OfflineLand Trusts - Misunderstood,Misapplied
One of the most common questions I receive after a person views my video training called Subject-To 101: The Basics Of Subject-To Investing is: “Do you use or recommend the use of land trusts with subject-to transactions?”
Frankly, that question is a bit out of sequence, as there’s a lot more to know about Subject-To investing before land trusts become relevant in any way. But I’ll go ahead and answer that question now since it’s so common.
First you should know that a “Land Trust” is nothing but a legal document. Basically, the land trust is a way to hide who the real owner of the property is. The general public thinks that some person (the “trustee”) owns the property, but in reality, the trustee has a “boss” who controls everything the trustee does.
Don’t misunderstand: I’m 100% for financial privacy, and I am a proponent of using land trusts. But don’t let any of the guru’s make this more complicated than it really is. Land trusts hide property ownership, and that’s really about it. (Yes, there can be some estate planning value as well, but that is rarely the motivation for using a land trust.)
This is relevant because subject-to transactions always trigger the lender’s right to foreclose per the Due-On-Sale clause. For a quick primer on the Due-on-Sale clause, watch this (then continue reading below it):
So the idea of using a land trust in a Subject-To transaction is really for two reasons:
1. Land trusts serve to hide who the real owner of the property actually is, giving lenders a plausible reason to believe that the borrower to whom they lent money may actually still own the property
2. Many investors think that the Garn-St. Germain Depository Institutions Act gives them the right to use Subject-To transactions without repurcussions, so long as the property is placed into a land trust. (By the way, this is false.)
Having said all of that, I am a big fan of land trusts, regardless of whether the context is Subject-To deals or any other deal. They are very inexpensive to set up and make it truly easy to maintain your financial privacy, which can not be understated in our litigious society.
But don’t make the mistake of thinking that land trusts offer any asset protection in the event of lawsuits. They don’t. But they may well keep you from ever facing a lawsuit in the first place.
Bryan Ellis
"THE ARCHITECT OF YOUR DESTINY IS YOURSELF"
"SUCCESS WALKS HAND IN HAND WITH FAILURE"
Thanks for the article sistreat.
I want to expand on the last statement made by the author.
It costs close to $18,000+ to find out who the beneficiary of a trust is (if you have a lot of trusts, thats a lot of $$$), and most attorney's will require fees upfront (retainer fees) from a person trying to get an asset away from the beneficiary of a trust. (because it looks like someone doesn't own anything, and therefore a lawyer won't do services w/o money upfront. ). So, lets say you own 5 properties, 3 cars, a boat, furniture, jewelry, art, and have cash. You can make a trust for each asset individually, making it incredibly hard for anyone to get anything from you. (Land trusts are for real estate, but there are hundreds of other types of trusts)
Say someone gets into a car accident and is at fault. If each of that person's assets is in a separate trust, the ONLY thing the person suing can go after is what's in that particular trust. In this case, only the car is in the trust, so that is all that can be taken away.
Also, there is a way to get an unassumable loan with the use of a trust, but its rather complicated and not as straight forward as simply setting up a land trust.
Each trust is its own entity. You can even get a separate social security number and bank account for each trust. And, the estate planning portion of it is significant! There's a way to have all your stuff free of probate, and have NO estate taxes on over $1.2M in assets. Considering probate is up to 70% of an assets value and estate taxes are huge you can bet they are very valuable tools for estate planning purposes as well.
Years ago, when Senator Ted Kennedy got into a car accident the victim tried to sue him because they knew he was rich. So, they did a full blown law suit. The only thing that could be collected upon was the car that was in a separate trust.
I thought about you when I posted this article. I am glad yo like it.
I always thought too that it was total protection but then I read so many times that it isn't...so I continue to read articles provided by people who work with trusts all the time.
Here are a couple articles written by people who work with trusts. Maybe you can find something here...
http://www.assetprotectionbook.com/forum/viewtopic.php?f=95&t=259
http://www.companiesinc.com/services/land-trust.asp
"THE ARCHITECT OF YOUR DESTINY IS YOURSELF"
"SUCCESS WALKS HAND IN HAND WITH FAILURE"
...really good info and your timing couldn't be better. Land Trusts have been heavy on my mind for something to focus on in the coming year.
I've got plenty of homework to do between now and then, but Land Trusts will be an avenue I want to learn about and explore.
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That 2nd one is correct if a land trust isn't done correctly. By having a beneficiary and trustee the same, it will cancel out the trust in a court of law and provide no protection whatsoever. But done correctly, its usually so much of a hassel and so costly for the average everyday person to go after something in a trust, that they don't pursue it.
Its kind of like the burglar choosing homes on a street to burlarize. If one house has an alarm, and the one next door doesn't, he'll go after the house without the alarm because its the easier target. It's a deterrent to the burglar. In much the same way, the trust is a deterrent to the asset in it.