Why a Land Trust?? - Posted by Steve

Posted by Bill Gatten on April 03, 1999 at 21:40:56:

Bill,

In all my postings so far, yours is singularly the most rewarding compliment I’ve received. Thank you.

Sincerely,

Bill

PS, As far as my always being here… now that you mention it…I am feeling a little piqued (“peek’ed”) lately… so I do trust that everyone here on CRE will be extra nice to me from now on.

Why a Land Trust?? - Posted by Steve

Posted by Steve on April 02, 1999 at 07:31:54:

What are the benefits to using a land trust to hold title to a property. From all I have read so far (not much), it is a way to increase your privacy. However, the liability still falls to the bebeficiary (me). Isn’t it better to incorporate and have the corporation hold the title thereby insulating my personal assetts from potential legal recourse.

Is there maybe a benefit to have a land trust with the corporation as the beneficiary? I guess I am confused as to the benefits of the trust in general. Anyone have any helpful insights??

Thanks,

Steve

Re: Why a Land Trust?? - Posted by Bill K. (AZ)

Posted by Bill K. (AZ) on April 02, 1999 at 13:03:54:

Steve,

You are absolutely correct!

Your corporation would be the beneficiary, not you. So, the land trust would provide the privacy and the corporation would provide the personal asset protection.

The land trust is NOT an asset protector. It is simply a way to disguise your interest in a property. Once someone finds out that you, or your corporation, are the beneficiary, having a land trust is a moot point.

I hope this helps.

Bill K. (AZ)

Re: Why a Land Trust?? - Posted by Bill Gatten

Posted by Bill Gatten on April 02, 1999 at 12:44:13:

Who me? Why, I just though I’d drop in an add a few unbiased comments here.

Some benefits of a land trust:

  1. Complete annonymity. Once the title is vested with the trustee, the beneficiaries remain anonymous and the trustee is prohibited from releasing any information on, or about, them.

  2. Avoidance of Due-on-Sale violation. If the original mortgagor (borrower) holds some interest and power of direction in the trust (perhaps agreeing to forfeit it at termination) there is no sale of the property; the transfer is of personalty; and there is no reliquishment of control or liability by the original borrower (thus no DOS viol).

  3. Ancillary administration. Upon the death of a benefifiary, the estate can be administered from the state of decedent or the property itself.

  4. Avoidance of probate taxation upon the death of a beneficiary (it’s a “living trust”).

  5. Both legal AND equitable title are vested with the trustee (makes its easy to evict a resident co-beneficiary without needing to resort to foreclosure, ejectment or quiet title)

  6. The trustee has no duties or powers not given it by the beneficiaries.

7, All “rights” are vested in the beneficiaries (rents, management, control, operation, etc.) even though all legal and equitable ownership is with the trustee

  1. The rights, privileges and benefits of ownership are not treated as Real Estate, but are Personalty (personal estate) instead (except for IRS treatment, whereas the IRS treats beneficiaries as owners of the Real Estate which is the corpus of the trust)

  2. In that ownership is “personalty” the trust’s assets can not be partitioned to satisfy creditor judgement; therefore, a property in a co-beneficiary land trust is protected from all creditor liens, suits, judgements, death, bankruptcy, insanity, disability, marital dispute, etc. Even IRS and state tax lines cannot pentrate a properly constructed land trust.

  3. Beneficiary interest can be used as collateral (a smart lender would see the power security potential; though traditional lenders outside of Illinois, Fla, Hawaii, etc. often do not)

  4. R.E. Interest is more easily transferred than with any other form of title holding

  5. Avoids marital interests, and therefore thwarts dower actions or marital disputes over title

  6. Exempted from the Statute of Uses is most (if not all) states

  7. Neither the Trustee or the Beneficiaries of a Land Trust are agents of each other (each acts independently as principals for themselves in all matters relative to the property held)

  8. Even though owenrship is characterized as personalty, it may be exchanged as realty under 1031 Exchange regulations.

  9. Judgements against beneficiaries do not create liens against the property.

  10. Avoids transfer tax upon disposition (assuming no more more than 50% of voting riths are divested)

  11. Assists in avoidance of Gift, Inheritance and Estate taxation.

  12. Can effect bridge financing for someone who would want ALL the benefits of homeownership today, but whom couldn’t finance or make the down payment for another year or so.

