Understanding the Use of California Land Trusts

When it comes to land trusts, California is unique in that it doesn’t put them under the two typical legal categories:

  1. Case Law - Laws based on the results of previous cases.
  2. Statute Law - Laws established by specific statutes.

However, the state does acknowledge the validity of land trusts. California land trust laws aren’t  as specific as other states; instead they are based on the more general trust laws under the California Probate Code. We don’t expect you to know the in’s and out’s of probate code, but there are some key facts you do need to know.

Golden State residents, read on. These three facts are key to understanding land trusts and California and how the state rules can benefit you.

Three Key California Land Trust Facts

Fact 1: A California Land Trust Hides Ownership

Anonymous land ownership isn’t just for big time land developers or celebrities, although Hollywood is full of stars who’d rather keep their property private. Average citizens can take a practical step in asset protection by hiding their property ownership in a land trust. Think of a land trust as a vehicle where you can park real estate without anyone connecting that real estate to your name. In case of a lawsuit, your property becomes harder to go after since your name isn’t tied to it. Plus, hiding property ownership is prudent as it helps you maintain a low profile when it comes to your investments and wealth.

Fact 2: A California Land Trust Provides an Easier Probate Process

With a land trust, property is transferred outside of the legal process to the owner’s heirs after death. This can avoid a costly and time consuming probate process.

Fact 3: A California Land Trust isn’t Subject to Dower Rights

This is another area where California is unique. California land trusts aren’t subject to community property or dower rights. However, it is good to know what these terms are since they deal with the division of property during a divorce.

Be sre and check out our article, Community Property: What Investors Need To Know.

Protect Yourself

California residents won’t have to worry about getter dower rights waived when transferring property. However, residents shouldn’t make assumptions about how property will be divided during a divorce. Consult with a legal professional. Our team has helped numerous clients protect their personal and professional assets. Call us at 512.757.399 for a consultation.

Tenancy By The Entireties (TbyE) on Land Trusts

If you're allergic to legalese, like many investors, you may not be familiar with Tenancy by the Entireties (TbyE). There's no need to be terribly intimidated by the acronym. TbyE simply refers to a method of ownership that is exclusive to married couples.

Keep reading to learn more about TbyE and its implications in a land trust and lawsuit context.


Why Would a Couple Want to Use TbyE?

While ordinarily TbyE is a method of owning real estate, it can actually be used for any type of asset with a title. A car, for instance, could be owned in this manner.

The basic premise of TbyE is that neither spouse can sell their interest in the property. You may be wondering what that has to do with lawsuits.  TbyE prevents a lawsuit against one spouse from impacting the other.  Couples take advantage of TbyE primarily for lawsuit prevention.

How TbyE Works in Real Life: An Example

Let's imagine that Jack and Sheila Johnson are a married couple. Jack and Sheila are both real estate investors with their own portfolios, but have decided to own some of their properties with TbyE.

Jack owned a condo for his first investment, ten years before he married Sheila. After marrying Sheila, the couple decided to invest in an additional three properties together, which they own with TbyE.

Seemingly out of nowhere, Jack's tenant Mark sues him. The lawsuit claims the condo has become infested with mold that originated in the bathroom. Of course, Mark's attorneys go for the jugular and seek damages that exceed the value of the condo itself. They want Jack to pay for Mark's medical expenses, lost job hours, and pain and suffering.

It might not seem very fair, but if Jack and Sheila didn't own their properties with TbyE, those could be seized easily if Mark wins a judgment. Keep in mind that Sheila did not buy the condo, nor does she directly profit from it. However, she could face the consequences for a property that is owned by Jack alone. TbyE effectively prevents Sheila from paying for Jack's mistakes, if the court ultimately sides with Mark and finds Jack liable.

Of course, if Jack had placed his condo in a land trust, the lawsuit may not have even been filed in the first place. Fortunately, his properties that he owns TbyE with Sheila are secured in land trusts. Together, they are much more difficult to sue.


TbyE and Bankruptcy

Bankruptcy is a whole different ball game than other legal issues you may encounter. If a couple is taken to bankruptcy court, a creditor can indeed use the courts to "force" the sale of an asset, even if it is held in TbyE.

The legal reason for this isn't terribly complex. Essentially, bankruptcy is an issue that is defined by federal courts. TbyE, and indeed most issues relating to how trusts function, is governed by state laws. Usually, if there's a conflict between state and federal law, federal law will wins. This is why TbyE, despite being effective in other civil court contexts, won't protect both spouses in bankruptcy court.

If you and your spouse are considering TbyE for its asset protection benefits, Royal Legal Solutions can help you. Our attorneys will assist you in determining whether this strategy is the best for your situation. Don't wait until you're sued to take action. Proactivity on your part can prevent you from ending up in court. Make the smart call and schedule your asset protection consultation today.

Understanding Land Trust Beneficial Shares

When you use a land trust, you're opting in to a legal construct that most attorneys don't deal with regularly. This is foreign territory for many lawyers who aren't investors themselves.

Some of the practical benefits of using a land trust come from strategically employing beneficial shares. Today, we'll break down the concept of beneficial shares and what this aspect of land trusts can do for you.


What are Beneficial Shares in a Land Trust?

You may already know that a land trust, like any other trust, requires a grantor, beneficiary, and trustee. The two roles that are most relevant here are beneficiary and trustee. If you establish a land trust, you are generally going to be the one designated as the beneficiary. This gives you control over the trust, but it is the trustee who officially holds the title for any real estate within the trust.

So while you don't officially own or hold the title to real estate as the beneficiary of a land trust, you do possess a beneficial interest. Beneficial shares can also be assigned to other parties who have a stake in the property. This is one of many unique benefits to using a land trust: multiple owners or investors can easily divide a property for the purposes of administration, management, or even tax concerns.

