If you're thinking about establishing a land trust for asset protection, you may already know that one common misconception is that land trusts should be used for dishonest purposes.
I'd like to look at some ethical concerns around the use of land trusts, and thoroughly bust the myth that land trusts are dishonest by nature. We'll also explore some of the honest uses of the land trust.
There is nothing inherently dishonest about a land trust. As with any tool, its power lies in the person who is using it and his/her motivations.
Think about a computer for a moment.
There are lots of things you can do with a computer. You can use it for good things, like writing the next great American novel, donating to charity, or reading educational articles to become a kick-ass real estate investor.
And of course, if you wanted to, you could use your computer for bad things. You could make arrangements with a hitman on Craigslist, or order a package full of methamphetamine and shoulder-fire missiles from a foreign country. Not that we think you'd do such a thing, nor do we encourage it.
The point is, if you did any of those terrible things, that would be on you - not the computer. The land trust is similar, because it's just a tool. Most investors will use one for the right reasons, such as protecting their anonymity, preventing frivolous lawsuits, or as a way to effectively manage certain pieces of real estate. Somebody could, theoretically, use a land trust towards fraudulent or dishonest ends, but that speaks more about the integrity of that individual than it does about the land trust.
As a legal tool, the land trust has been subjected to a lot of time in court. Courts exist to enforce justice for everyone. You can rest assured that a fraudulent tool wouldn't last in our court system for as long as the land trust has. The land trust has held up under more than its fair share of legal scrutiny.
Sometimes, people who don't understand asset protection leap to the conclusion that asset protection as a whole isn't entirely honest or ethical. We believe land trusts have fallen victim to the same misinformation, and that the inaccurate characterization is based on ignorance.
The false notions about the integrity of land trusts may have some root in their anonymous nature. Anonymity can also be used for good or for ill, just like the other tools we mentioned above. Some people want anonymity to commit shady dealings. We don't encourage anonymity for real estate investors because we want our clients to be shady. We encourage it because anonymity has proven to be extremely effective in preventing lawsuits. Lawsuits which, of course, are often initiated by ethically questionable individuals in the first place.
Using a land trust doesn't make you dishonest. It makes you smart and resourceful. It's one of the tools available for investors who want to avoid pointless, expensive hours in court and victimization by identity thieves. If you still have questions about the ethical or practical concerns of using a land trust, feel free to ask them in the comments below.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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