now and in the future. No one wants to think about their money disappearing in a few years due to an heir's reckless spending or poor lifestyle decisions. A spendthrift trust can offer you a combination of protection and freedom.

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Using a Power of Attorney With a Land Trust

Using a power of attorney with a land trust is a good idea.

A power of attorney, or a POA, allows someone to act on your behalf. This is a good thing to have in case you are out of town or you are unable to act when the need arises.

You may think of a power of attorney as something for your elderly family member who cannot do anything for themselves. However, a POA is also good for those who are running a business and who might be out of town when an action is required.

If you have a land trust with someone close to you, you may need a power of attorney in case you are out of town and need someone to sign documents for you or act on your behalf. Generally, a power of attorney is not designated for a trust. However, there could be cases where you want to name the same person as your trustee and as your attorney-in-fact.

Are Land Trusts Still Effective?

Land trusts are often the unsung heroes of the real estate investing world. You can use them to control assets rather than own them yourself. The land trust is also called a “title holding trust” because that’s it’s main job: hold title to the property in your place. You still get to stay in control of any property associated with your trust, and of course, any earnings generated.

Land trusts can form a critical part of your asset protection strategy; in fact, we prefer creating them anonymously. This type of revocable trust takes the critical first step in asset protection: stripping the title out of your name.

If your attorney tells you that land trusts are not as effective as they once were, they are not educated enough on land trusts. Most attorneys don't know enough about land trusts for them to give you advice on using one. They most likely didn't get this education in law school. Land trusts are just as effective as they once were, if not more effective these days.

What States Are Land Trusts Used In?

Land trusts are only used in six states as of now. These states include Illinois, Florida, Virginia, Indiana, Hawaii, and North Dakota. These are the only states that have statutes for land trusts right now. This may be why many attorneys don't know enough or, if anything, about them currently.

Who Should Have Power of Attorney for the Land Trust?

When choosing the best person to use as your power of attorney, trust is what matters. It might be your closest friend or family member. However, if you don't want to use an individual for your land trust, you also have the option to use an institution (which will usually charge you a fee).

So, in short, it is a great idea to use a power of attorney for your land trust in case you need documents signed and you are either unable to do this because you are in the hospital or out of town on a business trip.

Hopefully, these questions and answers helped you learn a little more about land trusts and you are more educated on this effective tool for real estate investors.

Interested in learning more? Check out our articles Do I Need a Durable Power of Attorney? and Do I Need a Medical Power of Attorney?

Land Trusts For Estate Planning Can Avoid Probate... But What Are The Disadvantages?

You worked hard. You saved money to pass on to your heirs.

The LAST thing you want is for them to pay legal fees to obtain it after your death. You also don’t want your family members to experience stress while they wait to find out who gets what from your estate.

One way to avoid the expenses and delays of these legal proceedings (called probate) is to create a type of living trust called a Land Trust.

What is a Living Trust?

A living trust— also known as an “inter vivos” trust, which translates from the Latin to mean a trust that is created “between the living”—places your assets in a fund that is managed by a trustee of your choosing for the best interests of your beneficiaries.

As an alternative to a Last Will and Testament, which distributes your assets after your death, a living trust bypasses the time and expense of probate because your assets already are dispersed in the trust. In addition, living trusts offer other advantages, including privacy in situations where the state requires the filing of an asset inventory and immediate access to income and principal by your beneficiaries.

While a living trust can hold any type of asset, a Land Trust is a type of living trust designed specifically for real estate-related assets. A Land Trust can hold physical properties, mortgages, air rights, notes, and other types of property assets.

The property owner is the beneficiary of most of these anonymous trusts, meaning the owner controls how the property is managed and retains all of the property rights, including developing, renting, and selling it. Land Trusts are generally considered to be revocable trusts, meaning that the owner can amend or even terminate them at any time.

What Are the Benefits of a Land Trust?

In addition to avoiding probate, there are other possible benefits of making a Land Trust part of your estate plan. A land trust offers:

privacy of ownership and non-resident ownership
limited exposure to liens and judgments
insulation from potential hazards of individual ownership
transfer and use of beneficial interest as collateral
prevention of separation of the land
protection in the acquisition, development, and operation of residential development
agricultural land-use protection

What Are the Disadvantages of a Land Trust?

A Land Trust does not protect property owners from all potential liability, and it does not offer privacy in all cases. Also, the IRS requires that all trusts, including Land Trusts, file Form 1041.

Here are three potential pitfalls of setting up a Land Trust.

Redemption rights allow homeowners to reclaim their property before and, in some cases, after foreclosure. This right is lost if the property is purchased under a land trust and you are the beneficiary.
Homestead exemptions, which protect your property from taxes and creditors in 48 states, are forfeited with a land trust.
A land trust disqualifies you from secondary market loans. In the secondary mortgage market, lenders and investors buy and sell home loans and servicing rights.

When is Best Time To Set Up A Land Trust?

If you have decided that the benefits of a land trust outweigh any potential disadvantages, your first step is to choose your trustee. The trustee can be a friend, family member, or institution, but make sure it is someone you trust.

Next, setting up a land trust requires two primary documents—a deed to trustee and a land trust agreement. After you have chosen your trustee, you will need to draw up an agreement that satisfies all parties and complete and sign the documents.

You can keep your ownership private by forming a land trust with either a private trustee or an institutional trustee just before closing on the property. By keeping your name off the permanent property records, you will protect your property from creditors who might use the Uniform Fraudulent Conveyance Act to gain your assets.