Beneficial shares can be issued in a variety of contexts. One common context you might see them used in is estate planning.


How Beneficial Shares Can Benefit You

Beneficial shares offer some legal protections. Real estate investors aren't the only ones who care about location, location, location. The courts do, too. If a beneficial share becomes the subject of a lawsuit or must otherwise be handled in court, the law requires that this happen in the owner's specific location. In legalese, we call that your "jurisdiction."

Land trusts complicate the ordinarily simple process of determining jurisdiction. They make for an effective asset protection tool because they further the goal of making you extremely inconvenient or even pointless to sue. You can further stack the odds in your favor by forming an entity, such as a Series LLC, in a state that tends to favor businesses and investors. We've discussed which states provide the best Series LLC options on this blog before.

That said, owning a beneficial share alone isn't a "get-out-of-jail-free" card for irresponsible behavior. These shares can still be collected on by creditors, or raised in bankruptcy proceedings. The best way to avoid this fate is to manage your debt intelligently, and stay away from money pits and other unnecessarily risky investments.  


Get Help Forming Your Land Trust

The experts at Royal Legal Solutions are happy to assist you with any of your land trust needs. This includes, of course, answering any questions you may have about the legal or operational aspects of running a land trust. Feel free to continue the conversation in the comments section below. Better yet, beef up your investment and asset protection game: schedule your land trust consultation today.

What Happens When a Trustee is Directed to Sell a Trust's Property Assets?

Even experienced investors are often unaware of the ins and outs of the land trust, even if they are hip to its many benefits.

Today, we're going to talk about the sales process. What happens when you want to sell property in a land trust? Are there legal implications you should be aware of? If you're not sure how to sell property from a land trust, you're not alone. Read on to learn what you should know about the sale of trust property.

Selling Land Trust Assets

Selling an asset from a land trust is more of a process than an ordinary transaction. For starters, the trustee can't make the decision alone. Normally, the beneficiary must direct the trustee to sell the underlying asset.

Some states ensure trustees are compensated for their services. Typically, when a sale is executed, there are laws in place that state the trustee must be paid anything he or she is owed at that time. Exact figures on how much will depend heavily on your location and the terms of your trust agreement. You may also want to see our article, Can A Trustee Sell Trust Property To Himself or Herself?

What Happens to Property Sold From a Land Trust?

The actual sale of trust property kicks in some legal matters most people aren't familiar with. When you sell a land trust asset, as soon as the sale goes through, the funds remain in the trust. However, the money itself is automatically converted into a Personal Property Trust.

Personal property has a different legal function than real estate. The purpose of the Personal Property Trust is to hold any money from the real estate transaction for the beneficiary. The trust system and all of its parties remain in place, and any cash earned from the sale is still secured within the trust.

Occasionally, the trustee is able to recover funds from real estate sales under certain circumstances. This will only generally apply if the trustee is owed compensation for services rendered prior to the sale. Your trust agreement will spell out how this could happen, but ordinarily, the trustee would be able to recover however much is owed to them directly from the sale. Some states also permit trustees to get "first dibs" on any foreclosed properties.  Note that these situations are completely avoidable if you ensure your trustee is being compensated properly.

Bottom Line: Manage Your Trust Agreement Well

The critical part of ensuring smooth sales from your land trust is a well-crafted trust agreement. You might be an awesome real estate investor, but contracts are the domain of attorneys. We never recommend that any investor go DIY on contracts. Leave this matter to the professionals, and do what you're good at: running your real estate empire.

Royal Legal Solutions is one of few firms in the nation that routinely assists with land trusts. We are attorneys, but we are also investors just like you. Whether you need to establish your land trust, seek advice on managing it, or make a sale from within it, we can help.

Before you make any sales, schedule your confidential land trust consultation to ensure you're doing it by the book.

Selling the Beneficial Interest in a Land Trust

Land trusts give an investor a wide array of potentially useful tools. One of those tools is selling property in a land trust, or selling the beneficial interest (as opposed to selling or transferring the deed itself).

The beneficial interest in a land trust is considered personal property as opposed to real property, like the land itself. If the buyer were to default on their payments, the beneficiary would have more flexibility in terms of their options.

If you are interested in pursuing this method, it’s best to set up a land trust and either establish your own company or your personal lawyer as the trustee. The documents can be kept in escrow until the contract is paid in full. This keeps both parties honest and makes the transfer of the property as smooth as possible.

Land Trusts Make Contracts Assignable

The advantage of the land trust is that it allows the beneficial interest to become “assignable”. This operates in a very similar to way to how a stock in a corporation is assignable. A beneficiary of a trust can be changed without needing to change the title of a property. For those interested in selling a property, this can be a useful tool.

The reason why this is possible is because the beneficial interest is not considered in the same category as the property itself. The beneficial interest is considered personal property, while the property itself is considered private property. In addition, beneficial interests can be used as collateral in a loan.

This also adds a layer of privacy to the transaction. The buyer isn’t purchasing a property from you, they’re purchasing the property from a trust. While land trusts can have their drawbacks, there are a number of solid reasons why investors favor using them in certain circumstances.

For those that are simply interested in selling the property from the trust, a land trust still provides more privacy and protects assets in ways that property held outside of a land trust can’t. Land trusts still offer more privacy, protections against liens, and they make it more difficult for an individual to find your property if they’re trying to determine your assets in a lawsuit. Since most litigation attorneys work on contingency, they’re unlikely to go after a defendant who does not appear to hold any serious assets.

Selling the beneficial interest in a land trust is simply one more tool an investor should look into. 

Can I Use a Land Trust in California to Protect Real Estate Assets?

Does California recognize land trusts? Yes, but California real estate investors face certain regulations and restrictions in their home state.

