Land Trusts Made Simple
By: Randy H.
Submitted: 01:03PM on Saturday 20 September 2008
The author has permitted the reprinting and redistribution of this article.
Much has been written about land trusts. What are they? What do they accomplish? Why would anyone go to the trouble or expense of using a land trust?
A trust is nothing more than a piece of paper. With this legal document (known as a TRUST AGREEMENT) you transfer the ownership of property to a TRUSTEE. A trustee can be a friend, business associate or institution (i.e. a bank, title company or law firm). The trustee technically "owns" the property and is shown as the owner of record at the county seat.
However, the trustee cannot do anything with the property unless directed to do so by the BENEFICIARY. The beneficiary of the trust agreement is usually the person who put the property into trust to begin with. The identity of the beneficial owner is held privately, protected from the public eye in the Trust Agreement which is not a public record. The beneficiary retains the right to full management and control of the property. The trustee executes deeds, mortgages or otherwise deals with the property at the written direction of the beneficiary. The beneficiary collects rents (if the trust holds title to rental property), improves and operates the property and exercises all rights of ownership other than holding or dealing with the legal title. When the beneficiary dies, the trust does not cease (or die with him/her). The trust continues on for the benefit of the SUCCESSOR BENEFICIARY.
As a result of this almost continuous life, a trust by-passes probate upon the beneficiary's death. Thus giving privacy to the transfer of assets after death. Trusts can hold real estate, notes, options, mortgages, or leases.
The cornerstone of asset protection is financial privacy. Financial privacy begins with not making public the extent of your holdings. Trusts provide privacy by taking ownership of assets out of your name (or preventing them from going into your name to begin with) and keeping you out of the "public eye." If someone does get a judgment against you, they cannot levy against your trust.
There are numerous types of "trusts" that have been used in our country over the last 200 years. In fact, LAND TRUSTS and the law behind them followed the settlers over from England. Almost 500 years ago in medieval England, land trusts were used by the common man, "serfs", to protect their property rights from those who were in power at the time. Trusts served not only to protect assets, but also to avoid taxes and laws of descent. Even though King Henry VIII tried to bypass the use of trusts (to prevent serfs from holding title to property in "trust" and avoiding the responsibilities of land ownership), the medieval courts of England (and most courts since) have upheld the use of land trusts and the rights of their beneficiaries.
This report will concentrate on the unique benefits of using land trusts. Other types of trusts such as: Testamentary, Inter-Vivos and Business Trusts will not be explained here due to the limited space available.
Land and the improvements built upon land have been the most exposed evidence of wealth since man began accumulating assets. Imagine walking out to your mailbox one breezy Saturday morning and finding a letter from a local shyster (contingent fee lawyer). The gist of the letter is that you are being sued for 1.2 million dollars because one of your tenants in your 10 unit apartment building was broken into, robbed and beaten by an assailant. The negligence claim against you includes pain, suffering, medical bills, legal fees, loss of income, personal property replacement, and perhaps long term disability payments. How can you protect yourself from unwarranted lawsuits? Read on, serf.
Now, just because you have put your apartment building into a land trust doesn't mean that you won't get sued. But, let's analyze what protection a land trust affords the landowner and how this type of ownership could slow down the legal eagles swarming around your assets.
First, in a land trust, you do not hold the title to the property (as is typically done by most property owners). Your Trustee is the "owner" and therefore, his/her/it's name appears on the local county registry as the owner of said 10 unit building. This is your first line of defense. NEVER OWN PROPERTY IN YOUR OWN NAME! (Unless it's property you don't mind losing--which may be an intentional move on your part).
The trust agreement (signed by both the trustee and the beneficiary) spells out the rights and duties of the parties involved. All the benefits, rights, and powers of ownership are retained by the beneficiary. Different types of property can be placed into a land trust including but not limited to; land, improvements, leasehold interests, options and a variety of personal property. The distinctive feature of the land trust is the separation of ownership from the rights of ownership. It must be emphasized that a trustee for a land trust is NOT an agent of the beneficiary in any sense under the law.
Once you have placed each of your properties (or individual assets---it doesn't have to be real property) into its own individual trust, you have at least removed yourself from the public eye. Now, don't thwart this move by bragging to all of your friends about the 10 unit building you own over on Main Street, USA. Keeping the knowledge of your assets private is your second step to concealment and therefore, protection from unwarranted litigation.
Beware! When you first acquire property is the time to place it directly into a trust. Do not put the property into your own name first! This way no record of an individual's ownership exists in the public record. However, if your property is already in your name now, it's still better to transfer the ownership into a trustee's name then to leave it in your own name.
When placing your property into a land trust you will need the services of a trustee. The best trustee is a private individual that lives in a state other than yours and certainly lives in a state other than where the property is located.
The reason why you want each property in its own individual trust is for the utmost protection of each asset. Should someone get a judgment against you it will be much harder (and a lot more expensive) to attach each and every trust. If all of your assets are located in one trust, it's a slam dunk for your opponent, once he gets his judgment against you. Remember, the name of this "game" is: delay, delay, delay and make it as difficult and expensive as possible on your adversary.
You might consider being the trustee for property owned by your out-of-state trustee, so you can help each other out---and save trustee fees. Now, when the gumshoe goes looking for the "owner" of the property to set his lawsuit in motion, he will have to find out who the beneficiary is. This process of looking for the real owner is one in which you want to put up as many obstacles as possible. You are trying to slow down the process and make it expensive to reach you and your assets.
Ultimately the property itself can be reached in a lawsuit (even with an out-of-state trustee), but your plan should be to stay as far away from the eye of the storm as possible so they don't reach any of your other assets. A judgment lien levied against your individual 10 unit building is one problem. But, a judgment rendered against you--in your personal name, is a much worse situation.
"THE ARCHITECT OF YOUR DESTINY IS YOURSELF"
"SUCCESS WALKS HAND IN HAND WITH FAILURE"