Use a Land Trust as an Asset Protection Device to Hide Your Real Estate
By Shane Flait © 2012

A key part of financial planning is protecting your assets from unfair and aggressive claims against you based on your apparent wealth – or ability to pay. Of course, nothing makes you so vulnerable to such claims as the visibility of your wealth. Using a land trust, you can help hide some of your real estate holdings. Here’s the scoop…

 

What is a land trust and what does it do?

A land trust is a revocable contract between two or more parties. The first party is the owner of the property - the grantor. He grants, or transfers title of the property to the trustee of the land trust. The owner (i.e. grantor) then becomes the trust’s beneficiary - along with any other co-owners that may exist.

 

The beneficiaries of the land trust retain management, control and the right to receive profits from the property. They can transfer beneficial ownership to another quickly - without a deed change. And they can revoke or cancel the trust agreement at any time - which is not considered a taxable event.

 

The land trust carries no tax implications because it’s a ‘pass-through’ entity. That means that any gains or losses pass through to the owner's personal tax return – as beneficiary. Likewise it doesn’t impair the ability to do a 1031 tax free exchange either.

 

Realize that most banks will not grant a mortgage to a property in a land trust. But, besides that, the ‘due on sale’ clause cannot be invoked against the transfer of title to a properly constructed land trust.

 

The trustee's only job is to hold title to property for owners. He’s prevented by law from divulging the identity of the beneficiaries (who are the true owners - grantors). He is also prevented by law from doing anything with the property that is not in writing by the beneficiaries.

 

Avoiding visiblity

Without this land trust contract, the beneficiary would be the titled owner of the property and on the deed for the property- for all to know. That’s because anyone with an internet connection can look up a person's real estate holdings, or go to the local probate court to view the deeds of property owned in its jurisdiction.

 

To avoid this ‘titled’ visibility, some investors buy their properties in land trusts so their name doesn’t appear in the public records at all. The land trust also allows the property to immediately pass to their heirs at the moment of death, rather than go through a long probate process – which is another advantage.

 

Of course the beneficiary must be careful about the property’s profits, gains or losses appear on his tax returns since the land trust is a pass thru entity.

 

Additional advantages of land trusts for individuals

Specific advantages that a land trust can afford individuals are:

• Sales price of the property can be kept off the public records
• Property taxes may be lower if the purchase price is kept private
• Judgments or liens (such as IRS liens) against an individual's name are not a lien against their land trust property
• Partners can more easily continue a project if one dies or is divorced
• Interests can be transferred quickly without recording a deed
• Liability on financing can be limited to the assets of the trust

 

Check with a lawyer to see if a land trust is a viable asset protection device for you.

 

 

 

 

 

Shane Flait is a writer and educator. See more at www.EasyRetirementKnowHow.com