Preserve Anonymity by Using a Land Trust to Buy and Sell Real Estate

Do you want to buy or sell real estate properties? Using a land trust is a good idea because it protects your interests. A land trust is a legal entity that holds a title to real property in a name other than its own.

Owning real estate is an excellent way to make money. But the taxes and the fees you have to pay for it are often high. You can avoid these costs by using something called title insurance. When you own more than one property, you may have to pay these fees repeatedly as time goes on. But there is a tool that can help you reduce that cost. Read more here to find out when the best time is to set up a land trust.

There are three primary kinds of land trusts, each with its structure and way of working. These include a real estate investment trust, a conservation trust, and a community trust.

  1. A real estate investment trust is an organization that buys the property. The trustee, in this case, is a legal entity that works on behalf of the beneficiaries.
  2. A conservation trust is a private, nonprofit organization that buys the property and builds easements to stop people from developing certain areas.
  3. A community trust is a group of people who want to acquire low-cost housing. They buy the land and build the home, then sell it for a lower price.

Do you want to learn more about the hows and why of a land trust? Check out "The How, The Why, and The Basics of Land Trusts."

Remaining Anonymous Is One Of The Many Advantages

You might be worried about other people coming to your door to sell you something, or you don't want real estate investors contacting you--leveraging the anonymity of a land trust is ideal. You can put your property in someone else's hands.

In real estate, it can be hard to avoid sales calls from companies. To prevent this, you might want to remain anonymous so people won't find you. The trustee is not allowed to tell people your name unless a court says that they can. The anonymity will help you avoid people who might disrupt your day.

Your Property Is Protected From Liability

Being a real estate investor makes you an attractive target for lawsuits. People who want to litigate will know how much you paid for your properties and use that information to gauge your wealth. It may be that those people will use that publicly available information to take money from you by filing a lawsuit against you.

A land trust is an excellent way to keep people from finding out how much money you have. It is important to remember that a land trust will not protect you from every person, but it will help.

Prevent The Due-on-Sale Clause

When the lender chooses to sell the property, they can use the due-on-sale clause to collect the entire outstanding debt of a property holder. This clause might prevent you from making investments with the flexibility you require as a real estate investor. A land trust prevents you from having to pay the total amount due on sale.

However, this is not a rule for everyone. There are limits to it:

It's Simple To Transfer Property Ownership With A Land Trust

A land trust is when you give someone else your property. When both the grantor and beneficiary are still alive, then it is simpler to transfer. Some jurisdictions might use a land trust for tax reasons.

Should you need to change your company or break it down, it will be easier to put the land in the hands of a trust.

You Can Use A Land Trust To Sell Real Estate

There may come a time when you need to sell land held in a trust; the procedure will be the same as when selling a non-trust property. The only difference is that people will see the name of your trust instead of your given name.

When the time comes to sell your property, you need to study the trust agreement. You can sell assets of a trust if the trust agreement allows for the sale.

You will want to answer the following questions before selling with a land trust:

Do You Have The Legal Right To Sell This Property?

Sometimes there are many titleholders in a land trust, so it might be hard to sell all assets. The trustee will negotiate with other people in the trust, sometimes buying out someone else's share for an acceptable price.

However, people can't buy your property if they don't know who you are. In the case where the trust is only one person's property, then it doesn't matter, and you can sell off all your assets without anyone stopping you.

What Happens When A Land Trust Sells Real Estate?

Like any other real estate investor, a seller strives to achieve the highest possible price on each transaction.

The money is converted into a personal property trust when a transaction is completed. Then, the land is transferred from the trust to the new owner. It protects the funds for the beneficiaries while maintaining everything as it was before.

Final Thoughts

We hope this post has helped you to learn more about investing your money in land trusts. You have worked hard, and it is essential to keep your money safe. You can make sure that you keep your money safe and make a profit by investing in real estate through intelligent use of land trusts.

When you decide the time is right to use a land trust for your property investment, talk to a lawyer with experience with this kind of agreement. Finally, if you still have questions about land trusts, check out our detailed Land Trust FAQs.

Land Trust: What To Know About Your Eligibility, Rules & Regulations

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.

Are Land Trusts Available in Every State?

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. 

What Rules and Regulations Should My Land Trust Follow?

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.

Land Trust Best Practices

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.

Bottom Land: With Few Limitations, Most Investors Can Benefit from Land Trusts

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.

