trustee question - Posted by Bert G

Posted by CarolFL on April 18, 1999 at 06:50:58:

Have not sold any yet - but our understanding is that the IRS treats trusts set up for our own interest as pass through income, that it is that latter of your two hypotheses which is correct.

This certainly is the case with other revocable trusts - like our family trust.

Good question, though!
Carol

trustee question - Posted by Bert G

Posted by Bert G on April 17, 1999 at 11:48:01:

Maybe some one here can answer a few questions that came to me while listeng to Ron LeGrand’s tapes.

He suggests one way to buy a property and avoid DOS is to have the seller put the property into a land trust, then transfer beneficial interest to you. OK, I’m (hypothetically)sitting in the seller’s living room, and he’s game. Where does he find a trustee on short notice, under a cushion? Do I act as the trustee? If he’s using me as trustee, can I notarize his signature on anything? (My notary ap is in the mail)

Now back to non-hypothetical real life. I’ve convinced my friend the former lawyer to be my trustee for my 4-plex, although she still thinks its “a silly waste of time”. I’ve even given her Bronchick’s land trust book, and our state’s land trust statute, to read up on it. Is there anything else I can do to convince her that its actually worth doing? Any examples from y’all where its actually helped?

When we get the trust agreement all filled out and I sign the deed, does there have to be any actual “closing”, or do we just got the courthouse and record the deed?

Thanks a bunch
Bert G

Re: trustee question - Posted by Bud Branstetter

Posted by Bud Branstetter on April 17, 1999 at 21:54:56:

I think the question on notarizing has been answered so on to the trustee question. If you you a corporate trustee you prefer not to have the corporation one that you own. It is too easy to track back to you. With institutional corporations you run into the cost factor. If you are doing several deals a month the cost could be prohibitive. If you have a trustee who is a friend or trusted relative with a diferent name they can be used. Since the land trust is beneficiary driven the trustee can be replaced at any time for any reason.

It is unlikely that you will do the land trust there. You will have a contract signed with the homeowner. Then you can have the seller meet you somewhere a notary is available to sign the deed, land trust and other documents.

Re: trustee question - Posted by Brad Crouch

Posted by Brad Crouch on April 17, 1999 at 17:19:51:

Bert,

> OK, I’m (hypothetically)sitting in the seller’s
> living room, and he’s game. Where does he find a
> trustee on short notice . . .

It has been written . . . that you name a trustee of YOUR choosing (corporations are best). The seller is the beneficiary when the new deed is recorded.

The assignment of beneficial interest occurrs AFTER the deed has been recorded in the name of the trust, and the assignment of beneficial interest is NOT recorded.

> Do I act as the trustee?

Some do, but it kinda defeats the purpose of having a trust if you are striving for privacy.

> If he’s using me as trustee, can I notarize his
> signature on anything? (My notary ap is in the mail)

Whether you are a notary or not, you cannot notarize your own deals. Your wife cannot either, since she would have the same last name as you. If your trustee is a “natural person”, he also cannot notarize a document naming himself as a “participant”.

If you have a best friend who will not be serving as a trustee in any of your deals, you might encourage him to get certified as a notary, and accompany you to the sellers house when you think there is a possibility of y’all getting the documents signed off.

One other thing . . . if you look in the yellow pages (in advance) you might find a “travelling notary” who will come out and notarize for you. There will probably be a fee for this service, but this is “small potatos”. You may end up working with the same notary over and over again.

> I’ve convinced my friend the former lawyer to be my
> trustee for my 4-plex, although she still thinks
> its “a silly waste of time”.

Tell her to call Bill Gatten at 800-207-4273. He can give her whatever details she needs.

> When we get the trust agreement all filled out and I
> sign the deed, does there have to be any actual
> “closing”, or do we just got the courthouse and
> record the deed?

When the trust agreement is finished, it goes in your file cabinet as a “private document”. The deed gets recorded in the name of the trust, with the name of the trustee following the name of the trust. If the trust name is long enough, the trustee name will get “trunkcated” (cut off) from the normal display of the computers at the recorders’ office). The name will still be there, only now much harder to determine. No sense making it easy for anybody doing a search.

