A question I get a lot from real estate investors is, “What is a Land trust? “Why do people use it? “What is all the hubbub?” There’s a lot of bad information out there, so I’m just going to give you the relevant information to help you make an intelligent decision.
Tax laws are changing all the time.
The laws are changing all the time. This way you’re first to know, you’re first to grow. So first off, every state allows some sort of trust.
And a trust at its basic inception point is three parties. And this is the easiest way to think about it. Is think about it like it’s a triangle.
You have your beneficiaries, the ones who are ultimately allowed to use the property. You have the party that runs it who actually manages the property, and then you have the party that gives it, which is called a grantor or settlor.
And all trusts have these parties in them.
Any time you have a living trust, a asset protection trust, charitable remainder trust, personal property trust, irrevocable life insurance trust, they’re all just a version of the same thing with different parties and different requirements for who can act in what position. And so, usually the title of the trust, like a dynasty trust, all that tells me is that it’s a trust that’s designed to last a long time. And some people go like, “Oh I heard about this dynasty trust.”
It’s just a trust.
There’s always going to be grantors, trustees, and beneficiaries, and then we’re going to just have some relative idea about what are the qualities of that trust. Is it revocable? Is it irrevocable? Is it for tax purposes? Is it defective for tax purposes?
Like we go down this line.
So, when we say Land trust, what we’re really saying is a trust that holds Land. Yes, there are states that have statutes. The most famous is Illinois, and they will call it an Illinois-style Land trust. And it’s a fancy way of taking the beneficial use of a property and separating it from legal title.
That’s all it is. We’re literally taking away what name is on the title from who gets to use and control that property. I hope there’s some bells going off now for people when you realize, “Wait a second, “the party whose name is on that title “is not the party that gets to occupy or develop “or use the property?” Correct, that party is whose name goes on the title is as a trustee on behalf of the trust. So let’s call it the Blue Trust or the Pink Trust or whatever name.
You could literally call them anything, and a trust cannot own something by itself. It always has to own it through a trustee. So think of it like a parent for a child. The child’s name is not on the property if the child is a minor. It’s going to be the parents’ name only because they are the only ones who can contract.
In a trust it’s a fancy way of saying, hey the trustee’s the only name that’s going to be on the title. The beneficiaries are sitting out there and they’re not required to be disclosed. Now there is a state that does require disclosure, Arizona, but most states don’t, and even then, we can still get your name off the title. That is why Land trusts are so flipping’ popular.
If somebody says, “Oh I’m going to use a Land trust “and therefore I’ll never get sued “and da da da da da,” no. Land trust has nothing to do with that. You have to use it in conjunction with another entity if you want the asset protection. But what they’re fantastic at, what they are absolutely bar none the best at is getting your name off of a piece of property. And consider this, you had 10 pieces of property.
You had a slip and fall on one of them, and they pulled up your name and saw that you owned nine other pieces of property.
What are the chances of you getting sued right now? Very high. “Hey, rich person, they’ve got a bunch of properties. “They have something to lose.
” Put it on the flip side.
Now assume it was one piece of property, it was in Blue Trust. They pull up Blue Trust and they see it has that one property only. That’s it. And by the way, this trustee’s name doesn’t even have to be yours.
You could have a professional sit in that. You could have a company sit in that. There are ways to get your name off of title. But this is why they are so popular for savvy real estate investors because savvy real estate investors know that there’s an extremely valuable component of keeping your name out of the public record when it comes to the real estate because it minimizes risk, and it keeps your affairs private.
And it really is worth its weight in gold when you look at it from just that standpoint.
Such an easy tool where all we’re doing is separating out legal title from true beneficial ownership. And by the way, yes we can take that beneficial ownership, and we can stick it squarely within an LLC or some other entity. Yes we can do that, no problem. But step number one is let’s get the property out of your individual name. Once we get it into the trust, then the trust can absolutely do some more things.
And the beautiful part is 99% of the time, there’s not a paper trail in the public showing that this is going on.
And that is one of the most effective asset protection techniques ever is just making sure people can’t easily determine that you’re an attractive target. Now they are just going off of merits only. I’m not saying do any skullduggery, but people do not need to know that you’ve got 50 properties. If they do know you have 50 properties, your chances of being subject to needless litigation goes up exponentially.
In fact, I think it was Mark Cuban who said one of the worst parts about being wealthy was having to deal with all the lawyers. Because people are always trying to take it away. The homeless folks are not getting sued to take away their assets. It’s the people with assets that get sued, and if you can prevent the public from just willy nilly being able to see what you own, it’s an extremely, extremely effective tool.