A trust is a legal entity whose sole purpose is to hold assets. Trusts can hold any type of asset, including real estate. A land trust is a trust designed for the purpose of holding real estate.
So what makes a trust? There are different types of trusts, but all trusts have the following elements in common:
Beneficiary. The individual(s) who control the trust and its holdings. As the beneficiary of a land trust you have control of the property held in trust just as if you were the owner, and you are entitled to earn profits from the sale or rental of the property.
Trustee. The individual who actually owns the property in trust. The trustee is responsible for managing the assets held in trust, and distributing income according to the terms of the trust. The trustee owes a fiduciary duty to the beneficiaries and must carry out their instructions.
Trust Agreement. This outlines the terms of how the trust is to be managed and administered. It spells out the responsibilities of the beneficiaries and the trustee.
A land trust, then, is essentially a legal entity capable of holding real estate that is formed by a written agreement between two parties, the beneficiary and the trustee. The beneficiary controls the trust and the underlying property but does not have ownership. The trustee legally owns the property but must act according to the wishes of the beneficiary.
Perhaps you are asking yourself "Why on Earth would somebody use such an arrangement?" As it turns out there several advantages to controlling real estate without owning it. Here are a few.
Privacy of Ownership
The owner of record of a property held in trust is the trust itself. The trust agreement, which lists you as the beneficiary, is not made a matter of public record. Therefore holding a property in trust allows you to control the property without creating any public record listing you as the owner or associating you with the property in any way. This is a great thing if you don't like lawsuits.
Publicly owning real estate makes you a fabulous target for them. Think about it, if you were an attorney being hired to sue someone, would you rather take on a legitimate case where the defendant is actually guilty of wrongdoing but has no assets, or a case where the defendant didn't really do anything wrong but does have lots of assets? Believe it or not, just having publicly recorded assets makes you a more appealing target to predators and creditors of all sorts regardless of what you actually do. Holding a property in trust will also keep the price you buy it and sell it for off of public record, which can come in handy in certain situations.
Ease of Transfer
Transferring a property held in trust is much easier than transferring a property that you own. Beneficial interest in a trust is considered to be personal property, not real property. Therefore you can assign your beneficial interest in a trust to another party without a formal closing. The event is treated by the law as a transfer of personal property, not real estate.
Ease of control by Multiple Owners
If a property has multiple owners, those owners can place the property in a trust and assign themselves as beneficiaries. Then, only the trustee's signature will be required to execute documents relating to the property, rather than that of each of the beneficiaries.
Given these benefits of using land trusts, hopefully you are excited to find out exactly how you can use them in your real estate business.
The land trust is a very powerful tool for the savvy real estate investor. A land trust is a revocable, living trust used specifically for holding title to real estate. Each property is titled in a separate trust, affording maximum privacy and protection. Here are seven reasons to use land trust for titling property to real estate. 1. Privacy In today's information age, anyone with an internet connection can look up your ownership of real estate. Privacy is extremely important to most people who don't want others knowing what they own. For example, if you own several properties within a city that has strict code enforcement, you could end up being hauled into court for too many violations, even minor ones. Having your real estate titled in land trusts makes it difficult for city code enforcement to find who the owner is, since the trust agreement is not public record for everyone to see. 2. Protection From Liens Real estate titled in a trust name is not subject to liens against the beneficiary of the trust. For example, if you are dealing with a seller in foreclosure, a judgment holder or the IRS can file a claim against the property in the name of the seller. If the property is titled into trust, the personal judgments or liens of the seller will not attach to the property. 3. Protection From Title Claims If you sign a warranty deed in your own name, you are subject to potential title claims against you if there is a problem with title to the property. For example, a lien filed without your knowledge could result in liability against you, even if you purchased title insurance. A land trust in your place as seller will protect you personally against many types of title claims because the claim will be limited to the trust. If the trust already sold the property, it has no assets and thus limits your exposure to title claims. 4. Discouraging Litigation Let's face it, people tend to only sue others who appear to have money. Attorneys who work on contingency are only likely to take cases which they can not only win, but collect, since their fee is based on collection. If your properties are hard to find, you will appear "broke" and less worth suing. Even if a potential plaintiff thinks you have assets, the difficult prospect of finding and attaching these assets will discourage litigtation against you. 5. Protection From HOA Claims When you take title to a property in a homeowner's association (HOA), you become personally liable for all dues and assessments. This means if you buy a condo in your own name and the association asseses an amount due, they can place a lien on the property and/or sue you personally for the obligation! Don't take title in your name in an HOA, but instead take title in a land trust so that the trust itself (and thus the property) will be the sole recourse for the homeowner's association's debts. 6. Making Contracts Assignable The ownership of a land trust (called the "beneficial interest") is assignable, similar to the way stock in a corporation is assignable. Once property is title in trust, the beneficiary of the trust can be changed without changing title to the property. This can be very advantageous in the case of a real estate contract that is non-assignable, such as in the case of a bank-owned or HUD property. Instead of making your offer in your own name, make the offer in the name of a land trust, then assign your itnerest in the land trust to a third party. 7. Making Loans "Assumable" A non-assumable loan can become effectively assumed by using a land trust. The seller transfers title into a land trust, with himself as beneficiary. This transfer does not trigger the due-on-sale clause of the mortgage. After the fact, he transfers his beneficial interest to you. This latter transaction does trigger the due-on-sale, but such transfer does not come to the attention of the lender because it is not recorded anywhere in public records. This effectively makes a non-assumable loan "assumable". As you can see there are many creative and effective uses for the land trust, limited only by your imagination!
Both Omar Johnson & Katie George are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Omar Johnson has sinced written about articles on various topics from tax, Real Estate and How to Sell on Ebay. Omar Johnson is a successful real estate investor and entrepreneur who teaches and trains real estate investors how to create and operate land trusts from scratch in the specific state they do business in. For more information visit. Omar Johnson's top article generates over 12100 views. to your Favourites.