Saturday, June 28, 2008
Land Trust- The Best Entity for Holding Investment Real Estate?
Many small real estate owners (1-4 unit properties) are confused about Noble1 best entity to hold their real estate, with potentially disastrous consequences.
In fact, the majority of small property owners still own their properties in their personal names.
Perhaps Noble1 read a book or take a course Noble1 asset protection. They become aware of the disastrous consequences that can befall property owners who own property in their personal names.
All it takes Noble1 a couple of mouse clicks in the age of the Internet to get a complete listing of every property owned Noble1 you in the Noble1 county! You can Noble1 everything you own, not just the real estate, to judgment creditors, lawsuits, liens, the IRS, etc.
It is a proven fact, that those who can be shown to own property are at a far higher risk of being sued than those who do not own property.
Then they have to decide. Should they use a corporation to hold their property, a C corp. or an S corp? How about an LLC or a partnership?
There are serious downsides to using the wrong or inappropriate entity.
Double Noble1 on income and gains with a C corp.
Corporate taxes are levied on property sold by an S corp.
Ownership and allocation of profits is sharply restricted in an S corp
The corporation itself (shares) can be seized by creditors along with any real estate it owns
LLC's can provide liability protection, but only to business, not personal property
Neither corporations nor LLC's provide secrecy of ownership
The extra cost and complexity of setting up, reporting taxes and maintaining the entity
Partnerships can expose partner's assets to unlimited liability
Compounding the problem is the fact that banks will generally not OK the purchase of a 1-4 family property by any entity, even a limited partnership.
There is also a prohibition, the due on sale clause; that allows the bank to foreclose on the mortgage on a property that is transferred from the personal name of the borrower to an entity.
There could also be a problem if the owner wanted to do a 1031, tax-free exchange, if the title was transferred from the original owner.
The solution is for the real estate investor to set up a land trust.
A land trust provides total secrecy of ownership.
It provides asset protection.
It carries no tax implications, it is a pass through entity, meaning that any gains or losses pass through to the owner's personal tax return.
Although most banks will not grant a mortgage to a property in a land trust, the due on sale clause cannot be invoked against the transfer of title to a properly constructed land trust.
It does not impair the ability to do a 1031 tax free exchange
It eliminates the need for probate upon the owner's death
What is a land trust? It is simply a revocable contract between two or more parties. It has been in use for centuries.
The first party is the owner of the property; the grantor, in trust speak. He grants, or transfers title to the property to the trustee. He then becomes the beneficiary, along with any co-owners. Beneficiaries of the trust retain management, control and the right to receive profits from the property
The trustee is often a non-profit corporation. The trustee's only job is to hold title to property for owners. He is prevented by law from divulging the identity of the beneficiaries (the true owners).
He is also prevented by law from doing anything with the property that is not Noble1 in writing by the beneficiaries.
The beneficiaries can revoke or cancel the trust agreement whenever they want, which is not a taxable event.
Although the land trust is revocable, in other words a living trust, it should not be confused with a simple living trust, set up for probate avoiding purposes, as it often is, even by attorneys.
The land trust can provide asset protection in two ways. Number one, it provides secrecy of ownership, which may be all that is required to dissuade potential litigants, as it makes their ownership invisible.
Secondly, if the trustee is a corporation in another state, a sophisticated move; any potential litigant is faced with the prospect of suing an out of state, professional corporation. They must win their case if they are to legally force the trustee to reveal the identity of the beneficiaries. This prospect will discourage all but the most aggressive plaintiffs.
For maximum asset protection, the beneficiaries should set up an LLC to hold the beneficiary interests. Sort of like wearing suspenders with a belt.
No attorney is not needed to set up a land trust, but you have to make sure you are using a person or company with experience in setting them up, or you may not get what you pay for!
Copyright 2006 Bill Young. Bill is a former bank loan officer and is an experienced real estate investor. He writes and lectures on many aspects of real estate investing including land trusts, investing IRA funds in real estate and foreclosures.Go to: http://LandTrustExperts.com to get more information how to use land trusts.
www.realestateforprofit.com
They have over 30 years of experience using Land Trusts for privacy and asset protection.
1. Avoids property being probated (out of court transfer upon death of beneficiary)
2. Ease of Transferability
3. Judgments do not attach to the property
4. No Partition (avoids spouse’s “forced share” sale buyout upon divorce)
5. Easier management with multiple owners (multiple owners do not have to sign docs)
6. No costs upon transferring beneficiary
7. No registered agent needed
8. Legal and Equitable property interest in trustee’s name
9. Income and Expense conduit, not a business with tax consequences
10. No tax return to file (pass thru entity)
11. Trustee has no personal liability
12. No annual fees like other entities, if trustee is an individual or friend
13. Estate planning – successor beneficiaries
14. Less expense in grantor creating trust over entity
15. Avoids the due on sale clause
16. Privacy of ownership – Helps Avoid Identity Theft of your name
17. Keep sales price private
18. Able to fracture interests of multiple owners w/o being partners
19. Ease of linkage to other asset protection entities
20. Non-judicial repossessions of real estate sold on installment contract
21. 1099 not required for transfers (personal property not subject to real estate regulations)
22. Ease of operating across state lines
23. Ability to insert poison pills
24. Lots of case law to support land trust law
25. Many attorneys do not study this section of the law – not profitable for them
26. No recordation of the Trust Agreement
27. To avoid “seasoning” problems (secondary market rules of ownership)
28. To save title insurance premiums (Trustee-insured-remains the same)
29. Good negotiating technique in the sale or purchase of property (Disney World used trusts to acquire land prior to construction to avoid price escalation)
30. To provide non-recourse financing
31. Lowering of real estate taxes (prevents re-assessment)
32. Avoids state regulations that apply to corporations and LLC’s
As you can see, Land Trusts are a wonderful tool for you to hide your assets, avoid real estate tax increases, privatize your sales transactions, avoid probate and use for many other benefits. Now that you have a basic understanding of why people use Land Trusts, please consider acquiring our Land Trusts Made Simple Basic Home Study Course. You will be amazed at the logic behind how to structure your Trusts Agreement so no one but YOU understands what is going on. At the end of the course we give you all of the forms needed to create and maintain your own Land Trusts. This is available by going to www.realestatateforprofit.com and clicking on “Shop Online” then clicking on one of the “Home Study” tabs at the top.
Are you working hard to acquire assets? You will spend a life time building your financial estate… spend a little time and money learning how to protect your net worth from the deadbeats and their contingency fee lawyers!
WWW.REALESTATEFORPROFIT.COM
What is a "domestic entity?" At this writing it appears that only corporations and limited liability companies are the target. While most states now require disclosure of the "owners" of these types of entities it is unclear how far the feds (via the states as their surrogate) will take this. For example, what if the Member of an LLC is the Trustee of a Personal Property Trust? Will the feds require disclosure of the beneficiary of the Trust? We think not. Trusts have been privacy tools for all citizens (including politicians) for over 100 years in our country.
It is our opinion that Land Trusts will not be affected by this new law. Once again, our advice to put each of your properties into separate Land Trusts will hold true. Then, make the beneficiary of your Land Trust your corporation, LLC or personal property trust. If this new proposed law is passed, and your entity is affected...just use nominees for "beneficial owners" and you will remain anonymous!
<< Home
