Forming a land trust is a no-brainer for the savvy real estate investor. It helps keep the ownership of the property private and consequently insulates you from litigation. With a land trust asset protection strategy in place, the land title office is not able to disclose who owns the property. This comes in handy when you’re threatened with a lawsuit (as you’ll see below). When used in conjunction with an LLC, a land trust provides invaluable asset protection advantages.
A litigant can sue you for all sorts of reasons, frivolous or legitimate. If they are willing to pay filing fees and serve a complaint, there’s no way to stop them.
However, getting a favorable judgment and getting paid are two different things.
They’ll spend a fortune on attorney fees only to hit a brick wall in recovering the damage award—if they get one at all.
A lawsuit, like a stool, stands on three legs:
If one of them is broken, then it becomes increasingly hard to sue. This is where the land trust comes in. It gives you personal anonymity and makes recovery a nightmare for would-be litigants. On its own, a land trust is not a fool-proof asset protection strategy, but it does help erect one more hurdle on the litigant’s path. The more hurdles you have, the harder it is for them to access your hard-earned property.
No attorney worth his salt is going to go into the wild goose chase involved in suing someone they do not know. After all, they need to determine whether you are indeed worth pursuing in court.
A trust, like any other legal entity, can be sued. But your property cannot be touched until they win and get a judgment in their favor. Rarely will the assets held in the trust be exposed to prejudgment attachments. You’ll probably have a few years to maneuver. However, there are cases where the assets held by the trust can be attached before the litigant gets a judgment against you.
This is why we recommend holding a single property in a trust. This will definitely not whet the appetite of any attorney looking to make a killing. After all, there’s not much to recover.
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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