A land trust trustee should be exempt from personal liabilities related to the land trust’s debts and obligations. However, not every state views land trusts in the same way. Your trustee should research their state laws so that they are clear on their liability before they sign a land trust agreement.

Royal Legal Solutions will work with you to construct a trust agreement and file the right paperwork on behalf of your land trust. If you choose us your “nominee trustee,” our name will appear on all public records to protect your anonymity. After filing the paperwork, we will then transfer the trustee title back to you.

The professionals at Royal Legal Solutions are experienced in assisting with land trusts throughout the U.S. and Canada.

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Is A Grantor Trust Right for Your Estate Plan?

When you’re building your estate plan, one goal is to minimize the tax burden for your heirs. One tool to accomplish this is a grantor trust. In this article, we will examine these types of trusts, including their pros and cons, for your long-term financial plan.

What is a Grantor Trust?

The term "grantor" describes the person who creates a trust and owns its property and assets for both income and estate tax purposes. Therefore, a grantor trust is a living trust in which the grantor is treated as the owner of all portions of the trust.

A grantor needs to have one of the following powers for a trust to be considered a grantor trust.

The power to revoke or amend the trust
The power to borrow or substitute assets from the trust
The power to distribute trust income to the grantor or the grantor’s spouse
The power to add more beneficiaries to the trust

The grantor usually is a trustee and beneficiary of the trust’s income and principal. This income from a grantor trust is taxable to the grantor and should be listed on the grantor's personal tax return.

The IRS allows grantor trusts to file taxes under the grantor’s personal Social Security Number (SSN) rather than a separate Tax Identification Number (TIN). A married couple who files joint taxes and who share the grantor’s trust powers may use either spouse’s SSN to file taxes for the trust. Grantors may request a TIN for the purpose of privacy. The trust will need to apply for its own TIN upon the death of the grantor(s).

What is a Non-Grantor Trust?

A non-grantor trust is simply any trust that is not a grantor trust. That means that in a non-grantor trust, the person who established the trust has given up all right, title, and interest in the principal.

Only the trustee has the legal right to revoke or amend a non-grantor trust. Also, the grantor cannot serve as a trustee or as a beneficiary of the trust and cannot have any remainder interest in the trust.

The IRS requires a non-grantor trust to have its own TIN. As a separate tax entity, non-grantor trust must pay taxes on all income received.

What is an Intentionally Defective Grantor Trust?

Despite its ominous-sounding name, an intentionally defective grantor trust (IDGT) refers to an irrevocable trust where the grantor pays the trust’s income tax bill during their lifetime.

The grantor does this by making an irrevocable gift of property into a trust -- typically set up for the grantor’s children -- and names someone else as the trustee. In an IDGT, the grantor retains the right to substitute other property of equal value for the initial property.

The grantor of an IDGT must obtain a TIN and file an IRS Form 1041 with trust income reported every year. However, unlike with a standard grantor trust, a typical IDGT is not subject to estate tax upon the grantor’s death. Instead, the grantor pays a gift tax on the value of the property when it is transferred into the trust.

Are Land Trusts Seen As Grantor Trusts?

A Land Trust is a private legal agreement in which the trustee agrees to hold title to a piece of real estate for the benefit of another person (the beneficiary). The individual who establishes the entity is called the grantor.

For the most part, Land Trusts are structured as grantor trusts and are considered to be disregarded entities. A disregarded entity is an LLC or trust that is “disregarded” in the sense that the IRS does not recognize it as a separate taxpayer.

In other words, disregarded entities do not pay tax and do not file a tax return. Instead, the owner of the trust must report the entity’s income and deductions directly on their tax return.

Pros and Cons of Grantor Trusts

The main advantage of having a grantor trust in your financial plan is the opportunity to preserve your hard-earned wealth while minimizing the tax burden for your heirs. Typically, you pay less income tax on trust assets at your own personal tax rate instead of at a rate set for the trust.

A grantor trust can also serve to protect your assets against creditors in a lawsuit. You can transfer assets to a grantor trust for long-term care planning, and your assets held in a trust won’t be subject to the lengthy and costly probate process after your death.

On the other hand, setting up a grantor trust assumes that you have the financial resources to pay the income tax on trust assets throughout the rest of your life. A large capital gain inside the trust could significantly increase your tax burden.

Keep in mind that grantor trusts and IDGTs become non-grantor trusts upon the grantor’s death. On December 31 of the year of the grantor’s death, the administrator must obtain a TIN for the trust must then be obtained and become responsible for filing a Form 1041 for this now non-grantor trust.

Should I Set Up A Grantor's Trust?

There is no one-size-fits-all answer to this question. It depends on your individual financial situation. Talking to an estate planning attorney can help you determine whether you would benefit from a grantor trust and which type of trust is best for you and your family.

Without An Anonymous Trust, Your LLC (And Investments) May Be At Risk

When it comes to protecting your property, you should build a castle, not a fence. This is where an asset protection plan comes into play. Think of an LLC's protection as being on par with a fence. It offers you decent protection, but you could do better.

How? By getting an Anonymous Trust. When you compare a trust to an LLC, it's like comparing a castle to a fence. A trust offers superior asset protection you can't get from an LLC alone.

