Posted by Bill Gatten on April 21, 2000 at 22:20:39:
Bill,
(I preumse to meant…BeneficiarIES…were LLC’S…)
I truly appreciate that kind of input (and the tenor of it). Thank you very much. In my seminars, I do promote the use of LLC’s as beneficiaries in our co-beneficiary land trust transfers. My own properties are all so held.
Thank you.
Bill Gatten
LAND TRUST…BRONCHICK COMMENTS REVISITED…HIS STATEMENTS ARE CONFUSING!!! - Posted by chris
Posted by chris on April 18, 2000 at 10:07:36:
I recently visited the archives on land trusts. I found something that was said by Bronchick in a response letter. These comments are in the two paragraphs below…
"I don’t know what LeGrand says, but I specifically tell people in seminars and in my courses that a land trust (or any self-settled revocable trust) will not give YOU protection from judgments. A judgment creditor may seize your beneficial interest and force the sale of trust property. See, e.g., Cal Civil Code Sec 709.010(b).
However, property you own in trust, cannot be encumbered by a judgment against you personally, because a lien aginst you cannot attach as a lien against the trust property, which is held by the trustee."
These comments were found at the address below…
http://www.creonline.com/wwwboard/messages/sep99/39221.html
Doesn’t Bronchick say the same thing in both paragraphs? He is saying that YOU can be sued even though the property is in the trust…and the property could be seized, but then he says in the sencond paragraph that the property cannot be attached to a lien filed against you. WHAT is the difference???@??? This is very confusing! Could someone please clear this up. BRONCHICK!!!
From the Horse’s Mouth - Posted by William Bronchick
Posted by William Bronchick on April 20, 2000 at 11:01:17:
Let me clarify: the land trust is not a liability shield like a corporation, so its owners (the beneficiaries) are not protected from lawsuits. For example a tenant sues the owner of the property (the trust), he can go directly through the trust and hold the beneficiaries liable.
On the other hand, a judgment against the beneficiaries unrelated to the property will not result in a lien on the property if the judgment is filed in the County records. This is because the property is titled in the trust name, not the beneficiaries.
Finally, despite Bill Gatten’s comments below to the contrary, the law is crsytal clear than a judgment creditor of the beneficiaries ABSOLUTELY can seize the beneficial interest of the trust and force the sale of the property, especially under CA law.
Re: LAND TRUST…BRONCHICK COMMENTS REVISITED…HIS STATEMENTS ARE CONFUSING!!! - Posted by chris
Posted by chris on April 18, 2000 at 19:45:59:
Chris-
You may want to also read Bill Gatten’s info on utilizing multiple(two or more) unrelated beneficiaries in a land trust to protect real estate. The property is shielded as the result of the non-partitionable nature of personal property. Personal property cannot be partitioned to satisfy a judgement lien. A judgement creditor dealing with a single co-beneficiary of a title holding land trust is forced to proceed in its action solely against the individual without regard to the trust property.
-Hope this helps, Chris
To simplify… - Posted by MDonovan
Posted by MDonovan on April 18, 2000 at 16:55:26:
What everyone has said below is for the most part correct, however to answer your direct question:
Paragraph 1: A judgement against a beneficiary allows the creditor to seize the beneficial interest.
Paragraph 2: This judgement will not attach as a lien to the property.
My take-timing - Posted by Bud Branstetter
Posted by Bud Branstetter on April 18, 2000 at 12:11:18:
A person that files a suit against you must first win the suit. Not until that is done and all appeals exhausted is the judgement final. Then and only then does a judgement attach to you personally. It does not attach to personal property you own such as a bank account or a beneficial interest in a trust. Only after the judgement is final does a creditor have the right to ask you what else you own. Like Clinton, if they do not ask the right question you do not have to volunteer information. Once they do find you have a bank account or interest in a trust the creditor must go back to court to attach that. Obviously, this all takes time. Since the land trust is a private transaction(transfer not public) you were luckey that you transferred your interest to your wife the month before the occurance of whatever brought the suit to begin with.
