Land Trusts in the Keystone State... - Posted by Trout

Real Estate Investing
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Posted by Bronchick on April 06, 1999 at 10:16:10:

A new PA law no longer exempts transfer tax on properties transferred into what id described as a “land trust.” It does exempt so-called “living trusts,” so long as a copy of the trust is presented to the county clerk and recorder upon the filing of the deed. The law is silent on whether a living trust that is later amended to be a land trust will have any effect.

Some investors in PA have reported that this practice of creating a living trust, then amending it to be a land trust seems to be effective.

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Land Trusts in the Keystone State… - Posted by Trout

Posted by Trout on April 05, 1999 at 21:21:56:

LeGrand prefaces most of his material of land trusts with, “Unless you live in Pennsylvania, I would…,” or something to that extent. Because of the fact that “transfer of property into a land trust, even for one’s own use, may be subject to real property tax” (Bronchick), it is EXPENSIVE to use them. So while I can protect myself by buying under my C corp, is there any way that I would be able to hide any assets. Or should I just pay the transfer tax? Thanks in advance.

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PA HB 134, Act 7 of 1997 - Posted by Frank [Pgh PA]

Posted by Frank [Pgh PA] on April 11, 1999 at 21:34:03:

Sorry I didn’t catch these posts sooner however, the above-cited bill was passed by the PA Legislature at the close of their summer session in 1997 with 2 major revisions affecting Land Trusts.
1] As of January 1, 1998, all different types of business entities, including trusts, limited partnerships, limited liability companies, and
corporations whether Pennsylvania business entities or out of state business entities operating in Pennsylvania, all have to pay the capital stock tax
formerly paid only by corporations with capital stock. That tax is a minimum of $300.00 per year, per entity.

2] The inclusion of definitions for living trusts, ordinary trusts, and business trusts. All land trusts distributing income to the beneficiaries from the ownership of income-producing real estate will be considered business trusts. Therefore, a conveyance from an individual into a land trust will definitely expose the transaction to transfer taxes.

Also,as I understand it, in most states a Land trust does not have to be recorded. However, in PA a copy of the Trust must be recorded with the Recorder of Deeds. The result is that “anonymity,” one of the major reasons for using a Land Trust, is eliminated. A few years ago, I called Bill Bronchick and discussed this situation with him. He recommended one possible
approach [I would prefer that he supply the answer himself to those who might be interested]. Sean Casey, formerly from Pgh before he went with LeGrand, developed a whole set of disks with documents specifically for PA where he suggested setting up a regular Inter Vivos Trust [“Living Trust”] to be presented to the Recorder’s office and later writing an amendment to it which would not have to be recorded. I suspect that this approach may have been the “trigger” for the State Legislature passing the revisions stated above.
BTW…this bill was innocuously called a “Tax Reform Bill” and the redefinitions caught all of the lobbyists and attorneys who watch for such things, asleep until long after it had been passed.

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Re: Land Trusts in the Keystone State… - Posted by Rob FL

Posted by Rob FL on April 07, 1999 at 18:32:41:

I don’t know how things are up there, but here in FL our recording clerks are mainly a bunch of low paid typical government workers. You could title any trust-like document with the words “Living Trust” at the top of it and they probably would let it go. The ones I know definitely aren’t brain surgeons to put it mildly.

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Re: Land Trusts in the Keystone State… - Posted by Bill Gatten

Posted by Bill Gatten on April 06, 1999 at 19:23:05:

Trout,

Here is my take on this issue.

My understanding is that the expression “living” trust is a generic term given to any trust created during the lifetime of the Settlor (i.e. synonymous and interchangeable with the term “inter-vivos” trust). The obverse would be “testamentary” trust (i.e., designed to be effective after, or upon, the death of the Settlor).

However, the common useage (art) of the expression, “living trust,” relates today to the inter vivos estate planning vehicle known as the Estate Trust or Credit Shelter Trust, or (more commonly) the Inter Vivos Family Trusts… all essentially the same thing.

Now… with respect to the Penna. R&TC (Revenue & Tax Code), distinguishing between “inter vivos trusts” and land trusts (which are clearly inter vivos), their actions most likely infer that they are targeting living trusts in general: i.e., trusts in which ALL of the beneficiary interest and Power of Direction is being transferred (conveyed) to another.

Not having the the code and its new changes before me, I’m functioning only under wheat straw logic here; however, it would appear that to solve your problem (dilema?), you could easily just set the land trust up in the name of your seller, and have him assign the beneficiary interest to you at a later time (say, in another 12 minutes). Obviously, in this scenario, you end up with 100% of everything (tax w.o., principal reduction, appreciation, tax write-off, saleability, etc.): but as far as the County Recorder’s office is concerned, the property itself has not been transferred, except to the owner’s own inter vivos trust…without relinquishment of any real property obligations, rights or benefits.

Think about it like this: Joe Seller creates an (inter vivos) land trust for estate planning purposes, and sends a copy to the recorder’s office along with the Preliminary Change of Ownership Report (the owner is now trust in his own name). Is that a taxable transfer or conveyance?

Upon the advice of his attorney, he names a remainder agent or co-beneficiary for the trust. Is that a taxable transfer or conveyance?

Next, he gives the co-beneficiary full authority to vote his “Power of Direction” until the scheduled termination date. Is that a taxable transfer or conveyance?

Hope this helps. 'Hate to see anyone doing wraps and all the stuff that makes eviction impossible, jeopardizes one’s legal health, and exposes one to the seller’s potential untoward actions (e.g., lis pendens) on down the line.

But bear in mind that I’m not an attorney… I just play one on TV.

Bill