Protecting your assets is about building legal walls. When you get a trust, you're putting up high walls to defend against an attacking litigation attorney. A trust isolates your assets so even if an attorney files and wins a lawsuit against you or your LLC, they can’t get at the prize assets. Poor guys, all that work for nothing!

Why An LLC Doesn't Completely Protect You

Are you a real estate investor with one or more properties held in an LLC? If so, listen up: There are many tricky ways litigators are able to break into an LLC and get access to all your assets—even when the lawsuit pertains to a single property. The LLC will protect the properties from suits against you individually, but a lawsuit relating to the sale or lease of property will go against the owner (the LLC).

In a landlord/tenant dispute or a dispute relating to the sale of a property, the LLC is liable as the owner. If the opposing party is successful in the lawsuit, they will be able to collect on their judgment against the assets of the LLC (as in ALL of your properties). They will be able to foreclose and auction off your properties at a discount until they have collected enough money to satisfy their judgment.

Poof. There went your years of hard work, into the pocket of an attorney.

Anonymous Trusts Stop Lawsuits Dead

The more walls you have, the harder it is for the other side to recover your hard-earned assets and the more likely it is that they will not even bother filing suit. Lawsuits are a three legged stool, and a trust destroys one of the legs, which causes the lawsuit to crumble. The three stool legs which support a successful lawsuit are:

Legal liability
Injuries
Recovery

In layman's terms it translates respectively to:

The law recognizes liability either by common law or statute,
The facts show that the party suffered money damages because of the defendant's conduct, and
Assuming that previous two are true, there are assets which we can take from the defendant to satisfy the judgement.

A Trust Makes Attorneys Think Twice Before Suing You

An attorney won’t file a lawsuit without all three legs being in place. Using an Anonymous Trust/LLC combination cripples litigation because it makes the pool of assets for recovery, the third leg of our stool, unattractive. Ten properties held in an LLC makes an attorney drool like a hungry dog. That’s a lot of assets, and likely some equity an attorney can get a hold of.

A single property held in trust doesn’t even get an attorney to the keyboard to type out a petition to file suit. There just isn’t enough equity to recover against.

A Trust Is The Castle Protecting Your LLC's Assets

Let's say you have all your property held in an LLC and want to transfer each of those properties into individual trusts.

The first step toward developing your asset protection plan is to establish an irrevocable trust. You can hold property in the name of this trust instead of your LLC or personal name. Now that the trust owns the property, you or your LLC are merely beneficiaries. This entitles you to the income from the property without exposing you to liability.

In a dispute regarding the property, the opposing party will only be able to collect against the asset of the trust, the trust property, which hopefully has limited equity. Why do I hope that the trust property has limited equity? The lawsuit that is filed against the trust is limited to recovery against the trust property.

If the mortgage on the property is close to the value of the property, then there isn’t enough equity in the property to justify a lawsuit. Remember, the litigation attorney only gets paid after he auctions off the property and pays off all the liens including the mortgage. And it just so happens that there are several ways to hide the equity in your property.

An Auction Can Work In Your Favor

The fees for the auction and the costs in litigation to get it to auction are also subtracted from the equity. In the end, there is hopefully little hope that an attorney and his or her client will make any profit. Same goes for the client, who also pays large litigation fees. If neither the attorney nor the client can make money, they won’t file suit.

Can A Trustee Sell Trust Property To Himself or Herself?

A land trust can be a simple and effective tool for real estate investors who want to maintain privacy in their investments. With a land trust, you appoint a trustee to hold legal title and manage the property for your benefit or the benefit of a third party.

But what happens when trustees take advantage of their positions of power and start using trust property to benefit themselves? Can a trustee sell trust property to himself or herself?

What Is A Land Trust?

To answer whether trustees can sell trust properties to themselves, we need to start at the beginning.

A trust is a type of agreement where someone holds the legal title to someone else's property and manages it to benefit another person.

Here are a few standard terms that will help you understand how trusts work:

The "grantor" is the person who creates the trust and transfers property to the trust.
The "trustee" is the person or organization that holds the property and administers the trust.
The "beneficiary" is the person who benefits from the trust property.

If you place real estate investments into a land trust, you will sign a trust deed that transfers your property’s legal ownership to the trust. When you establish a land trust, you can specify in the trust document how the trustee should manage the property and how to distribute any income generated by the property to the beneficiaries.

Real estate investors use land trusts for various reasons, but the primary advantage is the ability to protect your privacy. When you purchase real estate through a land trust, your name and the price you paid for the property do not become public records like they do when you buy real estate in your own name. You can also use the anonymity that a land trust can offer to keep your identity confidential when making strategic real estate investments.

What Are The Legal Duties Of A Trustee?

The trustee is responsible for holding property title and managing it for the beneficiaries' benefit. (We've also written about the roles of the trustee and beneficiary in case you want to know more). When the trust document includes specific instructions for managing the property or distributing income, the trustee is obligated to follow them. Trustees should ensure that they understand all of the trust instructions and obey them to a "T."

Because of the dependent nature of the relationship between trustees and beneficiaries, trustees have a fiduciary duty to the beneficiaries of any trust they manage. A fiduciary duty is an ethical and legal obligation to act solely for the beneficiary's interests when controlling the trust. The trustee cannot use trust property to primarily benefit themselves or third parties who are not beneficiaries. This responsibility is sometimes called a duty of loyalty.