Land Trust: Basics for Real Estate Investors to Know

Land trusts are often the unsung heroes of the real estate investing world. You can use them to control assets rather than own them yourself.

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. Let’s take a closer look at land trust basics you should know.

What is a Land Trust and How Does it Work? 

The land trust is an asset protection tool that doesn’t get a lot of respect. There is surprisingly little buzz around this real estate tool, though it can save your assets from unnecessary legal risk. 

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 the benefits of 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:

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 trust eligibility isn't the same in all states. The only universal pieces of the land trust formation process are these:

Your lawyer will be able to give personalized advice upon agreeing to help you. Thanks for learning about the benefits 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.

Land Trust: The FAQs

If you’ve started learning about the land trust recently, questions are common. We’ve gone ahead and made some primers on what a land trust is and the benefits of the structure, but today, we’re going to answer your most Frequently Asked Questions about the land trust. The inboxes here at Royal Legal HQ are regularly flooded with the same questions--so we plan to start with those. If you have more, just let us know, because we’re always happy to answer your questions--in email or blog format. Let’s dive in.

Land Trust FAQ #1: I Heard Land Trusts Can “Get Around” the Due-on-Sale Clause for Easy LLC Transfers. Is it True?

Yes. Really. We have clients use land trusts for this purpose regularly: to obtain better financing  for an investment property. We’ve outlined the basic method before, but here are the broad strokes:

  1. Let your lawyer know what you’re up to.
  2. Buy in your own name for optimal loan terms.
  3. Transfer your property into a land trust.
  4. If desired, move the property from your anonymous land trust to the LLC of your choosing
  5. Enjoy the sweet relief of never worrying about the DoS again.

It really is that simple. We’ve never known someone who got in “trouble” because the worst thing that can happen with this method is receiving a love note from the bank. If this happens, your property can revert back to your name. You know, where it was in the first place. 

If you still want to protect the asset, it’s likely you made a misstep the first time. When executed with professional help, few investors ever get a letter from their bank because the bank is none the wiser. Breathe. Due-on-sale violations aren’t punishable by hard labor It’s not a crime to get better deals, and each piece of this plan is perfectly legal.

Land Trust FAQ #2: Do I Need Separate Land Trusts For Each Property?

Ideally, yes. While one land trust is better than none, the optimal strategy is to use one per property. That way, you can really enjoy each land trust benefit for each and every property, whether the benefit you want is:

Land Trust FAQ #3: Some Blogger Said Land Trusts Aren’t the Same Thing As Asset Protection? WTF? 

Regular readers now wondering if we’ve been lying about everything all along like scorned spouses, slow your roll. Actually, anyone with this question can slow their roll. First of all, was Some Blogger a credentialed asset protection attorney? If not, exactly what makes them an expert on the topic? You can look up our credentials, read our reviews, etc. Do the same and check your source. 

Considering the Source of Legal Opinions

You’re looking to see if their opinion on asset protection is any more valuable than say, our opinion on the best color for your living room we’ve never seen (Coral. Totally go with coral). 

See the problem there? We don’t know what we’re matching to, what you like, or anything about you. Also, we’re lawyers, not interior decorators. Our lead attorney Scott Smith freely admits lacking interior decorating expertise--perhaps it was this lack of talent that forced him to turn to law, which he’s pretty darn good at. Remember, he used a land trust to offset law school costs. Did Some Blogger?

Scott’s opinion is the same as everyone else’s at RLS’s. Land trusts are a valuable component of an asset protection plan. That’s it.

By the way, even if Some Blogger is or claims to be a lawyer, remember this: no blog should create some kind of surprise attorney-client relationship. So, they aren’t your lawyer even if they are a lawyer. And just for the record, that same concept applies to this blog, even if you think our pearls of wisdom are awesome. That doesn’t make you a client; it makes you a passionate reader. We love both at RLS.

Bottom line: land trusts alone won’t always protect assets, but an asset is better protected in an land trust than in your own name. Land trusts aren’t an entire asset protection plan, but rather part of one.

Land Trust FAQ #4: Same Thing As Asset Protection? WTF? 

This ties back into #3. Land trusts aren’t a complete asset protection plan, but they have their place. What role the land trust will play in your plan is a professional’s place to help you decide. Regardless, this lesser-known tool can help most investors achieve their goals.

