We get frequent questions about rules and regulations of all legal tools used for asset protection. Land trust eligibility is no different.
Let’s just be clear that you don’t have to pass any eligibility requirements beyond being of legal age to get a land trust. That said, there are some issues to be aware of.
Regardless of where you live, you (as an investor or business owner) can enjoy the benefits of the land trust. But not all states offer land trusts--in fact, only these six have local options:
But any investor can have a land trust or its equivalent--the only possible exception being those living in Louisiana, who may wish to use other types of trust or asset protection options.
Fun fact for the legal eagles in the crowd: Louisiana is “special” from a legal standpoint because they rely on Napoleonic law, more based in older French legal systems, than the rest of U.S. states which are more closely related to British common law. As a result, Louisiana REIs who wish to keep their business and entities in-state are likely to need attorneys familiar with state-specific tools and laws. The rest of us in the other 49 states (and D.C.--by the way, fantastic City Flag you guys have there!) have things a little easier.
Even states lacking land trusts have similar options by different names, “Title-holding trust” is common, but each state will have its own lingo.
Even if your state doesn’t offer a local option, it likely will default to the laws of Indiana’s land trust, which have set the tone for land trust legislation and regulation nationwide.
As with entities, you aren’t required to form your land trust in-state. At RLS we always tell our clients: if you don’t like your jurisdiction’s rules, change jurisdictions. It really is that easy. Many of our, say, Alaska investors decide to form Texas Series LLCs because they like Texas’ costs and laws better. You can do the same thing with land trusts.
As far as legal vehicles go, the land trust is not particularly heavily regulated. Anyone can have one, and there aren’t many restrictions at all. But not everyone will use the land trust in the same way, and there are some limits and rules-of-thumb to keep in mind.
The most obvious limitation of all land trusts is the fact that they aren’t incredibly useful beyond the realm of real estate law. The land trust, often simply called the title holding trust, can’t hold just any asset--it must be a real estate asset. If you have cash to stash, consider your off-shore banking options. As for other assets, different strategies will work for them.
The best you can do to “play by the rules” is ensure your land trust conforms to all local laws. Next, ensure your use is appropriate and lawful. If you need help determining your compliance, understanding how trust properties are taxed, or learning how your land trust works in the context of your asset protection plan, check with an attorney, CPA, or even both. Other investors can help you get ideas for using your land trust, but ultimately, counting on pros hip to your personal situation when it comes to matters of legal compliance is the smartest move.
When you deed a property to a land trust, you’re removing it from your personal possession. This makes some investors nervous, but it need not, since you still receive your funds as the beneficiary. Here are a few best practices to keep in mind when using land trusts to protect real estate assets:
This last point is one we should stress: land trusts offer anonymity, while entities offer compartmentalization, and the ideal plan has both. Select the best liability-limiting entities for you, whether that’s a Traditional LLC, Series LLC, or both.
While the land trust has limits, so does every tool. Even non-legal tools are only good for their intended jobs. Try screwing anything in with a hammer if you don’t believe us. As for land trusts, they’re excellent for their designed purposes. To get the most out of the land trust, use it appropriately for your situation and get advice if you’re unsure what role it should play in your asset protection plan.
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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