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:

  • Integrity.
  • Honesty.
  • Humility to ask for help when uncertain.
  • Intelligence to to understand their role.

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.

  • Draft a Sales Contract. Using a sales contract for the exact value of the property allows you to insert legally binding terms that protect you. The strategy usually involves minimal down payment and a lengthy financing period--a decade or more is ideal. Your attorney will advise you on best practices based on you and your trustee's circumstances.
  • Execute the Contract. Having a sales contract in place doesn't mean the trustee just gets the property. It sets out clear terms that limit their ability to misuse their position.
  • Enjoy the Benefits. Your trust is protected from both trustees and potential lawsuits. The Taxman won't regard the property as sold and it remains secured in the land trust.  But as a bonus, this tactic insulates you from creditors as well.

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.

Last Updated: 
March 22, 2018

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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