  13. When used in conjuction with a Beneficiary Agreement and a Triple Net Lease, can accomplish the same objectives as would just about any creative financing form: Lease Options, Equity Shares, AITD’s, Land Contracts, Lease Purchases, etc… without (virtually without) ANY of their inherent draws backs.

Phew! Want any more?

Bill

Re: Why a Land Trust?? - Posted by Bill K. (AZ)

Posted by Bill K. (AZ) on April 02, 1999 at 12:27:22:

Steve,

You are absolutely correct!

Your corporation would be the beneficiary, not you. So, the land trust would provide the privacy and the corporation would provide the personal asset protection.

The land trust is NOT an asset protector. It is simply a way to disguise your interest in a property. Once someone finds out that you, or your corporation, are the beneficiary, having a land trust is a moot point.

I hope this helps.

Bill K. (AZ)

Re: Why a Land Trust?? - Posted by Rick Vesole

Posted by Rick Vesole on April 03, 1999 at 24:12:47:

Excellent explanation Bill. I have a question, if you know the answer. Lets say that you have real estate in one state and an out-of-state beneficiary. The beneficiary dies and the trust provides that upon death, the property passes to the benefit of the beneficaries spouse and/or children. Do you know which state has jurisdication for taxation as far as inheritance taxes go? Is it the state with the R.E. in it or is it the state where the beneficiary resided?

Re: Why a Land Trust?? - Posted by JPiper

Posted by JPiper on April 02, 1999 at 12:54:06:

Bill:

Would you care to elaborate on the idea that a 1031 exchange can be used with your beneficial interest in a trust (personal property rather than real property)? How is this accomplished?

JPiper

Re: Why a Land Trust?? - Posted by Bill Gatten

Posted by Bill Gatten on April 02, 1999 at 21:04:22:

Bill,

Don’t mean to be contradictory, but…some food for thought, relative to whether a land trust is an “asset protector” or not (in all fairness though, your post was before mine enumerating the befits of a land trust):

“Efforts to impose personal liability against the beneficiaries relative to notes signed by the trustee [of land trusts], even upon the express direction of the beneficiaries, have failed.” Kenoe on Land Trusts (Ill Inst. for Cont. Legal Ed. 1989 revised edition due this month): citing–Brockob Construction V. Trust Co. of Chicago, Brockob Construction vs. Illinois Nat. Bank; Conklin v. MacIntosh, 324 Ill. App. 292, 58 N.E.2d 304.
"It is firmly established that a judgment against a beneficiary of a land trust clearly does not create a lien against the title of real estate held in the [land] trust (Kerr vs. Kotz, 218 Ill.App.654 (1920); and from that point to the most recent decision, this has been a universal and consistent holding (Whittaker vs. Scherrer, Chicago Title and Trust Vs. Mercantile Trust, First Fed. S&L vs. Pogue; St. Charles S&L vs. Sundberg, etc., etc.)."
Bill, the Illinois statue which is considered the precedent in such matters for all other states (Ill Rev. Stat., c. 110 para. 12-105) specifically states: "As the beneficiary has no legal or equitable title or interest in the real estate [held by a land trust], it follows that judgments against beneficiaries of land trusts can in no way attach to the property’s title.