Land trusts (read: What Are Land Trusts?) are not subject to the same burdensome tax obligations as, say, an in-state LLC. In fact, the fact that they are relatively new means that there isn't much law about them at the state level at all. Keep reading to learn more about using a land trust in California, as well as what specific benefits Golden State investors can enjoy when they do so.

California Land Trusts Are New

The novelty of land trusts in California actually confers some benefits onto their owners. Other states with more established case law have more exceptions to the protections of land trusts. In general, law is built on precedent. This means that court decisions aren't made in a vacuum. They are heavily informed by the rulings of past courts, particularly courts in the same area.

California Land Trust Community Property Advantages

California is a community property state. This is most relevant for married real estate investors. In community property states, anything one party gains during a marriage can be legally treated as a joint asset.

Community property laws come up frequently in the unfortunate event of a divorce. Let's look at an example. John and Mary Smith are real estate investors in the San Francisco area who have been married for ten years. They both have their own investments, but Mary is the more prolific investor. They show up in family court after a mutual decision to end their marriage.

With no asset protection measures or land trusts in place, Mary could actually stand to lose some of the investment properties (or even the money she would receive from them if they are sold) in the divorce. However, if she uses a land trust to hold the properties, this is unlikely to happen.

The land trust itself is controlled by a trustee, and therefore will not be treated as community property. In short, Mary would be in a much better situation using a land trust because John has a legal ability to make claims on property with her own name on it. He does not have this ability if the property is held in an anonymous land trust.

Of course, there are ways around state regulations that confer community property status onto assets gained during a valid marriage. Tenancy by the Entireties, also called TbyE, allows married couples to own a piece of real estate together, but not jointly. Some couples elect to use both methods of protection by both securing shared properties in land trusts and owning them TbyE.

This information may seem a touch cynical. Few people, when marrying, ever believe they will end up dealing with the fallout of divorce. But the unfortunate truth is this: over half of marriages do end in divorce.

When it comes to the law, it's perfectly fine to hope for the best. But the smart investor will always prepare for the worst. The wise investor plans ahead to avoid the worst possible outcomes, like lawsuits and losing property in a divorce.

Royal Legal Solutions is Here To Help Investors Like You

Royal Legal Solutions works with real estate investors from all over the country. We keep up with the latest changes in state law and other legal technicalities so that you don't have to.  We are also well aware of and sensitive to the needs of California investors. Whether you're trying to enjoy the tax benefits or asset protection aspects of a land trust, we can help.

CERCLA Liability: Are Land Trust Trustees Accountable?

A lot of folks often wonder whether or not a trustee of a land trust has personal liability under EPA or other Federal regulations.

The answer is no—with some caveats. When the trustee acts at the behest of a beneficiary, or whoever holds the power of direction, then the trustee would be themselves insulated from personal liability. The trustee, however, is still personally responsible for what they themselves do. If the trustee were to commit fraud or violate some other federal regulation, then they themselves could, of course, be held liable.

Land Trustees and EPA (CERCLA) Violations

The law can be  vague when it comes to certain kinds of EPA violations. This includes chemical dumping on land held by a trust. CERCLA (the Comprehensive Environmental Response, Compensation, and Liability Act) names “owners” of a parcel of land or “operators” of a facility but does not go on to define these terms in detail.

Through a very expansive interpretation of these terms, individuals who had nothing to do with the disposal of chemical waste nor even knew about the disposal could be potentially named in a lawsuit.

A US district court in Illinois, however, determined that a trustee did not qualify under the definition of “owner” and therefore could not be held liable for unlawful acts committed on the property. Other states might, however, decide that the trustee is an “operator” of the property, depending on their role in managing it.

The fact is, when CERCLA was drafted, Congress did not consider the status of the trustee. It became apparent that there was an issue only after CERCLA was passed into law. For land trustees, this represents a legal gray area.

There are two things to consider here. Firstly, trustees provide a valuable service to Americans and the government does not want to interfere with that. However, the government also has a tendency to lean on an easy target when they want testimony or evidence in a trial. Since the law is ambiguous, that option is available to them. Whether or not they can act on the threat is a different story.

“Owner” vs. “Title Holder”

Illinois decided that a trustee does not qualify as an owner, and other states may have similar decisions. It will differ from state to the next. No one can be held liable, however, merely for being a “title holder”. Under CERCLA liability regulations or any other law, the trustee would only incur liability under the theory that the trustee is an owner.

While agents of the government are liable to charge an individual with whatever crime they please, in order to prove that the trustee is liable for items held in the trust, they would have to make the case that the trustee is the “owner”. The courts seem opposed to defining a trustee as such.

Understanding the Situs of an Out-of-State Land Trust

The “trust situs” is the technical legal term for where a trust is located. It’s typical for the situs of a land trust to be located in the home of the settlor (the trustor). Under certain conditions, it can be to the advantage of the settlor to establish the situs of the trust outside of their home state.

For instance, changing the situs of a trust to a different state can have a profound impact on how the trust is processed. Administrative efficiency will differ from state to state, as will taxes. When the situs of a trust is changed to another state, the laws that govern that trust are shifted alongside it.

It’s a powerful tool for trustees to have at their disposal. What would be the sense of establishing a trust if it’s not going to behave in the manner that you want it to? If your state’s laws don’t meet your goals, changing the situs of the trust to another state is the last option available to you.

Protecting the Trust from Lawsuits

Another advantage of shifting the situs of a trust to another state is that it makes it more difficult to sue. When a trust is established in an individual’s home state, it’s easier and less expensive for those within the state to sue the trust. There’s less legal legwork involved and lawyers would not need to cross jurisdictions.

Moving the situs of a trust can be beneficial regardless of how friendly your state is to your personal goals. In addition, a trust can have multiple situses. A trust can be under the jurisdiction of one state while being taxed under the laws of another state.