Land Trust: The Benefits Of The Structure

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.

Benefit #1: Land Trusts Protect Your Anonymity

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.

Benefit #2: Land Trusts Make Lawsuits Against You Harder

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.

Benefit #3: Land Trusts Kick Ass at Preventing Lawsuits When Paired With Entities.

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.

Protecting Assets With One-Property-Per-LLC Strategy

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.

Bottom Line: Land Trusts Have Many Benefits for Real Estate Investors

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.

How to Control Property Without Owning It: 3 Simple Methods

We often emphasize that fabulously wealthy folks don’t own assets, they control them. It’s something we point out often at Royal Legal Solutions, because you don’t have to be rich (yet) to borrow a few things out of the Fabulously Wealthy Playbook.

Let’s do a quick crash course in the top legal ways to control property without owning it for asset protection purposes. 

Method #1: Use Land Trusts

The handy anonymous land trust is one of the easiest methods of controlling property without owning. The trust simply holds title to the property for you, removing your name from any public record. You get anonymity, become tougher to attack legally, and are legally separate from the asset but reap its rewards as the beneficiary of your land trust.

Method #2: Use Liability-Limiting Entities Like LLCs and Series LLCs

Another great way to control an asset is with an entity. We like those that limit liability, because they help protect your assets in the event of a lawsuit or threat. 

Examples of the kinds of companies we’re talking about include:

Each of these entities offers liability limitations inherently. You’re separated from your assets and any claims around your real estate can’t affect your personally. So say a tenant goes careening through your deck and hurts himself. He may try to sue for your property. 

Depending how you set up these entities, you can either stop the suit before it starts or make it a complete waste of the tenant’s (and more importantly, his attorney’s) time. Entities can be structured to separate assets from each other, limiting how much anyone can receive by court judgment. If you set up your companies with an attorney’s help, you can own them completely anonymously, making a lawsuit nearly impossible to file. Either way, companies are much tougher to sue than people and one of the smartest ways to control property.

Method #3: Use a Shell Corporation for Property Ownership

Why should you risk exposing your personal self or assets to the world? A shell corporation can do this for you and streamline your real estate investments, too. Most investors will find the Traditional LLC works just fine for a shell corp. If you already have one and it has never held your assets, you may consider using it.

Otherwise, you can easily form your LLC; property ownership and ALL of your other real estate investing operations can be performed from there: collecting rent, paying property management, etc. 

Next, you’ll need an asset-holding company for your properties. We recommend the Series LLC if you’ve got more than one property or ever plan to, because the Series LLC is a cost-effective, scalable entity option. 

All this company ever does is hang onto your assets for you. NEVER do business from your asset-holding company: that’s your shell company’s job. With this kind of structure, your two companies exist to handle assets and operations 100% separately and independently of one another. 

For a deeper look at all this stuff, check out our article, Control Without Ownership: The Smart Way Real Estate Investors Own Property.

Understanding the Use of California Land Trusts

When it comes to land trusts, California is unique in that it doesn’t put them under the two typical legal categories:

  1. Case Law - Laws based on the results of previous cases.
  2. Statute Law - Laws established by specific statutes.

However, the state does acknowledge the validity of land trusts. California land trust laws aren’t  as specific as other states; instead they are based on the more general trust laws under the California Probate Code. We don’t expect you to know the in’s and out’s of probate code, but there are some key facts you do need to know.

Golden State residents, read on. These three facts are key to understanding land trusts and California and how the state rules can benefit you.

Three Key California Land Trust Facts

Fact 1: A California Land Trust Hides Ownership

Anonymous land ownership isn’t just for big time land developers or celebrities, although Hollywood is full of stars who’d rather keep their property private. Average citizens can take a practical step in asset protection by hiding their property ownership in a land trust. Think of a land trust as a vehicle where you can park real estate without anyone connecting that real estate to your name. In case of a lawsuit, your property becomes harder to go after since your name isn’t tied to it. Plus, hiding property ownership is prudent as it helps you maintain a low profile when it comes to your investments and wealth.

Fact 2: A California Land Trust Provides an Easier Probate Process

With a land trust, property is transferred outside of the legal process to the owner’s heirs after death. This can avoid a costly and time consuming probate process.

Fact 3: A California Land Trust isn’t Subject to Dower Rights

This is another area where California is unique. California land trusts aren’t subject to community property or dower rights. However, it is good to know what these terms are since they deal with the division of property during a divorce.