Self-Dealing

Because of their fiduciary duties to protect the beneficiaries' interests, trustees cannot self-deal. Self-dealing is when a fiduciary acts in their own best interests in transactions instead of in the beneficiaries' best interests. This means that trustees cannot use trust assets in transactions that serve their own interests more than the trust's interests. The trustee should make decisions to benefit the trust—not to benefit himself or herself.

Some of the most common ways that a trustee can self-deal include:

Stealing assets from the trust for his or her own benefit.
Modifying the trust document's terms for his or her own benefit, such as increasing trustee compensation.
Spending trust funds needlessly, such as using money from the trust to pay for unnecessary services provided by the trustee.
Selling trust assets to himself or herself for less than fair market value.

Can A Trustee Sell Trust Property to Himself or Herself?

If a trustee were to sell trust property to himself or herself, there would be a conflict of interest, as the trustee would be both the buyer and the seller of the property. The trustee cannot act in the beneficiaries' best interest by getting the maximum price for the property while also pursuing his or her own interests, which is paying less than fair market value for the property.

Unless the trust document expressly authorizes it, a trustee generally cannot:

Use trust funds to loan money to himself or herself.
Buy or sell trust property to himself or herself.
Sell trust property to another trust that he or she manages.

When the trustee is also a trust beneficiary, that does not change the trustee's obligations to the other beneficiaries.

So the answer to our original question is an emphatic "NO." A trustee cannot legally sell trust property to himself or herself unless the terms of the trust specifically allow it.

Does A Revocable Trust File A Tax Return?

Where legal issues are concerned, the answers to most questions are rarely simple. This blog post provides the full answer (the yes/no, the why, the exceptions and other related issues) to the question: Does a revocable trust file a tax return?

In transferring properties to beneficiaries, avoiding probate is one benefit that makes a revocable trust, also known as the grantor's trust, a better option than a simple will. Therefore, the property owner (the grantor) is saved the hassles of an expensive legal process of distributing the assets of a will (probate).

What Is A Revocable Trust?

A revocable trust a kind of living/land trust where the grantor can alter, amend, or cancel its provisions as they deem fit. The grantor has this power throughout his/her lifetime, after which it will be transferred to the beneficiary or beneficiaries, as stated in the trust. However, before this transfer, all income earned by the trust is owned by the grantor alone. The characteristic of the revocable trust to be solely alterable by the grantor is what makes it a grantor's trust.

What Is A Living Trust?

Another classification of trust instrumental to the question "Does a revocable trust file a tax return" is that of a living trust.

A living trust is a trust that is created while an individual (the grantor) is alive. Like with every other form of trust, a person is chosen to be responsible for managing the grantor's assets for the beneficiary's benefit. Living trusts are either revocable or irrevocable. Living revocable trusts are the point of focus in this post.

Why Use A Revocable Trust?

A revocable trust is an excellent alternative to a will. With a revocable trust, taxpayers can manage their assets and distribute them to whomever they choose as beneficiaries.

A revocable trust is great for estate planning because the grantor does not have to take his/her assets through the expensive and sometimes public probate process in the event of the grantor's death.

Revocable Trust Taxes

The effect of a revocable trust on tax liability is rather interesting. In a revocable trust, the grantor retains the right to receive the trust's income and principal (because of his power to manage his assets).

Consequently, the Internal Revenue Service views a revocable trust as a grantor's trust and, therefore, not a separate entity. The income from a revocable trust is not reported separately; instead, it must be reported on the grantor's personal tax return.

Does A Revocable Trust Need To File A Tax Return?

Having understood the characteristics of the revocable trust, people want to know the tax implications and the question that pops up in the mind of many, more often than not, is "Does a trust need to file a tax return?" A revocable trust or grantor's trust is a land trust, an agreement between two individuals: the property owner and the beneficiary. Before the grantor's death, taxes paid over the assets and their capital gains are made by the grantor. As seen on the Internal Revenue Service website, the grantor has to correctly input the taxes in the Form 1040 if he is the trustee:

The effect of this is that the trust will not exist for tax purposes as long as it remains a Grantor trust.

Taxes After Death

Upon the death of the owner, the trust changes entirely and becomes an irrevocable trust. The closest explanation that can be given for this is the testamentary trust, a type of irrevocable land trust. Once the grantor is dead, his rights over the trust properties are automatically transferred to the beneficiaries.

However, for proper distribution, a trustee specified in the trust documents gets all the powers and rights the grantor used to possess. This trustee might be one of the beneficiaries. The revocable trust taxes will then be known as irrevocable trust taxes, and these are the kinds of taxes that require the filing of a tax return. The process to be carried out by the specified trustee is as follows.

Get an irrevocable trust tax ID number—the federal tax ID, also known as the employer identification number (EIN). The specified trustee can also obtain the ID in the case the grantor becomes incapacitated.
Ascertain whether or not more than $600 was made within the tax year.
Visit the IRS website to download two forms: Form 1041 for the trustee and Schedule K-1 for the beneficiaries to show amounts distributed to them.
Confirm the Schedule K-1 is the correct one as there are different versions.
Report all earned income to IRS, directly related to the property or not.
Report all profits and losses.
Add all deductions of the owner.
Fill Schedule K-1 and Form 1041; give copies to beneficiaries.
Send it to the IRS.

Land Trusts, Living Trusts & Standard Trusts

A living trust is a trust that is helpful in avoiding probate. The name of the trust, living trust, comes from the fact that decisions about how a person's properties will be distributed are made while they are alive. Land trust means the same thing, except the properties involved are real estate or related assets.