Good luck,

Brad

Re: trustee question - Posted by Bill Gatten

Posted by Bill Gatten on April 17, 1999 at 16:08:21:

Legally, virtually anyone can be the trustee (including you, the seller or the little guy under the cushion on the couch…'probably the same guy who turns the refrigerator light on and off). However, for everyone’s maximum safety and protection, the trustee really should be a corporation, so that the property can’t end up in someone’s probate proceedings (not to mention other personal/legal defugalties).

Re. your other (good) question, you can have you attorney call me… I have about a thousand such transactions behind me, and I spend about half my time jousting with leegle beegles, all of whom are, I have no dobut [because they say so], light-years smarter than I am, but none of whom have ever won a joust with me regarding land trusts).

There are a few dozen benefits of holding property in a land trust, a teensy few of which include protection from litigation, ease of eviction, avoidance of title transfer, avoidance of public notification, avoidance of DOS violation, (and a ho bunch of “etc.'s”).

Bill

Re: trustee question - Posted by David(Ca)

Posted by David(Ca) on April 17, 1999 at 19:55:01:

Hi Brad,

You say … “The assignment of beneficial interest occurrs AFTER the deed has been recorded in the name of the trust, and the assignment of beneficial interest is NOT recorded.”

I’m definitely not an expert on trusts, but why not have the buyer as beneficiary from the get go, seems like a unnecessary step to assign beneficial interest after recording?

Dave

Re: trustee question - Posted by CarolFL

Posted by CarolFL on April 17, 1999 at 18:16:26:

Trustees with a different last name, living in the Himalayas (on top) are a good bet too.

Ours is in the Caribbean - citizen and resident of another country.

Carol

Re: trustee question - Posted by Brad Crouch - new message

Posted by Brad Crouch - new message on April 18, 1999 at 15:55:45:

David,

The message you posted to the board has dissappeared. I think it was a “glitch”, so I am pasting it here from the copy I received via e-mail.

Date sent: Sun, 18 Apr 1999 00:11:32 -0500
From: david@smartlink.net
Subject: Re: trustee question
Send reply to: david@smartlink.net

David(Ca) has posted a response to your message titled
Re: trustee question in CREOnline News Group.

The posted reply can be found at the following URL:
http://www.creonline.com/wwwboard/messages/21092.html

If the reply pertains to an ongoing discussion, it is
requested you go to the above URL to post any response.

The posted reply reads as follows:

Dated : April 18, 1999 at 00:11:31
Subject: Re: trustee question

Brad,

I accept all that … But …

DOS is violated when the beneficial interest is transfered to the buyer immediately thereafter, so why do the intermediate step of creating the trust in the name of the seller?

Dave


Why bother to comply with the law?

In the first place, there is no “violation” of anything. The “due on sale” clause does not forbid you to transfer interest in a property (as Rick Vesole pointed out). Therefore, no “violation”. We should probably refer to this as an event that COULD “trigger” the due on sale.

Since the term “violation” has been used so extensively, it has most likely given the impression (to folks like the “other” Brad who thinks) something “wrong” has been done.

It’s a matter of being “blantant” when a “low profile” is required.

Putting the seller on as beneficiary when the trust is set up is not an “extra step”. It is complying with the law that affords protection against the acceleration the loan for the borrower. As a buyer, this may have some effect on you, too.

It all comes down to “provable intent”. Putting yourself as beneficiary at the time the trust is created, makes your “intentions” very obvious. This thing may never make it to a courtroom, but if it ever does, I think you would be at a disadvantage.

Also, there may be an occasion when the trust agreement must be produced. Either at the direction of a court, or some other event like insurance issues or financing issues. Everything should be in order, shouldn’t it?

Brad

Re: trustee question - Posted by Brad Crouch

Posted by Brad Crouch on April 17, 1999 at 23:00:26:

Hi Dave,

According to the Garn St. Germain Act of 1982 (12 U.S.C. Code 1701 (j) © (8):
A transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property . . . this is one of the exceptions protecting a borrower from having his loan accelerated (due on sale). So, by law, the property owner must become the beneficiary in the trust in order to qualify for the exception of triggering the due on sale clause.