Be sre and check out our article, Community Property: What Investors Need To Know.

Protect Yourself

California residents won’t have to worry about getter dower rights waived when transferring property. However, residents shouldn’t make assumptions about how property will be divided during a divorce. Consult with a legal professional. Our team has helped numerous clients protect their personal and professional assets. Call us at 512.757.399 for a consultation.

What's The Due On Sale Clause and How Do I Avoid It With A Land Trust?

Despite what you might read on the Internet, you shouldn't worry about the due on sale clause.

Banks are in the business of making loans and collecting mortgage payments. It's true that the due on sale clause would allow them to foreclose on a property, but why would they do that? This could only hurt their interest. They can't collect on payments if there isn't a borrower to pay them.

The fact is, since before 1960 we haven't seen any banks foreclose based upon a violation of the due on sale clause while the borrower was making payments on time.

When Do Banks Invoke The Due On Sale Clause?

I've seen a couple instances where a bank did decide to invoke the due on sale clause. But in all of those situations the mortgage wasn't getting paid. The property was going to get foreclosed on anyway.

These days interest rates are at an all time low. This makes banks unlikely to invoke the due on sale clause. However, if interest rates were to go back up to the standard 6%, then they might change their minds. What exactly do I mean by that?

Let's say you're behind in payments on a 30 year mortgage with a 3.5% interest rate in a market where the prime rate is 6%. If the bank invokes the due on sale clause on your property and resells it, they'll be able to make more money. This is because the property will be re-sold with a 6% interest rate instead of a measly 3.5%.

How Do I Avoid the Due On Sale Clause?

It's important to remember that tens of thousands of real estate investors violate their loan covenants everyday. Yet the banks don't invoke the due on sale clause. But if the banks really wanted to, they could.

Instead of gambling with your properties, what you should do is use a land trust. By using a land trust, you'll be able to transfer your property without angering the bank.

For this method you'll need an LLC and a land trust. So first you'll create a anonymous land trust and place the property(s) into the land trust. Then you'll make your LLC a beneficiary of the land trust. Problem solved!

Not only will a land trust help you avoid triggering the due on sale, but it also helps with transfer taxes and keeping your real estate holdings private.

Get Help With Your Land Trust and Asset Protection Needs

If you have any more questions about asset protection or the due on sale clause, I'd be happy to answer them for you in the comments below.

Also, while we're on the subject of transferring property, you may be interested in our free educational resource on  how to transfer your property and keep your old insurance. We offer these to all of our prospective clients and fellow investors to empower you to make the best choice for your real estate business.

The Land Trust: The Real Estate Investor's Secret Weapon

For longer than any of us has been alive, real estate investors have struggled to prevent lawsuits. And honestly, there is no surefire way to do that. But one of the best ways is using a trust, or specifically, a land trust.

Land trusts are trusts you can use to exclusively hold real estate titles. On their own, they don't protect you from lawsuits, but they can be a critical component of an asset protection plan. They are different from the typical trust because they don't usually involve family.

A land trust is great if you want to remain anonymous. This prevents lawsuits in one simple way. The logic is, if the "other side" doesn't know you own the property, how can they sue you?

Parts of a Real Estate Land Trust

A land trust has three parts. You have a grantor of the trust, a trustee, and a beneficiary. A trustee has control of the property and manages the trust itself.

The beneficiary is the person who receives all the benefits of the land trust (i.e., the income made from the land trust). In some circumstances you'll have to disclose who the trustee of a land trust is. But let's say you don't want to let people know who the trustee is.

For that situation, you can use a nominee trustee. This is a person whose name appears on the trust document. He or she has specific powers which allow them to file tax returns on behalf of the trust. It is the nominee trustee's responsibility to send the tax returns of the trust to the proper tax agency or for filing purposes of the deed(s).

Selling Real Estate From A Land Trust

If someone is looking to actually alienate a property, sell it, or dispose of the trust asset they will want to look at the trust agreement before they buy an asset from a land trust. In that agreement they will see that the nominee trustee doesn't have those powers. Which means you don't have to worry about somebody "running away" with your property. The person who will have the power to sell assets of a trust will be stated in the trust agreement.

The best part is, this person can be you.

If you want to learn more about how land trusts can protect your real estate investments, contact us today. I'd be glad to answer any questions you have.