Why form a Land Trust?
A land trust is a document we create that allows your property to be held privately so your name does not appear on the title in the public records.
Let’s say you get in a car wreck. You have $1 mil of insurance. But you hit a stock broker & you get sued for $3 million. If you own your house and investment properties in your own name, the lawyer suing you will easily find your house and any other properties in the public records. If you own a home, it shows some financial stability and the lawyer will be much more likely to file the lawsuit.
The opposing attorney can immediately have the sheriff pull up in front of your house, bang on your door while you are eating dinner and hand you your lawsuit in front of all your neighbors. However, when you have your house in a land trust, your ownership is hidden. Your land trust does not have to be filed in the public records. It keeps your ownership private. Nobody has to know you own your house but you.
What is a Land Trust?
The land trust has four components: Number 1 is the settlor. That is you because you are having the trust created. Number 2 is the trustee. The Trustee’s control is limited by the terms of the trust. This can be a sister or an in-law, trusted friend or family member. To enhance your privacy, it is best to choose someone without your last name. All trusts need a trustee but with this kind of trust their rage of control is dictated by the trust. Number 3 is the beneficiary. That is the one who receives all of the benefits of the trust. That is YOU (or one or more individuals or companies which you designate). The beneficiary can have all of the control. The beneficiary can direct when property is bought and sold. The beneficiary is the one who can refinance the property or can collect the rental income from investment properties. Finally, number 4 is the corpus of the trust. The corpus is the capital or principal (items of value) within trust.
Benefits of a Land Trust
The great thing is that all the top tax benefits remain in tact. With a properly structured trust, when you sell your house the tax benefits remain. If you’ve resided in the home for two out of the last 5 years you don’t have to pay taxes on the profits when you sell on up to $250,000 of profit for single person or $500,000 for a married couple, when structured properly.
What you have achieved is privacy of ownership.
What Will the Lender Say?
The Garn – St Germain Depository Institutions Act of 1982 specifically allows one to place one’s property into the type of land trust to which we refer without triggering the due-on-sale clause. That means that one can transfer mortgaged property to a land trust without interference from the bank. This is the case as long as the borrower remains a beneficiary, the property consists of fewer than five dwelling units, the trust is revocable and does not convey rights of occupancy to others.
Garn-St Germain Depository
Institutions Act of 1982
§ 1701j–3. Preemption of due-on-sale prohibitions
(d) Exemption of specified transfers or
With respect to a real property loan
secured by a lien on residential real property containing less than five
dwelling units, including a lien on the stock allocated to a dwelling unit in a
cooperative housing corporation, or on a residential manufactured home, a
lender may not exercise its option pursuant to a due-on-sale clause upon—
(8) a transfer into an inter vivos trust in
which the borrower is and remains a beneficiary and which does not relate to a
transfer of rights of occupancy in the property; or
(inter vivos trust = A trust created during the lifetime of the settlor. The settlor is the one having the trust created. The type of Land trust to which re refer is an inter vivos trust.)
Where Can I Use a Land Trust?
Land trusts have been used in all 50 states.* Some state statutes do not make specific reference to a land trust but they have been used in all states.**
One of our clients had a neighbor walk in the front yard of one of their houses. She broke her ankle, suffered a blood clot and died. They were sued for everything they had way more than what their insurance could cover. If they had done one thing own the property in a land trust that probably wouldn’t have happened. It’s not that the trust eliminates the liability. It is that, the way we structure your land trust, nobody needs to know you have an interest in the property-holding-trust but YOU. So, it is a mystery as to whom the lawyer is to sue. They would have to spend a lot of money to even find out if it is worth suing you.
One of the associates in our office bought his first income property in the state of Washington. It was a run-down 6- unit apartment building. He hired a contractor to fix it up. But the con-tractor turned out to be a con artist. He got in a legal battle that lasted 4 years and cost him $157,000. If he had only done one thing that is own his properties in a land trust, instead of in his own name . that probably would not have happened. But instead, the opponents saw that he owned a home and an investment property, so they decided to sue. So, your land trust owning your property can give you the privacy to protect you from losing your own home, your car, your bank account and having 25% of your future income garnished for the next 20 years. Again, it, alone, is not an asset protection device. It’s purpose is to shield your real estate from prying eyes. Rather than holding title to your real estate in your name for all to see, it provides a barrier between you and those who do not have your best interest in mind. Thus, it can decrease the chance that a lawsuit will be filed against you.
What Do I Have to Do?
Call Companies Incorporated to speak with a representative. After you order, we will email you your land trust questionnaire. You will complete the questionnaire and return it by fax. Your documents will be prepared. The trust deed, which is approximately 12 pages, will be created. You keep this in your file cabinet at home or in a safe deposit box. The grant deed, transferring your property from your name to your trust will also be prepared. This document is recorded in the county recorder’s office in the county where the property is located. The assignment of beneficial interest document, which transfers the beneficial interest in your property to a company, person or living trust will also be included if you choose this free option.