Both the land trust and living trust have revocable and irrevocable types and similar benefits, distinguishing land trust when you have a land trust vs. standard trust comparison.

Conclusion

A revocable trust, either a revocable land trust or revocable living trust, does not require a tax return filing as long as the grantor is still alive or not incapacitated.
Form 1040, the standard form required in reporting taxes for an individual, is all that is needed for a revocable trust, provided the grantor is alive.
The revocable trust becomes entirely irrevocable after the demise of the grantor
Form 1041 and Schedule K-1 are the two forms needed after the grantor's death.

Land Trust: What To Know About Your Eligibility, Rules & Regulations

We get frequent questions about rules and regulations of all legal tools used for asset protection. Land trust eligibility is no different.

Let’s just be clear that you don’t have to pass any eligibility requirements beyond being of legal age to get a land trust. That said, there are some issues to be aware of.

Are Land Trusts Available in Every State?

Regardless of where you live, you (as an investor or business owner) can enjoy the benefits of the land trust. But not all states offer land trusts--in fact, only these six have local options:

Illinois
Florida
South Dakota
Hawaii
Virginia
Indiana

But any investor can have a land trust or its equivalent--the only possible exception being those living in Louisiana, who may wish to use other types of trust or asset protection options.

Fun fact for the legal eagles in the crowd: Louisiana is “special” from a legal standpoint because they rely on Napoleonic law, more based in older French legal systems, than the rest of U.S. states which are more closely related to British common law. As a result, Louisiana REIs who wish to keep their business and entities in-state are likely to need attorneys familiar with state-specific tools and laws. The rest of us in the other 49 states (and D.C.--by the way, fantastic City Flag you guys have there!) have things a little easier.

Even states lacking land trusts have similar options by different names, “Title-holding trust” is common, but each state will have its own lingo.

Even if your state doesn’t offer a local option, it likely will default to the laws of Indiana’s land trust, which have set the tone for land trust legislation and regulation nationwide.

As with entities, you aren’t required to form your land trust in-state. At RLS we always tell our clients: if you don’t like your jurisdiction’s rules, change jurisdictions. It really is that easy. Many of our, say, Alaska investors decide to form Texas Series LLCs because they like Texas’ costs and laws better. You can do the same thing with land trusts.

What Rules and Regulations Should My Land Trust Follow?

As far as legal vehicles go, the land trust is not particularly heavily regulated. Anyone can have one, and there aren’t many restrictions at all. But not everyone will use the land trust in the same way, and there are some limits and rules-of-thumb to keep in mind.

The most obvious limitation of all land trusts is the fact that they aren’t incredibly useful beyond the realm of real estate law. The land trust, often simply called the title holding trust, can’t hold just any asset--it must be a real estate asset. If you have cash to stash, consider your off-shore banking options. As for other assets, different strategies will work for them.

The best you can do to “play by the rules” is ensure your land trust conforms to all local laws. Next, ensure your use is appropriate and lawful. If you need help determining your compliance, understanding how trust properties are taxed, or learning how your land trust works in the context of your asset protection plan, check with an attorney, CPA, or even both. Other investors can help you get ideas for using your land trust, but ultimately, counting on pros hip to your personal situation when it comes to matters of legal compliance is the smartest move.

Land Trust Best Practices

When you deed a property to a land trust, you’re removing it from your personal possession. This makes some investors nervous, but it need not, since you still receive your funds as the beneficiary. Here are a few best practices to keep in mind when using land trusts to protect real estate assets:

Ensure you get an anonymous land trust if using it for asset protection.
Use one land trust for each property you own for the best defense
Be mindful of anonymity when naming your trust: get creative and defy expectations to secure anonymity.
Get legal advice when establishing a new trust or using it for a new purpose (e.g. to transfer a property, changing the beneficiaries, etc.)
Pair your land trusts with strong entities for maximum asset protection

This last point is one we should stress: land trusts offer anonymity, while entities offer compartmentalization, and the ideal plan has both. Select the best liability-limiting entities for you, whether that’s a Traditional LLC, Series LLC, or both.

Bottom Land: With Few Limitations, Most Investors Can Benefit from Land Trusts

While the land trust has limits, so does every tool. Even non-legal tools are only good for their intended jobs. Try screwing anything in with a hammer if you don’t believe us. As for land trusts, they’re excellent for their designed purposes. To get the most out of the land trust, use it appropriately for your situation and get advice if you’re unsure what role it should play in your asset protection plan.

Land Trust: Basics for Real Estate Investors to Know

Land trusts are often the unsung heroes of the real estate investing world. You can use them to control assets rather than own them yourself.

You’re almost always better off controlling an asset than owning it in your name outright.

And that’s where the land trust really gets to strut its stuff. After all, the land trust is also called a “title holding trust” because that’s it’s main job: hold title to the property in your place. But you still get to stay in control of any property associated with your trust, and of course, any earnings the real estate investment generates. Let’s take a closer look at land trust basics you should know.

What is a Land Trust and How Does it Work?

The land trust is an asset protection tool that doesn’t get a lot of respect. There is surprisingly little buzz around this real estate tool, though it can save your assets from unnecessary legal risk.

Land trusts can form a critical part of your asset protection strategy well outside the limelight, and in fact, we prefer creating them anonymously for additional benefits. This type of revocable trust takes the critical first step in asset protection: stripping the title out of your name.