Trust Situs: 4 Types

Situs can be divided into 4 types:

The administrative situs is particularly important because that will determine the jurisdictional situs as well. Any individual that wants to sue the trust would have to take their case to whichever state in which the trust is administered.

The tax situs is also quite important. Every state will have different laws concerning how income from a trust is taxed. Moving the tax situs can thus protect the trust from overly greedy states. In addition, some states tax trusts based on where they were created. Others will tax based on the location of the trustee. Other states have no trust income tax at all.

Having a financial advisor or lawyer who can sort these kinds of things out can help a great deal. Obviously, you don’t want multiple states making tax claims against your trust. On the other hand, you do want your trust to be insulated from being an easy target in a lawsuit.

Understanding the Function of Tenancy by the Entirety (TBE)

Tenancy by the Entirety (which is abbreviated T by E or TBE) is a holding title in which a married couple each own 100% of the interest in a property. It is distinct from joint ownership insofar as it can only be used by married couples, and the agreement must be broken by both spouses as opposed to only one. In addition, a creditor going after one spouse could not lien or force the sale of the residence because of a debt owed by only one spouse. The only caveat is that a TBE can only be used for their primary residence.

Tenancy by the Entirety and Asset Protection

Property titled under TBE is considered legally separate from individually-owned property. The TBE agreement is itself considered a person, in the same way that corporations can be considered persons. Two persons, who are married to one another, establish a TBE agreement for legal purposes. The TBE itself is considered a third person. In this way, a home can be insulated against judgments against one or the other spouse.

In addition, if two creditors have judgments against one spouse, or two creditors have judgments each spouse, the home would be safe from the creditors. It is only when one creditor has a judgment against both spouses that the house itself would be vulnerable.

Tenancy by the Entirety and Land Trusts

TBE agreements and land trusts each come with their own set of benefits. These benefits can be used in conjunction with one another when the beneficiary is established as the TBE (the legal third person created by the agreement) as opposed to one or the other spouse.

Those who set up a land trust in this manner can insulate their assets from creditors while essentially hiding their identity as the legal owner of the property. In addition, they can establish a beneficiary without needing to file paperwork with public records. Furthermore, they can retain tax advantages should they qualify for any.

There are a handful of states that allow TBE for married couples, but not every state does. In addition, using a TBE as the primary way to protect an asset from creditors can backfire. Anything can happen before a judge, and if a creditor’s lawyer can convince the judge that the TBE was only created for the purpose of defrauding creditors, a judge might throw out the TBE.
For those that are looking to establish a TBE, it’s best to do this when the home is purchased.

One other consideration: if one or the other spouse files for a divorce, the TBE is immediately nullified. While a TBE can be a good way to protect your residence from creditors, it’s important to realize that under some circumstances it cannot be relied upon.

Land Trust Documents: What You Need for Proper Record Keeping

There are a number of good reasons why an investor would want to look into a land trust. A land trust involves the transfer of a property’s title over to a trustee. The trustee is usually referred to as a settlor. In a land trust arrangement, the beneficiary has ultimate control over the relationship and can revoke the trust at any time. A few reasons why a land trust might be desirable to someone:

What Do I Need for Proper Land Trust Record Keeping?

Essentially, there are only two land trust documents that are required to create a land trust. Those are:

The TA (trust agreement) is incredibly important. It is recommended that you keep additional copies of it handy. You will need the trust agreement in the event that you want to either change the trust or sell a property from the trust. Make sure that you have both hard copies and digital copies that you can easily access.

For those that have misplaced their TA, a new copy can be drafted by the trustee. This is yet another reason why land trusts are superior to wills. If a will cannot be produced when it is required, it is presumed to have been destroyed or revoked by the individual who drafted it. For those who have lost their trust agreement, there is no such presumption.

The trustee, however, will need to indicate that the new TA is an amended and restated copy. They do this by indicating such at the top of page one on the restated TA. At the top of the document simply write:

“Amended and Restated Trust Agreement”

In the body of the TA, it’s good practice to indicate somewhere that the original trust agreement was lost or could not be found and needed to be redrafted by the trustee.

For obvious reasons, it’s better to have not lost the original trust agreement in the first place. Nonetheless, it’s not exactly the end of the world when that happens. Trusts are meant to be versatile and save folks some of the inconveniences of dealing with wills. So there are methods in place for managing such issues if they occur.

Know that the Feds are Tracking Secret Buyers of High End Real Estate

There are some real estate investors that are secret because they use cash to buy their properties. They do this to keep it off the radar. However, the federal government will now be tracking these secret real estate investors because they feel that illicit money is going from hand to hand during these secret property transactions. Because of this, the government now requires the names of everyone who pays with cash to make sure they are doing it legally. Or so they say, right?

Areas They Are Targeting and Tracking

So, what areas are they targeting and tracking currently? The first place they started targeting and tracking was Manhattan in New York. However, they are also tracking Miami Dade County in Florida. Manhattan is where this illegal money handling started. Although that may be the case, they will track everyone who pays for a property when buying real estate, in cash. These cash purchases protect the buyer from letting anyone know who they are. Now, they will not be able to shield their identity since the government is getting involved.

Is Money Laundering Going on in the Real Estate Industry?

The federal government will be investigating to determine whether or not there is money laundering going on in the real estate industry. Since cash is being used, no one knows the identity of the buyer. However, that has changed because they require the names of everyone who uses cash so they can keep their investigation going. The Treasury Department and the federal government will be using as many resources as they can to investigate this further.