Its important to understand that where there are two or more beneficiaries in a land trust, no right to partition exists (Aaronsen v. Olsen, 348 Ill.26, 180N.E., 565 (1932). It is imperative, however, that careful effort be made in structuring the transaction so as to avoid characterization of the overall transaction as a partnership, corporation or association, in that doing so could invalidate the protection of non-partitionability (re. Harmon v. Martin, 395 Ill.595., 71 N.E.2d 74-1947).

Further. Quote (Kenoe): Since partition is not available among beneficiaries to a land trust, this characteristic protects a multiple ownership from litigation instituted at the instance of dissident participants (i.e., as well as from judgement creditors). The unavailability of partition remedies highlights the importance of a well-drafted agreement.

And, once again: The title to real estate held in a land trust is NOT subject to the personal lives of the owners… re. death, insanity, bankruptcy, marital dispute, etc. Even IRS and state tax liens against an individual beneficiary in a co-beneficiary land trust will not result in a lien against the corpus (the property) of the trust. (Kenoe, Sec. 1.8, p1-10 and Sec. 3.7, citing Hargrove v. Gerill Corp., 124ILL.App.3d924, 464 N.E.2d 1226, 80Ill.Dec 243 (1984)

Respectfully,

Bill

Re: Why a Land Trust?? - Posted by Bill Gatten

Posted by Bill Gatten on April 02, 1999 at 20:16:00:

Jim,

IRS Revenue Ruling 92-105 (Re. Sec. 1031 Like Lind Tax Deferred Exchange). A beneficiary interest in a land trust can be exchanged for real property, or real property can be exchanged for beneficiary interest in a land trust. This, of course, assumes that the party exchanging is a non-resident beneficiary, holding its beneficiary interest for income producing purposes.

Bi;;

Re: Why a Land Trust?? - Posted by marla

Posted by marla on April 02, 1999 at 18:13:25:

Bill, I’m also interested in your point about a 1031 exchange. My attorney has advised me that if I put a property into a land trust, when I go to exchange, I’m limited to exchanging for a single property. Because I may want exchange for multiple properties, I’m interested in finding a way around this limitation.

TIA,
Marla (Santa Clara, CA)

Re: Why a Land Trust?? - Posted by Rob FL

Posted by Rob FL on April 02, 1999 at 21:19:43:

In 1996, the Florida legislature passed a law that creditors of a deceased beneficiary could in fact attach to the personalty of a land trust. Creditors now have 2 years from date of death or 3 months from the notice of administration to file their claims. From what I heard from our title attorneys, their reasoning was that too many people were using trusts to dodge their personal liabilities at death.

I Play Chess. I Know When To Concede - Posted by Bill K. (AZ)

Posted by Bill K. (AZ) on April 02, 1999 at 21:18:30:

Bill,

I humbly defer to your knowledgeable position.

I thought one (1) land trust course would make me an expert. :wink:

Seriously, though, I do appreciate the time it took for you to write this response. I am “cutting and pasting” your information into my files for future reference. I learn a lot from your posts. I hope that you’re always here for us.

Continued success, sir!

Bill K. (AZ)

Re: Why a Land Trust?? - Posted by Bill Gatten

Posted by Bill Gatten on April 02, 1999 at 20:21:24:

I know of no such limitation. Perhaps your attorney assumes that since beneficiary interest in a land trust is personalty, it can only be exchanged for personal property interest in another tiutle-holding trust. I don’t know. You might refer him to Rev. Rul. 92-105 and IRC 163(h)4(D).

Bill

You hit another benefit… - Posted by Bill Gatten

Posted by Bill Gatten on April 03, 1999 at 21:33:03:

Rob,

That’s true; however, it pertains to the widow of a single beneficiary in a single trust. Consider what happens when there are two unrelated beneficiaries (two married couples)–Mr. and Mrs. Jones and Mr. and Mrs. Smith). Jones dies. Now, how would a creditor get to the beneficiary interest of poor Mrs. Jones, in so much as personalty can’t be partitioned? I think you just uncovered another powerful benefit of the co-beneficiary land trust.

Bill