When you establish a land trust, you’re using its trustee-beneficiary structure. Your trustee may then provide for you as a beneficiary of the trust. Lawyers make great trustees because of attorney-client privilege, but you get to choose. This is how you maintain control and enjoy the benefits of property ownership while sidestepping its liabilities. It’s a pretty cool thing, in our opinion.

Why are Land Trusts Helpful for Real Estate Investors?

There are many ways land trusts can help out real estate investors. Let’s just consider some of these common uses of the land trust:

To hold title to a property in place of you personally. After all, it’s also called a title-holding trust. Nobody can personally sue you for something you don’t “own,” even if they suspect you control it in this manner.
To share an interest in property with multiple beneficiaries of your choosing. Friends, family members, anyone you like can be added as a beneficiary of your land trust for any reason. “Because I said so” is actually good enough here, legally speaking.
To disguise company ownership, as explained in this educational article about land trusts’ ability to obscure anyone or anything’s direct ownership of a real estate asset.
To pair with entities, such as traditional and/or series LLCs, for an optimum asset protection plan. When these two powerful tools work together, they can defend a portfolio of 10 or 10,000 properties of any value. This combination is so mighty and widely-useful that it can offer maximum legal protection, including total compartmentalization of assets and true anonymity which are two highly useful features of the best asset protection strategies.

How Land Trusts Best Protect Real Estate Assets

As previously mentioned, a land trust is a great tool but can be limited if used alone. It’s not intended to be your entire asset protection strategy, but rather a piece of it. Recall that properties in LLCs are generally ‘pooled’ legally, unless you use a Series LLC of course.

We’ve found that asset protection works best in layers. A land trust is a great first layer of anonymity. If your land-trust-owned property is also owned by an LLC or a Series within a Series LLC, that’s another layer. From there, attorneys and CPAs can pile on even more layers such as enhanced anonymity, the addition of a shell corporation, and plenty of other legal and tax tricks.

What Do I Do to Form a Land Trust?

Land trust eligibility isn't the same in all states. The only universal pieces of the land trust formation process are these:

Contact a real estate attorney
Let your legal expert know you’re interested in using land trusts to protect rela estate investments. You can ask questions of your prospective attorney, such as what experience they have in this area, to get an idea of their comfort.
If you’re not sure a land trust is for you, your chosen professional should be able to at least offer some advice on your situation or a referral to someone who can help you out. Sometimes we just end up in the wrong person’s office--and lawyers and clients can be bad matches for tons of different reasons, none of them having to do with your indisputable good looks, charm, and glittering personality.

Your lawyer will be able to give personalized advice upon agreeing to help you. Thanks for learning about the benefits of land trusts with us today, and please leave any questions you still have in the comments if they aren’t addressed in our Land Trust FAQ.

Land Trust: The FAQs

If you’ve started learning about the land trust recently, questions are common. We’ve gone ahead and made some primers on what a land trust is and the benefits of the structure, but today, we’re going to answer your most Frequently Asked Questions about the land trust. The inboxes here at Royal Legal HQ are regularly flooded with the same questions--so we plan to start with those. If you have more, just let us know, because we’re always happy to answer your questions--in email or blog format. Let’s dive in.

Land Trust FAQ #1: I Heard Land Trusts Can “Get Around” the Due-on-Sale Clause for Easy LLC Transfers. Is it True?

Yes. Really. We have clients use land trusts for this purpose regularly: to obtain better financing for an investment property. We’ve outlined the basic method before, but here are the broad strokes:

Let your lawyer know what you’re up to.
Buy in your own name for optimal loan terms.
Transfer your property into a land trust.
If desired, move the property from your anonymous land trust to the LLC of your choosing
Enjoy the sweet relief of never worrying about the DoS again.

It really is that simple. We’ve never known someone who got in “trouble” because the worst thing that can happen with this method is receiving a love note from the bank. If this happens, your property can revert back to your name. You know, where it was in the first place.

If you still want to protect the asset, it’s likely you made a misstep the first time. When executed with professional help, few investors ever get a letter from their bank because the bank is none the wiser. Breathe. Due-on-sale violations aren’t punishable by hard labor It’s not a crime to get better deals, and each piece of this plan is perfectly legal.

Land Trust FAQ #2: Do I Need Separate Land Trusts For Each Property?

Ideally, yes. While one land trust is better than none, the optimal strategy is to use one per property. That way, you can really enjoy each land trust benefit for each and every property, whether the benefit you want is:

Anonymity. Each trust will have its own name, and you can preserve anonymity better by using one per property
An easy way to split up Beneficial Interest in the property
A good way to use one or more properties to off-set the costs of major expenses such as a surprise medical cost or college tuition (Fun Fact: Our founder Scott Smith actually used a land trust to help himself pay for law school!)
Asset isolation. Individual land trusts provide more legal separation of assets, the other key to your lawsuit prevention strategy aside from anonymity

Land Trust FAQ #3: Some Blogger Said Land Trusts Aren’t the Same Thing As Asset Protection? WTF?

Regular readers now wondering if we’ve been lying about everything all along like scorned spouses, slow your roll. Actually, anyone with this question can slow their roll. First of all, was Some Blogger a credentialed asset protection attorney? If not, exactly what makes them an expert on the topic? You can look up our credentials, read our reviews, etc. Do the same and check your source.

Considering the Source of Legal Opinions

You’re looking to see if their opinion on asset protection is any more valuable than say, our opinion on the best color for your living room we’ve never seen (Coral. Totally go with coral).

