The land trust is a lesser-known but incredibly powerful legal tool for real estate investors. They offer a range of legal protections that most investors need, whether they know it or not. Land trusts protect your anonymity, help manage your properties, and can even assist you in the financing process. Below, we’ll talk about some of the common scenarios that will make you very glad you took advantage of land trusts.
When You’re Threatened With A Lawsuit
When you use a land trust to hold your property, you receive several automatic benefits. Among these include personal anonymity. The trust, rather than you, is identified as the owner of the property for legal and tax purposes. So, how does this relate to lawsuits?
First of all, for someone to file a lawsuit, they need to know who they’re suing. Remember when you were in grade school–what was the first thing the teacher always asked you to do for any assignment? Put your name on your paper, of course.
Attorneys, just like hardcore high school English teachers, don’t like to deal with anonymously-offered papers. While your teacher may have been able to decipher your handwriting, most attorneys will not go to these lengths. Of course, we investigate anyone we plan to sue. But only to a point. Land trusts make it difficult to connect your name to the property, meaning that a lawyer would have a hard time determining whether you are even worth pursuing in court. Trust me: as an attorney, I have much better and more profitable uses of my time than chasing down someone who might not have anything for me to get.
When You’re Actually Sued
Now suppose some vindictive person drags you into court out of pure spite. This is incredibly unlikely, but could happen. They’re going to have to decide whether to sue you personally, or fight the losing battle of attacking the trust directly. Suing you personally would be a fool’s errand, as the value is in the property. You know, the property that doesn’t have your name on it.
The plaintiff’s unfortunate attorney won’t have many good strategies for winning a judgment. In most cases, they’ll bow out unless their client is willing to pay a ludicrous amount of money just to get “justice.”
Even if they win a judgment against you personally, they’re going to have a hard time collecting anything. Your property is safely in the trust. Of course, you’ll want to ensure you have a good attorney helping you so the sharks don’t win on a technicality. Land trusts are not a Pinterest craft, so don’t DIY.
When You Need a Loan
Smart investors stick their property in entities like LLCs for asset protection. Smart creditors, on the other hand, don’t lend to LLCs. The land trust solves this issue, allowing you to get personal financing and protect your property simultaneously. To learn more, see our previous piece on how land trusts solve lending problems.
The simple truth is that I’ve yet to meet a real estate investor who can’t benefit from a land trust in some way. If you haven’t set up yours yet, don’t wait for an investment to go sideways. Contact us today for help establishing your land trust. We may not be able to tell you exactly when you will benefit from it, but your proactivity will keep you from having to learn the hard way.