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.
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.
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.
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.
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.
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.
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.
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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