Secret Real Estate Buyers Using LLCs and Shell Companies to Hide

These so-called secret real estate buyers are using Limited Liability Companies and what they call Shell Companies, to hide the fact that they are buying luxury real estate properties with cash. According to Spoiled NYC, the first high-end luxury apartment was sold through these so-called Shell companies for $18.2 Million and used the name "LLC, 432 Parkview." However, they will no longer be allowed to do this since they are now being targeted and tracked by both the Treasury Department and the federal government.
What do you think about these secret real estate buyers using cash for their properties to hide their identity? Now that the Treasury Department and the federal government are involved investigating, and requiring names of cash purchasers,  if there is money laundering going on, it will now be put to a stop.

Illinois Land Trusts vs. California Land Trusts: What Real Estate Investors Should Know

A land trust, or what they call a Title Holding Trust in Illinois, is a trust that a person, or grantor, creates to put his or her real estate property, personal property, or assets in another person's name. This grantor, uses a land trust to protect his or her property or assets from creditors. Once the property or assets is in another person's name, creditors cannot touch the real owner's property and assets. When naming a land trust, you can either choose an individual you trust or a bank or other institution to hold on to your property and assets for you.

If you were to ask your attorney from a state that doesn't use land trusts about them, they wouldn't know what you were talking about. This is because land trusts are only in certain states. We will discuss two of them now and they include California and Illinois. Here are the differences between the California land trust and the Illinois land trust.

About the California Land Trust

Does California recognize land trusts? Yes, but they use land trusts a little different than they do in Illinois and other states. What they use them for is to conserve land that no one else is using. The land trusts are rooted in local communities in California and work with the public (residents of the state, land owners, and different agencies) to conserve these properties for the benefit of everyone in the state. These properties, under land trusts, are used to educate the public, entertain them, and help improve the health of the public. The state of California has more than 150 land trusts that protect and enhance more than 2.5 million acres of land.

About the Illinois Land Trust

Land trusts were first started in the state of Illinois and are also called Title Holding Trusts. Land trusts in Illinois work a lot different than those in California but much the same as the land trusts in the few other states they exist in.

In Illinois, they work to protect the landowner, versus protecting the land itself (like in California). These trusts go in someone else's name to protect the property owner to keep creditors off his or her back for good. Although the owner of the land trust signs his or her property and assets over to someone else using a land trust, they still maintain all rights to their property and assets. The land trust must do what the land trust owner tells them to do.

As you see, there is a big difference between a California land trust and an Illinois land trust. One conserves the property for everyone to enjoy while the other just holds the property and assets in another person's name for the protection of the landowner.

You Don't Have To Be In Illinois To have An Illinois Title Holding Trust

You can form a land trust even 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).

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:

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.

Should You Form a Land Trust with Multiple Beneficiaries?

Many landowners often ask whether or not they should form a land trust with multiple beneficiaries. Although you might think they should be able to do something like this, the answer to this question is simply no.

Why? The main reason for this is because the legal system sees this as forming partnerships. You shouldn't even form a land trust with your spouse or partner in life either. According to the legal system, forming a land trust with more than one person is forming a partnership for the land, and the law says each partner assumes liability for the other partner.

How to Form a Land Trust

Land Trust with Multiple Beneficiaries

The first step in forming a land trust is choosing someone close to you—someone like a really good friend or a close family member. Whoever you choose should be someone you can trust for this. After choosing someone for the land trust, you then need to fill out two forms. You can have an attorney help you if you need to or you can do this yourself by downloading the forms online. The first form you need is called a land owner to land trust agreement. The second one is the deed of your property you are putting into the land trusts' name as your beneficiary.

Reasons to Form a Land Trust

There are a few different reasons to form a land trust with someone closest to you. A few of the reasons include the following:

In short, you wouldn't be gaining any benefits if you choose to have more than one beneficiary for your land trust. All of the reasons above are good reasons to form a land trust.

Although you do not have to consult with an attorney for the use of a land trust, it is recommended as to ensure you fill out the right forms and fill them out correctly. Also, make sure everyone involved with the trust gets a copy of each form filled out.

Does a Land Trust Have to File a Tax Return?

A land trust is an agreement between the person who owns property (or properties) and the person they designate to have the property placed in their name. One reason for a land trust is to provide the property owner with privacy. This way the whole world won't be notified that you own property. 

However, does a trust have to file a tax return? Start with our resources (What Is A Land Trust?), then keep reading for the answers you need.

Decedent's Estate

If the land owner is deceased, this is one case where the beneficiary of the land will have to file a tax return on the estate as well as the trust. This is especially true for domestic estates that earned $600 or more for the year of the tax return and if the beneficiary of the estate is not a resident of the United States.

Domestic Trust

The beneficiary will have to file a tax return for a domestic trust in the case that they have made any income that is taxable for the year, made a gross income of $600 or more for the year even if it isn't taxable income, and, just as with the decedent's estate, if the beneficiary is not a legal resident of the United States.

Although the decedent's estate and the domestic trust do have to file a tax return if they meet the requirements stated, the only land trust that does not have to file a tax return is a revocable trust, or what they call a grantor's trust.

How to File a Tax Return for a Decedent's Estate and a Domestic Trust

Since the decedent's estate and the domestic trust need to file a tax return if they have met the requirements stated, the following includes the steps to do so:

  1. Gather Information: Get all of the financial records for the tax return year together.
  2. Determine if Enough Money Was Made: Figure out whether or not the trust has earned more than $600 within the tax year
  3. Download Documents: If they have made more than $600 within the tax return year, go to the IRS website and download two forms; Form 1041 and Schedule K-1.
  4. Check Documents: Ensure you have downloaded the correct Schedule K-1 and that it is the one that can be filed with the 1041 form. This is important because there is more than one version of the Schedule K-1 form.
  5. Report the income: Report income from any tenants that lived on the land. If the tenants still owe money, this is not required to report to the IRS. Only the money they have already paid the land owner should be included.
  6. Report Gains and Losses: Report any gains or losses such as if the land owner sold any portions of the land.
  7. Report extra income: You also need to report extra income the land owner received. This should be reported even if it is not related to the land that is held by the land trust
  8. Add Deductions: Add any of the eligible deductions for the landowner.
  9. Fill out Schedule K-1. Schedule K-1 is for anything given to the beneficiary of the trust. Fill out one copy to go with the 1041 form for the IRS and keep a copy for your records. You will also need to give copies of this to any beneficiary or if there is more than one beneficiary, they will get a copy as well.
  10. Send: Send both forms to the IRS.

