Re: Unincorporated Business Trust …Common Law - Posted by The PACTrust guy
Posted by The PACTrust guy on December 01, 2000 at 13:50:19:
Part of the reason is that “pure trusts” are not well known by most folks. However, the same can be said of land trusts; though land trusts do have tremendous advantages over other forms of real estate ownership by trust devices. Note, however, that the concept of the land trust is taken in part from the structure of the Massachusetts business trust, the first form of which is said to have been set up for Henry Ford right after the turn of the century (a forerunner of the modern day Illinois land trust, which was first created for Mr. Al Capone by Chicago Title in Illinois?or so I?m told).
Let me give you an idea of what a land trust can do that other vehicles can not…then you’ll see why business trusts and pure trust might not work in the same manner with the same benefits, features and advantages.
In a (Illinois-type) title-holding land trust the legal title, along with the ‘equitable’ title, is vested entirely with the trustee, leaving the beneficiaries without ANY ownership of the property itself (the real estate). The beneficiary interest that is held by the Settlor is therefore converted, for all practical and legal purposes, to Personalty (vs. Realty). This means that one holding such interest can treat it as Personal Estate for all civil (court) matters, but in so much as the IRS “looks through” land trusts to the beneficiaries as owners, the same person can treat it as Real Estate for all income tax matters (quite a nice feature).
Further, a land trust is clearly controlled by its beneficiaries, not the trustee: which means that the trustee can be a third party with clear power of sale, but without power of direction regarding matters of title and management. Power of direction lies exclusively with the land trust beneficiaries.
In a land trust, there is no reversionary penalty when the property is re-conveyed to one beneficiary or another after having appreciated over the years (i.e., ho change in basis).
There is specific legislation in virtually all states either authorizing or allowing the existence and function of land trusts (excepting only Louisiana and Tennessee). In other words, the law is defined and (reasonably) predictable: whereas with other forms of pure or business type trust, such is not the case.
In a land trust, the income tax benefits can be clearly and safely transferred from one beneficiary to another by a collateral conveyance of beneficiary interest and leasehold interest.
A land trust’s existence and the identity of its participants is secret, silent, anonymous and unrecorded…never a part of the public record, and therefore hidden from scrutiny by those who would desire to attach it (liens against beneficiaries cannot attach to the corpus of a land trust). A land trust trustee is forbidden to release any information about the trust property or beneficiaries, absent a court order.
A properly drafted co-beneficiary land trust is treated similarly to limited partnership or LLC, in that the co-beneficiary interest is not subject to partition by beneficiary parties, or to charging orders by judgment creditors (when beneficiary interest is held by a LP or LLC, this statement becomes even more absolute).
A land trust allows for avoidance of Probate and Estate Taxation (with some exceptions), as does a standard inter-vivos fully funded family estate planning trust (“Living Trust”).
Title 12 of the Code of Federal Regulations (591) notwithstanding, a land trust transfer wherein the borrower on a mortgage loan IS and remains “A” beneficiary does not violate a mortgage lender?s Due-on-Sale Clause, as established by federal law (12USC 1701-j-3). Note that if 12CFR591 (vs. 12USC1701) were to be strictly interpreted, I couldn’t name my wife as co-beneficiary in my own family trust and I couldn?t lease out my 4 unit apartment building and would therefore likely be indefensible (Bill Bronchik and I agreed on that one during lunch a few weeks back?though no one will know for sure until it challenged).
The personal property beneficiary interest in a land trust, unlike other trusts, can be exchanged for real property in a 1031 Like Kind Tax Deferred Exchange (IRS Ruling 92-105).
In the absence of fraudulent conveyance or conversion, no creditor lien, lawsuit, judgment, BK, income tax lien, or actions in dower or marital issues can attach to the property in a land trust.
Beneficiary interest in land trusts provides excellent collateral for specific performance and/or loan obligation (leverage-ability).
A land trust trustee cannot be sued (for other than its own untoward actions or malfeasance)
And the list goes on and on… ease of assignability, protection in tort liability, avoidance of ancillary administration, avoidance of transfer tax, transfer of power of direction, assign ability of income tax benefits, tax deferment in capital gain, etc., etc.
However, do note that the so-called “PACTrust™” is not another kind of trust per se: it is instead a system involving a combination of documents, which system is only based upon (“includes”) a land trust. I.e., the PACTrust involves the Land Trust, the Assignment, the Beneficiary Agreement, the Triple-Net Possessory Agreement, the Power of Attorney, Certification, Trustee Directions, and various other ancillary documents).
Hope this helps.