Land Trusts by Bill Roberts
The LAND TRUST is a venerable estate planning tool and a tremendous privacy shield.
It was developed in England hundreds of years ago and was brought to this country by Chicago Land Title and Trust in the 1890s.
The primary purpose of a LAND TRUST is to provide anonymity in the ownership of real estate. Privacy and anonymity are getting more difficult in this modern technological age. People have learned how to "snoop" on the Internet.
The DEED to your property is probably recorded with the County Recorder. I say probably because a deed does not have to be recorded to be valid, but it makes your claim to title stronger and easier.
The County Recorder's records are available to public scrutiny. Anybody can search those records to see what you own and where you live.
The Land trust provides anonymity by transferring "Bare Legal Title" to the trust instrument. The Land Trust has a name, but it doesn't need to reflect your name. It could be something as innocuous as "The San Diego House" Land Trust. It is recorded and held by a TRUSTEE that you appoint. You are the TRUSTOR.
All real estate incorporates what we call a "bundle of rights" which include the right of ownership, the right to sell or otherwise convey, the right to use, the right to hypothecate, and the right to bequeath. There are also other rights including water, oil, gas, minerals, air space, farm products, and more. This "bundle of rights" can be "stripped" from the property. You can sell your mineral rights, you can lease your right of possession and use to another, and you can mortgage your property.
The holder of the bundle of rights is called the BENEFICIARY.
The trustor establishes who the beneficiaries are and what rights they hold.
What about the Mortgage?
Almost all mortgages include what is known as a "due on sale" clause. If you sell your property the lender may call the loan due.
Does this mean that if you "sell" your property to your Land Trust the lender can and will call the loan due?
No. Federal law allows you to establish a trust (or more than one trust) for estate planning reasons and transfer your property to the trust without the lender being allowed to accelerate (call due) the loan.
It should be noted that the title to the property is considered "real" property while the bundle of rights is primarily personal property.
After the Land Trust is established, you may sell one or more of your rights without affecting the title to the real property. You do this by changing the beneficiary for that particular right or even the entire bundle of rights.
This would constitute a sale of personalty or personal property. It is not necessary to record this sale, merely inform the trustee.
The trustee has a fiduciary duty and a duty of confidentiality to the beneficiary or beneficiaries under the terms of the trust and state law. The trustee can only confirm known information and may not divulge new information to any party without written instructions from the trustor or beneficiary.
This means if you are sued, your trustee may not respond to a motion for discovery (for the most part. Exceptions do apply.).
If you have "sold" your beneficial rights nobody can find out who the new beneficiary is unless that beneficiary tells them.
If there is more than one beneficiary, the trustee CANNOT answer any questions about the trust regarding a single beneficiary.
There are many uses and applications for a Land trust. If you would like to discuss Land Trusts for your real estate holdings, call me. Bill Roberts (619) 244-4610.
 |
|
|
I have been a real estate broker since 1975. I specialize in commercial real estate, business opportunities, and finance. I coach real estate investors and teach retirement strategies. DRE #00527512
ActiveRain Corp. is not responsible for the accuracy of the site's content (which is written by members of the ActiveRain Real Estate Network) and does not endorse the views of the real estate agents, mortgage brokers, and others listed here.
Powered by the ActiveRain Real Estate Network
© 2008 ActiveRain Corp. All Rights Reserved
I think I need to read this a few more times...sounds like a lot of valuable information, but need to be able to digest it a little. Thanks for the info.
Gail, thank you. It does take a while to fully understand the subjecty, but it is well worth the effort.
Bill Roberts
Bill~
Always useful info at your place. That's why I subscribe to your BLOG...and even though I may not comment every day..you know I'm reading what you have to say! Tell me more about land trusts for conservation purposes ...some time..
janeAnne, Conservation trusts are a different animal than Land Trusts even though some people call them land trusts. Conservation trusts are primarily used to limit property taxes on property in the conservancy. Land Trusts are actual trusts, like a family trust, for holding title to your property. They can "live" forever. You can bequeath the beneficial interests without disturbing the trust.
Bill Roberts
Bill-We are in Illinois and have always put our home in a land trust. I was told a couple of years ago, by my attorney, that Land Trusts are only offered in Illinois and Florida. Is that correct? They seem pretty commonplace here and I was wondering about the rest of the country. We also have a home in Wisconsin and couldn't put that house in one, only joint tenancy. Thanks.
