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