But you DO get your trustee listed in the trust so that any lender or insurance company has files that match the names of record, and will send notices to YOUR trustee (not the seller).

So a seller actually places his property into a trust himself (possibly with your help) with himself as beneficiary. The seller then notifies his lender that the property has been put into a trust (perhaps he might mention that this is for estate planning purposes although I don’t believe it is necessary to explain the reasons why. Nothing they can do about it!). The seller then notifies the insurance company who insures the property, and notifies them of the same thing. And asks that the policy be amended to include YOUR trustee as “additionally insured”. When the insurance company notifies the lender (as they are required to do after any change in the insurance policy), the lender will not be alarmed or “warned” because up until now, everything that has been done is allowed by the Garn St Germain Act and perfectly legal.

If the dates on the recording of the deed are PRIOR to assigning the beneficial interests of the trust (should it ever come up later, like in a courtroom), it will be apparent that the property was put into the trust in a legal manner, and in compliance with Garn St Germain.
Also less argument that the initial trust was set up for the sole purpose of circumventing the “due on sale” clause.

Actually, there are no “unnecessary steps” here.

Step 1 - The trust must be set up.

Step 2 - The deed must be recorded in the name of the trust.

Step 3 - Beneficial interest must be transferred (dated AFTER trust set up is preferable), but NOT recorded.

Step 4 - Obtain a limited power of Attorney to accept and cash any insurance checks that might be issued.

So you see . . . each step is only carried out one time.

Brad

Re: trustee question - Posted by Rob FL

Posted by Rob FL on April 18, 1999 at 17:54:22:

If your trustee is out of the country, what do you do when you want to deal with the property like lease, sell, mortgage, etc. Do you mail the papers to him? Seems awkward and time consuming. My thought is to set him up as trustee and then have him resign off the record and appoint someone local as the successor trustee. I like the idea since I have a few relatives in the Dominican Republic. What do you do?

Re: trustee question - Posted by Brad Crouch

Posted by Brad Crouch on April 17, 1999 at 23:05:37:

Carol,

There are advantages to having an out of State trustee. Out of the country sounds even better.

It is very expensive to serve them with any papers. Add to that the task of finding them first, and you’ve really got something!

Brad

Buyer Witholding Proceeds - Posted by David(Ca)

Posted by David(Ca) on April 17, 1999 at 19:39:19:

Carol,

Have you had experience selling a property held in trust, if so, does an out of state/country trustee ever cause the buyer (when you are seller) to withhold money at closing as they are required to do by federal and state laws? I am referring to FIRPTA and state witholding laws, I think this can be like 10% of the proceeds.

Or, do they look at the beneficiary’s residency when determining witholding.

Dave

Re: trustee question - Posted by CarolFL

Posted by CarolFL on April 18, 1999 at 07:05:26:

Brad, I have some relations in Serbia, and had thought about using them, but that seemed a bit TOO awkward!
Carol

Re: Buyer Witholding Proceeds - Posted by Bill Gatten

Posted by Bill Gatten on April 18, 1999 at 12:57:37:

David,

Super question!

Bear in mind that, asssuming a third party (hopefully corporate) trustee is used, and assuming the seller retains a cursory beneficiary interest until the disposition of the property, and because the assignment of beneficiary interest in a living (inter-vivos) land trust is of “Personalty” (not Realty): there is no title conveyance beyond the owner’s own trust… and FIRPTA involvement is eliminated.

Like Brad Crouch said originally, one ideally would: 1) Set up a trust, 2) then logically (for asset protection reasons), appoint a co-beneficiary, and 3) create a [triple net] lease of the property from the trustee for the benefit of the acquiring beneficiary.

In handling it this way, irrespective of there being no “sale” per se, the parties do none-the-less receive all of exactly the SAME benefits (and then some) that they would have otherwise: but without DOS Viol, without FIRPTA involvement, without taxable transfer, without vulnerability to judgements, without any threat of the property’s ever being involved in the other party’s personal problems).

At termination, 2 months or 20 years later, the property is sold or re-financed, and the proceeds distributed between (among) beneficiaries with respect to each of their beneficiary interests, as per the terms of the Beneficiary Agreement (0:100; 50:50, etc.).

Bill