Now that this is done, you can wait for the IRS to respond. Make sure you used the Schedule K-1 which goes with form 1041. Also, be sure everyone involved with the land has received a copy of everything you filled out and sent to the IRS.

Should You Worry About the Due on Sale Clause?

Should You Worry About the Due on Sale Clause?

Despite what you might read on the internet, don't worry about the due-on-sale clause. The fact is is, since before 1960, we haven't seen any bank foreclose based upon a violation of the due-on-sale clause while the note's performing. The fact is is that banks are in the business of making loans and collecting mortgage payments. The due-on-sale clause would allow them to foreclose on your property by transferring the asset. But why would they do that? This could only hurt their interest. Like I've seen it a couple of times, where banks have foreclosed based upon it. But those were always in situations where the mortgage wasn't getting paid, and that was gonna get foreclosed on anyway. So in that sense, don't worry about it. Protect yourself with your proper asset protections strategy. My name is Scott Smith. I'm an asset protection real estate attorney, out of Austin, Texas, and I wanna help you.

Should a Minor Be The Beneficiary of a Land Trust?

When in search of a beneficiary for land, such as a land trust, you may consider having your children be their land trust beneficiary.

But should a minor be the beneficiary of a land trust?

When it comes to your minor children, the answer to this question is up to you and your specific situation. However, it is not recommended to have children under the age of 18 be a land trust beneficiary because are not usually financially responsible.

That said, if you would like to leave your property to your minor children if something happens to you before they turn 18, there is something you can do. There is something called a Minor's Trust. A minor's trust is a trust that can be left to your children.

How a Minor's Trust Works

When a parent chooses to leave property to their child or children in the event that something happens to one or both of them before the child or children are of age to take on the responsibility of a land trust, the parent or guardian can leave their property to them in their will and choose a close friend or family member to be the land trust until the child turns of age. "Of age" is normally 18, but the parents can choose for their child to be older than that if they don't think they will be able to handle the responsibility at that age. 

Until the child turns the age the parent chooses, a trusted and close friend or family member can be designated to keep the deed of the property until the child reaches the designated age and are allowed to have the property themselves.

Consider Other Options

Before you decide on naming a child the beneficiary of your land trust, consider any other options you do have. There should be someone you can trust to be the land trust of your property. A close friend or a trusted family member are two options to choose from and they should be considered before leaving this huge responsibility in a child's hands.

Finally, before using a land trust, you need to find an attorney that can handle this type of thing. This is because the attorney is licensed to draw up the required documents for the purpose of a land trust. 

Asset Protection For Real Estate Investors in Texas

The rumors are true, folks: everything really is bigger in Texas. This can be a double-edged sword for real estate investors in Texas, because while the state has many big opportunities for investors of any budget, the lawsuit business is also big. And real estate investors are more likely to be sued than the average Joe or Jane. So if you want to take advantage of the many opportunities and rewards available for investors in the Lone Star State, you will definitely want to be aware of the quirks of investing here as well as how you can protect yourself. A high-quality, iron-clad asset protection plan can prevent you from ever being victimized by a suit, but it will also protect the majority of your wealth even if you are sued.

In Texas, real estate investors have special concerns about asset protection that we will review below. But we will also show you how some simple precautions, the right information, and good professional help can protect your investments and other valuable assets. Let's dive in.

Why Do I Need an Asset Protection Plan?

The short answer is that anyone with assets worth having at all should have an asset protection plan. This is especially true for real estate investors, or other types of investors who own valuable assets of any type. The suggestions in this article work just as well for protecting an expensive vehicle or other asset as they do for real estate.
Attorneys are like vampires in more ways than we care to admit. Only instead of feeding on blood, we have an unhealthy dependency on money. And you better believe that we love money as much as vampires like blood. So asset protection keeps the legal vampires away by ensuring that they can't feed on your blood/money. Sucking the lifeblood out of a lawsuit makes it an unattractive endeavor for any attorney who might come after you or your assets. Even the most cash-thirsty lawyer in the world won't file against you if you're difficult to sue, or just plain not worth enough to make it a wise expense of his/her time. Asset protection makes you both of these things.

Key Asset Protection Tools for Texas Investors

The Texas Series LLC

The Series LLC is among the strongest asset protection tools that any real estate investor can exploit. Not all LLCs are created equally, and the costs and legal protections they offer depend heavily on which state the LLC is formed in. Fortunately for Texans, you can go local.  The Texas Series LLC is a highly effective asset protection structure. As an added bonus, it's easier to set up a Series LLC in your home state because you'll be free of the legal requirement to have a registered agent. Agents aren't free, so you'll be saving money by using this structure.
The Texas Series LLC is booming in popularity in part because it's the gift that keeps on giving. It operates similarly to a Traditional LLC, but has the distinct bonus of allowing you to add assets to the structure indefinitely. The Series LLC uses a parent-child structure which allows you to add new assets to the network as you acquire them. Each asset will have its own "child" LLC, complete with liability protection. In practice, this means that when you buy a new property, you will only need a few minutes at your computer and your attorney's signature to add it to your LLC network.

Anonymous Trusts

Anonymity is absolutely crucial to an effective asset protection plan. When you use an  Anonymous Trust alongside the Series LLC in conjunction with the Series LLC, your assets receive an additional layer of protection. The Anonymous Trust allows you to own and operate the Series LLC without your name ever even appearing on it.

