Unfortunately for real estate investors, separating fact from fiction when it comes to land trusts can be difficult. A land trust is a simple tool that has been around since King Henry VIII ruled England. Its purpose then, to hide ownership of land (so a commoner would not have to serve in the military or lose the benefits of his land upon death), is the same today. There are several benefits to land trusts, the main one being privacy.
Privacy
A land trust confers anonymity for the investor, but only in the following situations:
• Title is taken in the name of the trust;
• Someone other than the beneficiary is named as a trustee; and
• The beneficiary is not a party to the mortgage
The last two points are the most important because real property can always be transferred into a land trust to remove an investor’s name from the chain of title but if his name appears as a trustee or he is listed on the mortgage, privacy is lost—or at a minimum—compromised.
In situations where privacy is desired, consider the following scenario:
- Investor establishes a land trust with his attorney or Wyoming LLC as the trustee and the investor as the beneficiary;
- Investor funds the land trust with sufficient cash for the purchase of the property;
- Trustee enters into purchase and sale agreement with the seller on behalf of the trust;
- Title is taken in the name of the trust care of the Trustee e.g., North Investments, LLC a Wyoming limited liability company, Trustee of the 1456 Trust Dated October 1, 2020;
- After closing, investor transfers beneficial interest in his trust to a different LLC;
- If using an Attorney as the trustee, it is important to get a resignation and appoint yourself as successor trustee; and
- If using an attorney, don’t forget to pay him and send him a nice bottle of wine for all of his hard work (I prefer pinot noir from Willamette)
If you do not have sufficient resources to make a cash purchase, then consider working with a local lender and ask if the lender will permit acquisition in the name of a trust (do not tell the lender this is a land trust – refer to it as a grantor trust). In this scenario the use of an Attorney or LLC as the trustee is not an option because the lender will require the purchaser be listed as the trustee. The key to anonymity is not listing your name as the trustee when taking title in the name of the trust.
If you are questioning why an attorney is often recommended as your nominee trustee, the answer is greater protection. Situations have come up when investors utilize a good friend as a trustee on their land trusts only to have everything unravel with the friend is hit with a tax lien and every property the friend’s name appears is encumbered by the lean. This is a costly mistake.
The uses of land trusts cannot be overstated as they are considered an important tool in the investor’s arsenal. If wielded properly, the trust can minimize title issues, limit liability exposure, facilitate future transfers, and shield ownership.
0 Comments