Laura, I believe Land Trusts are valid in all states. Thanks for commenting.
Bill Roberts
Great post! Thanks for the info.
Bill: some people get confused between a land trust and a revocable living trust. From my perspective as a former paralegal who specialized in estate planning, business & corporate and real estate law (prior to becoming a REALTOR(r), it is better to put your home in your revocable living trust not a land trust. At least that was what I was told by the attorneys I worked for in both Michigan and Illinois. It is also easier to transfer property in and out of your revocable living trust (simple quit claim deed). What is your opinion?
Paul, Your welcome.
Bill Roberts
Kelly, It is going to depend on what you want to accomplish. Most living trusts are named after the trustor or family name. They don't provide anonymity. And if you want to be able to sell without the lender knowing, the land trust is the best vehicle. Plus, if I was going to buy a beneficial interest in a property in a trust, I would want to make sure that the trust couldn't be revoked.
Bill Roberts
Bill: You are right that the land trust provides better anonymity. I honestly don't know too many people who use the land trust but I'm sure there are many good reasons to do so. Everyone should contact their attorney to decide which avenue is best for them. Thank you!
Kelly, thank you for your input. Unfortunately, most attorneys aren't schooled in financial planning.
Bill Roberts
Need more time to digest your materials, but they look good. Thanks for posting.
Bill- OK; I have a question- I have a seller who wants to set up a trust under the Germain act which she says states that the lender can not use the due on sale clause as you just said in your post. She then wants to offer her unit for sale by the trust with owner financing where the trust will pay the mortgage. The buyer would be having a trust deed. Can she do that? I am not clear on these issues. She said an attorney told her about this. Katerina
Bill- Congratulations on your feature! You need to post this in Posts for Localism and choose, CA, then county, then your town. This is a perfect localism post with points. Katerina
Hello Bill, very good article...and informative to ..my investors purchase their properties in a land trust, or thru a land trust. The anonymity is very important for investors with rental property..Thanks for the informative article.........Have a Great Day!!
Great post, I would love more information about that, I know it would be useful to many who are concerned about their privacy.
Bob and Carolin, take your time. Come back when you are ready, I'll be here.
Bill Roberts
Katerina, The trustee should make all the payments (mortgage, taxes, etc) and the buuyer would get an assignment of beneficial interest. the seller would maintain a partial beneficial interest until the buyer fully paid the seller for their equity, not until the mortgage is paid off. You don't want a trust deed because that instrument needs to be recorded to be effective, which defeats the purpose of using the trust for anonymity. The buyer would also get an assignment of the right of possession (like a lease). The purchase agreement would be drafted as an instruction to the Trustee.
Thank you, and yes this is posted to Localism. Almost all of my posts are going there now. I learned this from you.
Bill Roberts
Mike, It seems your clients are ahead of the curve. Congratulations.
Bill Roberts
Christina, It is a very useful and necessary tool for estate planning.
Bill Roberts
Thanks for the 101 on land trusts. I need to come back and read this again so I can digest it.
Josette, Take all the time you need. I'll be here.
Bill Roberts
Thanks for this information, this is good stuff to know about and be able to share with clients,.
Michael, Yes, it is needed now more than ever. Plus, if you get good at it, you will have a tool that not every other agent can use.
Bill Roberts
Great info Bill! You beat me to the punch! ;)
Hey Rich, I did ask you on your blog about this.
What? No critique?
Bill Roberts
Bill - This is a very clear, succinct explanation of land trusts. Thanks for the two-part series, plus the link back to this earlier post that is a natural extension of the series.
Ken, now you are all set to protect your assets.
Bill Roberts
Bill- How long does it take to complete the process? From information I have found on the Internet there are 2 documents that need to be signed. The first being an Agreement and Declaration of Trust and the 2nd being an Assignment in Benefical Interest in Land Trust (is this correct info). I have a few investment properties and I am considering a land trust. Also, would I have to start a land trust for each?
Eugene, It is always a good idea to separate your assets. And with all trusts there is the two-step process: create the trust then "deed" your assets to the trust.
Bill Roberts
This is a very useful post, Bill. In this age of frivolous lawsuits and internet snooping, privacy is a valuable asset.
Brian, Thank you for reaching back to this old post.
Bill Roberts