See the problem there? We don’t know what we’re matching to, what you like, or anything about you. Also, we’re lawyers, not interior decorators. Our lead attorney Scott Smith freely admits lacking interior decorating expertise--perhaps it was this lack of talent that forced him to turn to law, which he’s pretty darn good at. Remember, he used a land trust to offset law school costs. Did Some Blogger?

Scott’s opinion is the same as everyone else’s at RLS’s. Land trusts are a valuable component of an asset protection plan. That’s it.

By the way, even if Some Blogger is or claims to be a lawyer, remember this: no blog should create some kind of surprise attorney-client relationship. So, they aren’t your lawyer even if they are a lawyer. And just for the record, that same concept applies to this blog, even if you think our pearls of wisdom are awesome. That doesn’t make you a client; it makes you a passionate reader. We love both at RLS.

Bottom line: land trusts alone won’t always protect assets, but an asset is better protected in an land trust than in your own name. Land trusts aren’t an entire asset protection plan, but rather part of one.

Land Trust FAQ #4: Same Thing As Asset Protection? WTF?

This ties back into #3. Land trusts aren’t a complete asset protection plan, but they have their place. What role the land trust will play in your plan is a professional’s place to help you decide. Regardless, this lesser-known tool can help most investors achieve their goals.

Land Trust: The Benefits Of The Structure

As we continue our series on the land trust, it’s time to turn our attention toward the major benefits of this structure. Whether you are old friends with this time-tested real estate tool or have never heard of it in your life, the land trust or title-holding trust can truly be the real estate investor’s best friend. Let’s get right into the three most essential benefits of the land trust, an under appreciated yet powerful legal tool.

Benefit #1: Land Trusts Protect Your Anonymity

If most intelligent people are given the choice between anonymity and oversharing, they tend to like the former. Anonymity makes lawsuits a serious pain, and can actually prevent them if the other party isn’t particularly motivated. Learn more about the inherent benefits of anonymity for asset protection. Or, learn how to get even better protection from the next tip.

Benefit #2: Land Trusts Make Lawsuits Against You Harder

The land trust’s anonymity powers help it prevent lawsuits. Anonymity alone is rarely a good asset protection plan. But by the same logic, it’s impossible to have a highly effective, what we like to call “judgment-proof” package.

Anonymous land trusts can own companies, disguising you personally and your ownership.
Your entity strips the asset of inherent liability and separates it legally from you.
In the event of a lawsuit, entities are legally separate from you and your assets (when structured properly).

Trusts are more difficult to sue than individuals. Trusts paired with entities are even more difficult, and we’re about to explain why in detail. Pay attention if you’re looking for an ironclad asset protection strategy that stops suits before they start at all.

Benefit #3: Land Trusts Kick Ass at Preventing Lawsuits When Paired With Entities.

Of course the asset protection folks save the asset protection benefits for last. But think about it: anonymity is something you need, and the land trust removes property from your own name. It doesn’t have to stay there, though. You can reduce your chances of a lawsuit against you to almost “none” by simply pairing the land trust with an appropriate entity. We’ll give you the play-by-play of both why you need to do this and how.

To build a high quality asset protection system, pair the humble land trust with a liability-limiting entity. This is a highly intelligent, easy-to-manage, cost-effective way to approach a basic asset protection strategy. Here are the very broad strokes of real estate investors effectively pairing entities and land trusts actually looks like.

Protecting Assets With One-Property-Per-LLC Strategy

First, think of one of your investments. If you don’t have one, imagine your dream spot--maybe in a place you’d like to vacation to. Now, we don’t want anyone coming after that badass property in court. So you might stick it in a Traditional LLC. An ideal strategy is compartmentalized as well as anonymous.

Compartmentalization is the second key of your plan, and it’s your entity’s main job. One Traditional LLC can protect one asset completely as a holding company, or you may choose to use it as a shell company to assume operations for a Series LLC.

Series LLCs are ideal for the investor or multi-property owner because you can have as many “compartments” (Series, miniature liability-protected companies) as you like. Learn more from our educational Series LLC content on this structure’s benefits, uses, and FAQs. But for now, just understand that the Series LLC achieves perfect compartmentalization, with each of your assets snugly secured inside its own Series.

Compartmentalization compliments anonymity brilliantly, and is indeed what we call one of the pillars of asset protection. If your assets aren’t connected to you, and nobody can figure out who the hell you are, you because a righteous pain to sue.

Bottom Line: Land Trusts Have Many Benefits for Real Estate Investors

The list above is far from exhaustive. There are many more nuances and benefits to land trusts, some of which may apply only in certain situations. For instance, some married couples love them because they allow for a legal ownership method known as tenancy-by-the-entireties. Land trusts can be used like savings accounts backed by appreciating assets, as estate planning tools, for executing transfers around the due-on-sale clause, and many more cool legal tricks.

Just know that using this tool can get you all sorts of perks, and don’t overlook land trusts when constructing your asset protection strategy. You’d just be cheating yourself.

Is a Land Trust a Disregarded Entity?

A land trust can provide anonymity and asset protection, but how are they treated for tax purposes?

It will depend on the type of trust you decide to form. Land trusts can be “simple, complex, or grantor trust[s] depending on the terms of the trust instrument.”

In this article we will explain the "disregarded entity," tell you what type of land trust is a disregarded entity, and explain other ways land trusts can be taxed.

