Land trusts are often the unsung heroes of the real estate investing process. You can use them to control a company rather than own it. This might sound like a difference in mere semantics at first brush, but it’s actually one of the first golden rules of asset protection. You’re almost always better off controlling an asset than owning it in your name outright.
And that’s where the land trust really gets to strut its stuff. After all, the land trust is also called a “title holding trust” because that’s it’s main job: hold title to the property in your place. But you still get to stay in control of any property associated with your trust, and of course, any earnings the real estate investment generates.
What is a Land Trust and How Does it Work?
The land trust is an asset protection tool that doesn’t get any glory or cute commercials. There is surprisingly little buzz around this real estate tool that can save your assets from unnecessary legal risk.
But land trusts can form a critical part of your asset protection strategy well outside the limelight, and in fact, we prefer creating them anonymously for additional benefits. This type of revocable trust takes the critical first step in asset protection: stripping the title out of your name.
When you establish a land trust, you’re using its trustee-beneficiary structure. Your trustee may then provide for you as a beneficiary of the trust. Lawyers make great trustees because of attorney-client privilege, but you get to choose. This is how you maintain control and enjoy benefits property ownership while sidestepping its liabilities. It’s a pretty cool thing, in our opinion.
Why are Land Trusts Helpful for Real Estate Investors?
There are many ways land trusts can help out real estate investors. Let’s just consider some of these common uses of the land trust:
- To hold title to a property in place of you personally. After all, it’s also called a title-holding trust. Nobody can personally sue you for something you don’t “own” even if they suspect you control it in this manner.
- To share an interest in property with multiple beneficiaries of your choosing. Friends, family members, anyone you like can be added as a beneficiary of your land trust for any reason. “Because I said so” is actually good enough here, legally speaking.
- To disguise company ownership, as explained in this educational article about land trusts’ ability to obscure anyone or anything’s direct ownership of a real estate asset.
- To pair with entities, such as Traditional and/or Series LLCs, for an optimum asset protection plan. When these two powerful tools work together, they can defend a portfolio of 10 or 10,000 properties of any value. This combination is so mighty and widely-useful that it can offer maximum legal protection, including total compartmentalization of assets and true anonymity which are two highly useful features of the best asset protection strategies.
How Land Trusts Best Protect Real Estate Assets
As previously mentioned, a land trust is a great tool but can be limited if used alone. It’s not intended to be your entire asset protection strategy, but rather a piece of it. Recall that properties in LLCs are generally ‘pooled’ legally, unless you use a Series LLC of course.
We’ve found that asset protection works best in layers. A land trust is a great first layer of anonymity. If your land-trust-owned property is also owned by an LLC or a Series within a Series LLC, that’s another layer. From there, attorneys and CPAs can pile on even more layers such as enhanced anonymity, the addition of a shell corporation, and plenty of other legal and tax tricks.
What Do I Do to Form a Land Trust?
Land trusts aren’t identical in all states. The only universal pieces of the land trust formation process are these:
- Contact a real estate attorney
- Let your legal expert know you’re interested in using land trusts to protect rela estate investments. You can ask questions of your prospective attorney, such as what experience they have in this area, to get an idea of their comfort.
- If you’re not sure a land trust is for you, your chosen professional should be able to at least offer some advice on your situation or a referral to someone who can help you out. Sometimes we just end up in the wrong person’s office–and lawyers and clients can be bad matches for tons of different reasons, none of them having to do with your indisputable good looks, charm, and glittering personality.
Your lawyer will be able to give personalized advice upon agreeing to help you. Thanks for learning about the basics of land trusts with us today, and please leave any questions you still have in the comments if they aren’t addressed in our Land Trust FAQ.