Technically speaking this is not protection. Effectively it does slow them down. Protection is effected by a limited partnership entity. The creditor can not force the sale, they can only get a charging order.
NOT REALLY CHRIS - Posted by CurtNY
Posted by CurtNY on April 18, 2000 at 12:06:28:
Chris,
What I think Bronckick is saying is this: If there is a judgement against you personally it can’t be attached to the property (therefore title can exchange hands without a cloud) but if a lienholder was to find out you had a beneficial interest in the property the lienholder could force you to sell the property to pay the judgement. Of this is my interpetation, you’ll have to talk to william to find out if any of us are correct. Good Luck
CurtNY
Not Bronchick but… - Posted by Rob FL
Posted by Rob FL on April 18, 2000 at 11:23:51:
I will try and give you an answer from my years in the title insurance industry.
Say there is a judgment against Mr. A. Title to property is in “Mr. B, as trustee for the XYZ Trust.” Mr. A is the beneficiary of the trust. The judgment is not a lien against the property. The property may be sold or mortgaged by Mr. B as trustee without a reference to the judgment. A title insurance company would not be concerned with the judgment. The creditor (we will call him Mr. C) would be permitted to seize Mr. A’s beneficial interest in the trust and step into Mr. A’s shoes. Then depending on how the trust reads, Mr. C could liquidate the trust and thus seize the property. Also depending on the trust, Mr. C might also be able to direct Mr. B to sell the property and give the proceeds of the sale to Mr. C. Of course in some instances depending on the trust the actual property may not be seized or a sale forced, but Mr. C could still step into Mr. A’s shoes as beneficiary.
I am not an attorney or anywhere near as knowledgeable as Bronchick, but I hope that clarifies things.
I am no Bronchick, but I will try - Posted by Tim (Atlanta)
Posted by Tim (Atlanta) on April 18, 2000 at 11:21:39:
What Bill is trying to say is that when you create a land trust, the beneficiary of the trust is actually the seller of the property. That way you do not trigger the DOS. The seller signs an Assignment of Beneficial interest. This transfers beneficial interest in the trust to you. You do not record this. You keep it in case you need it. Now if a judgement is entered against you, no one knows that you have beneficial interest in the property. Therefore any lien that comes from the judgement would not attach to the property. It is a matter of the lienholder not knowing that you have a beneficial interest in the property. If they find out that you have a beneficial interest in the property, then the judgement could attach to the property.
I am NO lawyer, but I hope this helps.
Re: LAND TRUST…BRONCHICK COMMENTS REVISITED…HIS STATEMENTS ARE CONFUSING!!! ONE MORE THING!!! - Posted by CHRIS
Posted by CHRIS on April 18, 2000 at 10:12:14:
WHAT I MEANT TO SAY IN MY LAST PARAGRAPH WAS…DOESN’T BRONCHICK CONTRADICT HIMSELF IN THESE TWO PARAGRAPHS???
CHRIS
From the Horse’s … - Posted by Bill Gatten
Posted by Bill Gatten on April 21, 2000 at 14:19:51:
If I’m wrong I apologize, though I do appreciate your tact and diplomacy in pointing out my error. I usually try not to argue with folks smarter than I am, and since I am not a trust attorney, I’ll defer to one who is (always take the advice of your attorney).
Bill, I know you’re correct in your contention relative to single beneficiary express trusts; but please… do tell me how a judgment creditor enforces a charging order (or charging lien) against the undivided interest of a co-beneficiary in a multiple beneficiary entity such as a land trust (very much akin to a partnership arrangement in this case), when the beneficiaries are unrelated to each other, and when neither one of them holds any legal or equitable title to the property in the first place…and?when one of the parties is not in any manner a party to the cause of action against the debtor beneficiary? Wouldn’t this be a little like trying to enforce a charging order against a Limited Partnership (are you saying that the possiblity of that is feasible?). Wouldn’t the creditor’s recourse be limited to the beneficiary’s percentage of interest, rather than to the property held (the legal AND equitable title to it) by the nominee?