What is a Disregarded Entity?

Before we jump right into what types of trusts are disregarded for tax purposes, let’s recap what disregarded entities are.

Disregarded Entities are “pass-through entities” that do not pay tax at the entity level, and do not file a tax return. Instead, you report the entity’s income and deductions are reported directly on your tax return (or whoever owns the trust).

This is good news is you don’t need to file an additional tax return for the trust, which of course would cost more money.

What Type of Land Trusts are Disregarded Entities?

For the most part, land trusts are structured as grantor trusts (also called revocable trusts), which are disregarded.

That is because you, the grantor of the trust, remain in control of the trust and its assets. You’re considered the owner of the trust for tax purposes.

This differs from an irrevocable land trust, where you give up all ownership rights of the trust and its assets. In this case the trust would be considered its own entity, and need its own tax return.

Series LLCs, Land Trusts, and Taxes

If your land trust is incorporated using a series LLC, its tax treatment will be determined by the tax treatment of the LLC.

Author: Thomas Castelli, CPA is a Tax Strategist and member of The Real Estate CPA, an accounting firm that helps real estate investors keep more of their hard-earned dollars in their pockets, and out of the government’s, by using creative tax strategies and planning.

Land Trusts Can Help Avoid Moving the Investment Property Title To and From More Than One Name

How to Set Up Land Trusts for Multiple Investment Properties

What States Allow Land Trusts?

How to Go About Setting Up the Land Trust

What Is A Personal Property Trust?

What Are The Benefits Of Putting Your Property In A Trust?

When Should You Use a Personal Property Trust?

Mortgages

LLCs

Vehicles

How to Start a Land Trust For Privacy and Asset Protection

Land Trust With LLC As Beneficiary for Privacy and Asset Protection

Step #1: Form an Anonymous Trust For Your Business

Step #2: List Your Anonymous Trust as a Member of Your LLC

Step #3: Allow Uncertainty to Work Its Magic

One in Four Americans Will Be Sued

The Series LLC Structure

The Anonymous Trust LLC Structure

A Lawsuit Can Affect More Than One Property

Asset Protection "Do"s and "Don't"s

1. Don't Hold Property Under Your Name

2. Don't Hold All Property in a Traditional LLC

3. Don't Leave Yourself Exposed Because You’re A “Good Person”

4. Do Get Professional Legal Advice

Insurance Won’t Protect Your Investments

Are You Sure You Can Count On Your Insurance Company?

You Can Be Fully Protected Within A Week

What is a Land Trust?

What Is A Land Trust Mortgage?

How to Obtain Financing Through Your Land Trust

Advantages of Land Trust Mortgages

What About The Due On Sale Clause?

What Do I Need to Get a Mortgage Loan Using a Land Trust?

Remaining Anonymous Is One Of The Many Advantages

Your Property Is Protected From Liability

Prevent The Due-on-Sale Clause

It's Simple To Transfer Property Ownership With A Land Trust

You Can Use A Land Trust To Sell Real Estate

Do You Have The Legal Right To Sell This Property?

What Happens When A Land Trust Sells Real Estate?

Final Thoughts

Myth #1: Land trusts are too expensive for real estate investors to use.

Myth #2: Land trusts are a scam.

Myth #3: Land trusts are too tricky to set up.

Myth #4: Land trusts are only for large land purchases.

Myth #5: Land trusts are only for land.

Conclusion

Why Use an LLC to Hold Your Rental Properties?

When Does an LLC Fail to Protect Your Personal Assets from Lawsuits?

Why Use a Trust to Hold Your Rental Properties?

What are the Benefits to Using a Trust Versus an LLC?

Should You Put Rental Property in an LLC or Trust?

Putting Rental Property in an LLC Pros

Putting Rental Property in an LLC Cons

Putting Rental Property in a Trust Pros

Putting Rental Property in a Trust Cons

Different Ways to Structure A Trust

The Spendthrift Provision

How to Set Up a Spendthrift Trust

Are Land Trusts Still Effective?

<img loading="lazy" decoding="async" class=" wp-image-17135 alignleft" src="https://royallegalsolutions.com/wp-content/uploads/2020/11/roth-ira-vs-401k.jpg" alt="roth ira vs 401k" width="393" height="283" />What States Are Land Trusts Used In?

Who Should Have Power of Attorney for the Land Trust?

What is a Living Trust?

What Are the Disadvantages of a Land Trust?

When is Best Time To Set Up A Land Trust?

What is a Grantor Trust?

<img loading="lazy" decoding="async" class=" wp-image-17901 alignleft" src="https://royallegalsolutions.com/wp-content/uploads/2021/01/grantor-trust.jpg" alt="grantor trust: kid with plant" width="377" height="251" />What is a Non-Grantor Trust?

What is an Intentionally Defective Grantor Trust?

Are Land Trusts Seen As Grantor Trusts?

Pros and Cons of Grantor Trusts

Should I Set Up A Grantor's Trust?

Why An LLC Doesn't Completely Protect You

Anonymous Trusts Stop Lawsuits Dead

A Trust Makes Attorneys Think Twice Before Suing You

A Trust Is The Castle Protecting Your LLC's Assets

An Auction Can Work In Your Favor

What Is A Land Trust?

Self-Dealing

Can A Trustee Sell Trust Property to Himself or Herself?

What Is A Revocable Trust?

What States Are Land Trusts Used In?

What is a Non-Grantor Trust?