This method protects you by making it nearly impossible to prove you own the assets in question in the event of a lawsuit. Even if someone knows you own it, they won't be able to prove it in court. The fact that you can't be reasonably or easily connected to the property will make it nearly impossible to sue you personally. Its placement in the series limits the amount you could be sued for in the first place, making both you and the asset highly unattractive targets for us money-hungry attorneys. We don't hunt if there's nothing to feast on.

Of course, there are other tools you can use to beef up your asset protection plan. Our experts combine land trusts, contracts, and many more legal and banking strategies to design the most effective plan for you.

Start Protecting Your Assets Today

Don't hesitate any longer. If you're an investor in Texas, you don't want to risk the investments you've poured your heart, soul, and hard-earned resources. All it takes is one suit to clean you out of everything. Don't let the vampires get to you. Use the tips above to form an asset protection plan that is more powerful than a house full of silver stakes, garlic, and crosses. At Royal Legal Solutions, we are here to make sure you get to keep the things you've worked your whole life for. Call us today to set up an asset protection consultation, and we will help you build the best possible asset protection strategy for your individual needs. Let us deal with the vampires while you focus on your business, free from the stench of garlic or civil court.

Thanks for reading, and if you have any additional questions about investing in Texas, fire them off in the comments below. We love making sure investors have access to this important information.
 

Anonymous Trusts & Asset Protection

 

Rich people employ asset protection specialists to make sure that their wealth is preserved from any particular lawsuit.

How do we protect the assets and keep people from finding out about them? We do this is by using anonymous trust.

You already know about the LLC and the protections that an LLC is going to give you in terms of anybody trying to sue you and get you your assets. What you might not know is that as a matter of public record and traditional filing that you would do with Legalzoom or another legal website or your average CPA or attorney is that now everybody knows what you're LLC is? Well, what we use is a trust.

You can use a trust to be able to own the LLC well trust or private documents so nobody would be able to find out who actually owns that trust, where the beneficiary of the trust assets, you can own the LLC anonymous. You also know that the ultimate goal of actually having this LLC is to hold the asset. Your ultimate goal for this piece of property.

This piece of property has a deed, and on that deed it says who owns it. Well, if that's your LLC and people can connect it to your company's structure, if it's you, now they know that you own it. That's your worst case scenario.

But you might have not known that a trust itself can actually be the title holder to the property. This keeps anybody from being able to connect your property to your company. So in effect, you have complete anonymity. Nobody can find out who owns your company and nobody can find out who owns your property.

 

Preparing Your Taxes With Your Land Trusts

Land trusts are incredibly useful for real estate investors. They allow clever investors to remain anonymous, prevent lawsuits, and manage investments. They offer many more financial and legal perks.

With all of those sexy benefits, it's no wonder real estate investors want to know more about them. So this article is here to guide you through the decidedly unsexy part of land trusts: taxes.

Nobody likes to dole out any more cash to Uncle Sam than necessary. But we're here to show you the tax requirements and benefits of using a land trust. It as painless as possible. Here are quick and dirty answers to the four most frequently asked questions we get about land trusts and taxes.

1. Do I Have to File Taxes For My Land Trust?

In short: definitely. Failure to file taxes on anything that produces income is considered tax evasion, which you may know as the felony that finally landed Al Capone behind bars. While you're probably not running an illegal bootlegging operation, tax evasion on its own is a very serious matter. The last thing a real estate investor, or any business owner, needs is to get into a fight with Uncle Sam.

2. Do Land Trusts Offer Any Tax Benefits?

Land trusts absolutely come with certain tax perks. Some of the most popular are the following:

3. What Will My Land Trust Taxes Cost?

How much your land trust taxes will actually cost you is going to depend on the state the trust is formed in. If the trust is for an investment property outside of your home state, your state of residence may also have additional tax requirements. To be sure you're filing appropriately, make sure you have a good CPA.

Regardless of your level of experience, it's a good idea to have a real estate dream team that includes a CPA and qualified, detail-oriented attorney. That said, you can get an idea of your state's requirements with a cursory internet search.

4. How Do I Report My Land Trust on My Tax Return?

Because you'll receive pass-through treatment, you simply will report your taxes on your personal return. For detailed instructions, consult with one of the dream team members mentioned above. If you still haven't formed your dream team, that's okay: we can help.

Royal Legal Solutions has attorneys, tax professionals, and CPA partners that can help you navigate these tedious waters. As investors ourselves, we love helping our clients get the most out of both their land trusts and their tax preparations. To learn more about how to best take advantage of your land trust for tax purposes, take our Tax Discovery Quiz.

Keep more of your money with a Royal Tax Review

Find out about the tax savings strategies that you can implement as a real estate investor or entrepreneur by taking our Tax Discovery quiz. We'll use this information to prepare to have a productive conversation. At the end of the quiz, you'll have an opportunity to schedule your consultation.    TAKE THE TAX DISCOVERY QUIZ

Choosing A Land Trust Trustee: How To Prevent Fraud

Today we're reviewing trusts in every sense of the word.  When you form a land trust,  you have to deal with both types of trust: the legal structure, as well as the concept of mutual honesty, respect, and confidence.  

You're lucky if you can find even a few truly honorable and loyal friends and business acquaintances in life.  But when it comes to your land trust,  you can't take the risk of a trustee doing you dirty. After all, this is the person who is essentially holding your property's title, and anything else in the trust. 

Keep reading to find out how to select a trustee, understand trustee misconduct, and protect yourself from an unethical trustee.

Pick Your Trustee Wisely

Trustworthy people are hard to come by, but worth their weight in platinum. So who is worthy of being your trustee?