And when such charging order IS possible (a C.O.?s purpose being to get to the beneficiary interest of a debtor co-beneficiary without risking dissolution of the entity of which the beneficiary is a part): when, and under what authority would the assets of the trust be forced into sale and apportioned…prior to the scheduled termination date of the trust? Wouldn’t that action have to be Partition? Moreover, wouldn’t the apportioned division of the proceeds from forced sale of the asset fall under Sec. 28 of the Uniform Partnership Act and be saved from distribution until at least the termination of the entity?
In addition, wouldn?t the judgment creditor probably be taxed on his charging order (if he could perfect it), even though he has to wait for the trust?s dissolution to collect any moneys (if he ever could)? Would he want that?
Sorry to have mislead anyone. Sorry to have been wrong here. The Pope and I were each allotted one mistake in life, and it appears that I have used mine up (Dang, I hate it when that happens!).
I know that it was only for the sake of time, that you omitted the cites that would prove your point about land trust beneficiary interests having been partitioned by judgement creditors in the past. Though if you do have the time, I’d truly appreciate knowing about them.
Bill Gatten
Re: The Partition thing revisited - Posted by Bill Gatten
Posted by Bill Gatten on April 18, 2000 at 21:38:17:
Chris,
My own understanding is that though such a partition action (by an “outside” party such as a creditor of one of the beneficiaries) is “virtually” impossible–and pretty much unheard of, as far as I know–partition against Personalty is possible: just not by an outside party (i.e., by judgment creditors, even including the IRS). Beneficiaries can partition off the interests of each other; husbands and wives can partition each other’s interests; a dissenting beneficiary in a multiple beneficiary land trust can be cut loose by partition, etc.). It’s just that in a co-beneficiary land trust (assuming there is no collusion proven), a creditor would likely not be able to enforce a charging order without partition, and a partition action, even if successful, couldn’t force a sale, or a division and distribution of the personal property (which is what beneficiary interest in a land trust is) held by two or more unrelated parties. When the co-benes hold their interests apart and with different objectives each co-beneficiary is pretty much protected from the untoward legal actions and personal problems of the other. It seems logical that if a creditor did get a charging order, they?d have to wait for their pound of flesh until the liquidation of the trust?s assets at the scheduled termination date (which could be 10 or 20 years later).
Our law firm (the one that represents us?we are not one) would strongly urge that anyone seeking to protect, rather than just shield a property’s title, by means of a land trust would be wise to appoint a co-beneficiary, especially for this purpose.
Short of creating a fully funded grantor’s pass-through inter-vivos family trust, in combination with a Family Limited Partnership and a Foundation (e.g., a CRT): the 3rd party trustee, co-beneficiary land trust seems to be pretty much the most functional simple tool for protection against judgment creditors, tax liens, BK?s martial disputes, etc. (not to mention probate and federal estate taxes),
Not my data…?only lamely aped from a conversation I had with one of our attorney just this morning on that very subject, as a matter of fact.
Check with you state’s Code Civil Procedures.
Related CA. Statutes (in reference to espress trusts in general) are 872.210, 710, 730, 030 and so on.
Bill Gatten
Re: From the Horse’s … - Posted by William Bronchick
Posted by William Bronchick on April 21, 2000 at 16:21:57:
The charging order applies to limited partnerships and limited liability companies under the Uniform Limited Partnershership Act and applicable state LLC Acts. Each state has its own code on debtor-creditor proceedings, but most permit the seizure of a trust interest in a revocable trust, such as a land trust (see citation above to Cal Civ Code). I would further be inclined to think that most judges would call a land trust a “nominee” or “fictitious” trust and not even apply trust law (ie simply declare that the beneficiaries are co-tenants in common as to the ownership of the property).
In your case, the co-beneficiary agreement could be construed as a general partnership, in which case the Uniform Partnership Act (UPA) would apply. CA courts have permitted the seizure and sale of a general partnership interest. The substituted partner would then have the right to call for a dissolution of the partnership and a liquidation of the partnership assets, to wit: the property.
If the beneficiary of your PAC Trust were an LLC, then it would be pretty much “bulletproof”