Most people immediately think they are the most trustworthy person for their business interests. While this is often true, it's a bad idea to be your own trustee.  Designating yourself as a trustee will destroy the anonymity, and therefore the asset protection, often the greatest benefit of your land trust. For these same reasons, immediate family members are also not ideal, particularly if you share a surname.

Of course, you could use a family member, business partner or contact, longtime friend, or even a professional trustee. Yes--they exist, but you will have to pay for their services.  Your trustee's name is unimportant provided they possess the following qualities:

Be Aware of Trustee Fraud

Dishonest trustees can wreak havoc on your land trust and everything in it. In real estate investment law, we call this trustee fraud. Because trustees have the ability to control the asset, this gives them power that can be abused. They may attempt to sell, embezzle, or commit any number of acts that could land you in legal or financial hot water.

Understand the Easiest Ways To Prevent Trustee Fraud

Trustee Fraud Prevention Method #1: Board of Trustees

You have several options for protecting yourself from trustee fraud. One simple solution is to use a board of trustees. This allows you to distribute the responsibilities, so that even if one person wants to abuse their position, they will be kept in check by the other trustees.

Trustee Fraud Prevention #2: Contract Maneuvering

This is a simple method you can use with the help of your attorney.

Preventing the betrayal trauma of trustee fraud is simple when you work with Royal Legal Solutions. The guidelines above are best practices, but no two land trust owners are exactly alike. For the best advice on selecting your trustee and guidance in forming your land trust for half of the typical market value, contact us for your land trust consultation.

How the 'Three Company' Structure Protects Real Estate Investors

A typical real estate investor should be looking at a three-company structure.

The first of these companies should be a buy and hold LLC. The buy and hold LLC is going to be for long-term rentals. It's going to hold a number of different properties that you will be holding for longer than a year.

The next company that you're gonna have is your fix and flip LLC. Those are properties that you're gonna be holding for less than a year.

The reason that we need two of these is because they have different tax treatment. Your buy and hold is going to be a long-term capital gains taxation, your fix and flip is gonna be short-term capital gains.

Your third company will be your operating company (corporation or operating LLC). Typically we use corporations for some instances and LLCs for other instances. The corporation shields you from any personal liability in conducting your business. If you run your business personally, you're collecting the rent, you're negotiating with contractors, entering the contract, etc. This all can mean a lawsuit against you personally.

Even if you were smart and protected all of your assets inside of the LLC, what will happen is that a judgement against you gets recorded onto your credit report, impacting your credit score. The lower the credit score you have, your less ability to have financing. And that means real dollars out of your pocket.

 

Land Trust Foreclosures & How Investors Avoid Them

It's time to talk about the f-word: foreclosure. Foreclosure is a fear for any property owner, and during the housing crisis became something of a collective national nightmare.

Wise investors often take advantage of land trusts for investment properties because they offer a broad range of specific benefits. Among these is the fact that land trusts allow you to obtain personal financing while also safeguarding the property inside of an LLC structure.

But land trusts aren't immune from foreclosure.  Real estate investors using land trusts can suffer from the actions of their beneficiaries.  Read on to learn about the relationship between your trust's beneficiary and foreclosure, as well as some tips on preventing this financial nightmare from becoming your reality.

Do Land Trusts Protect Me From Foreclosure?

Unfortunately, a land trust alone does not prevent foreclosure. This is actually a fairly common misconception about land trusts. This fiction has persisted because of wishful thinking on behalf of those in debt, and also because disreputable land trust companies have pushed the idea. Outright scammers have also exploited it.

Further, the legend of land trusts preventing foreclosure lives on because investors often confuse liability protection with foreclosure prevention. Land trusts absolutely offer liability protections.  

There is, however, a grain of truth beneath the misconception. Some states will extend liability protection to the beneficiary of the trust. But in reality, this is extremely rare.  Most states hold all "permissible parties" accountable in the event of a foreclosure. This includes the beneficiary--and that's you.

The good news is you don't have to tango with the threat of foreclosure at all.

How Do Investors Avoid Foreclosure on Land Trust Property?

The good news is you don't have to tango with the threat of foreclosure at all.

Be financially responsible in your investments. This means planning ahead and actively working with your CPA to ensure you can afford any financing you obtain for your investment property.  Work with your attorney to actively oversee your trust and its activities. Your proactivity will pay off by ensuring you're on top of any payments you may owe.

Choose Your Trustee Wisely

Trustee fraud is an unfortunately common occurrence. Essentially, your trustee is in the pilot's seat of your trust. That means that your trustee has the power to cause your property to crash and burn.

Trustee fraud occurs when the trustee  misuses or abuses their power over the property. It isn't always deliberate, either. Sometimes, trustees are simply negligent and fail to fulfill their duties. If this happens with something like a mortgage payment, you could be faced with foreclosure. This is why it is critical that you choose a trustworthy trustee.

If the integrity of your trustee is at all in question, you can always appoint a board of trustees to guard against the possibility. Using a board prevents any single individual from tanking your investment without your knowledge. To stretch the airplane metaphor: would you rather have one pilot, or three commercial airline certified pilots operating your aircraft? Remember, you're the passenger and the owner here. With a board, if one pilot decides to knock down three martinis during the flight, you'll have other people who can take the wheel and regain control.

Get Help Making Sure Trust Foreclosure Isn't An Issue

Following these tips should keep your plane in the air and your land trust on solid legal ground. If you still have questions, feel free to ask in the comments section below. If you need specific advice, set up a consultation with Royal Legal Solutions today. Asset protection is not a do-it-yourself gig.

My name is Scott Smith. In addition to being an attorney, I’m a real estate investor myself. Before I began specializing in issues surrounding trust foreclosures, I would play for the other side.

If you’re considering a land trust, let us help you protect your valuable investments with a foolproof asset protection strategy from people who’ve been around and seen it all.