The California Title Holding Trust
I briefly introduced the concept of the Title Holding Trust and the uses of the Title Holding Trust in my last post here on ACTIVE RAIN. To recap, the Title Holding Trust is a fully revocable grantor trust (living trust) that is designed to allow real estate investors and homeowners to acquire and hold title to California real estate on a confidential or private basis.
Benefits of Owning Property in a Title Holding Trust or Land Trust
There are numerous benefits and advantages to holding title to your real estate or personal property in a Title Holding Trust. It is a grantor trust, so the typical estate planning benefits are available. However, the Title Holding Trust also provides numerous other benefits as well. It is these lesser known advantages that are significant in why real estate investors should at least consider using the Title Holding Trust for holding title to their property.
Privacy of Ownership
The most common reason or use for the Title Holding Trust is the confidential or private ownership of real property or personal property. The Title Holding Trust lets you acquire, hold and sell property on a confidential or private basis. The true owner's name is never shown on any public record, which protects them from potential liability, litigation, and other risk exposures.
The THT is very useful in landlord-tenant relationships. Tenants often bypass the property manager and search out the property owner. The Title Holding Trust prevents this because only the name of the trustee (Exeter Fiduciary Services, LLC) is on title.
It can also help prevent stalking and/or harrassment problems. Law enforcement and those working in judicial positions can keep their names off public records to avoid retaliation when criminals are released from prison.
Avoid Probate and Ancillary Probate
Holding title to real estate or personal property in a grantor trust such as the Title Holding Trust avoids probate upon the death of the trustor/beneficiary. It also allows out-of-state owners acquire and hold title to real estate in California and avoid ancillary probate proceedings upon death (i.e. avoids California probate proceedings), although it will be included in your estate for estate tax purposes.
The long delay inherent in probate proceedings will not apply and title to the real estate or personal property will vest immediately upon the death of the beneficiary (owner).
Ease of Conveying Ownership
Selling the property held in the trust is as easy as a written assignment of all or a portion of the beneficial interest in the Title Holding Trust. There are no deeds that need to be recorded, so the terms of the sale remain confidential and private. It is an easy way of conveying a small fractional interest in the property without the hassles of recorded deeds.
Protection Against Claims
The beneficial interest in the Title Holding Trust is not real estate, it is personal property, and as such the actual real estate interest is protected from judgments and liens against the beneficiary. This can be extremely important when property is owned by multiple owners and one or more are prone to litigation.
Judgments and liens can not attach to the real property or personal property itself. They can only attach to the beneficiary's interest in the trust. This can be a huge benefit when attempting to sell real estate when one of the owners has liens against them.
Multiple Owners
The real estate or perosnal property is actually owned by Exeter Fiduciary Services, LLC so it is not necessary for each individual owner to sign transaction documents. This can save a great deal of time during sale or purchase transactions.
I will continue with this topic in my next post, so stay tuned.
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Bill Exeter has 24 years in the 1031 exchange industry and has administered in excess of 75,000 1031 exchanges during his career. He is one of the founders of the Federation of Exchange Accommodators.
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Very interesting, Bill. I've never heard of this before. We have a few rental properties that we hold in our own names, one in California and one in Minnesota. Is this sort of trust specific to California, or can it be used in other states as well?
Hi Rick,
It varies from state to state. Illinois has the Illinois Land Trust. Florida has the Florida Business Trust. MA has the MA Business Trust. California has the Title Holding Trust. Other states vary depending on state laws, regulations, etc. It is really just a living trust designed specifically for holding title to real estate.
Thanks, Bill.
Hi Rick,
You are most welcome.
I am just starting in real estate investing. How do I determine if a trust or an llc is a better way to hold title to the property that I intend to rent? I am concerned with liability as well as tax consequences. Also, is one way better with only one property and another better with multiple properties?
Hi Connie,
It depends on a number of factors. The Title Holding Trust will only hide your ownership of real property. The objective is to make you much less of a target for litigation. However, if someone sues you it will not protect you from any liability. The LLC will protect you from liability.
The Title Holding Trust and the LLC are both "pass-thru" entities and are both "disregarded" entities for income tax purposes, so there are no real differences for income tax purposes. The LLC may have some state taxes that the Title Holding Trust does not, but the amount/difference is negligible.
The number of properties involved does not really make any difference.
So, the bottomline is that it depends on your view. The LLC should be used if your concern is about liability and risk management. The Title Holding Trust should be used if you are concerned about people finding out that you own property. You can also use them both where the Title Holding Trust owns the property (for confidentiality/privacy of ownership) and the LLC is the sole beneficiary of the Title Holding Trust in order to protect you from liability.
It is important that you consult with your attorney to really understand the risk and liability that you might be exposed to in order to make the best decision possible.
Just wondering if this entity is the same legally as a "business trust" or "UBO" in Calif ? A title company said that any liens would attach to any trustee of the trust and consequently the trust. sounds bogus to me but wanted your input. thanks Wayne
I'm not sure what a UBO is. I have never heard that term before. Florida and Massachusetts both have the "Business Trust." Illinois has the Illinois Land Trust. The Title Holding Trust is very similar to the Illinois Land Trust.
One huge benefit of the Title Holding Trust is that the trustee owns the real property interest (not the taxpayer/investor) and the taxpayer/investor owns a beneficial interest in the Title Holding Trust.
This can be especially useful when there are multiple investors and one gets sued and has a lien or judgment filed against them. The lien or judgment can not be filed (or attached) against the real property interest, but can only be filed against their beneficial interest in the trust owned by the taxpayer/investor that has the lien or judgment. The lien can not be filed or attached to the entire trust, but only the beneficial interest of the taxpayer/investor that has the lien or judgment.
A sale of the real estate would not be held up because of the lien. The Trustee would withhold the proceeds allocated to the beneficiary with the lien, but the other investors can take their proceeds and move forward.
The acronym "UBO" stands for "unincorparated business organization" and same as the "business trust" according to attorney (Jay Mitton) who sells them when he gives seminars or his offices in Utah. I haven't heard much of him in the past several years though. In the instant situation, there is a civil judgement against former trustee and title co insists the judgement attaches to the trust, even though former trustee has not been trustee for over 10 years. thanks
Hi Wayne,
Generally, when they say the civil judgment attaches to the Trustee, they really mean that it attaches to the specific beneficial interest in the trust related to the person the judgment was against. I have only seen a lien or judgment attach to the Trustee when the Trustee was personally involved in the litigation or action. The Trustee is responsible for withholding against the beneficial interest of the beneficiary that the lien or judgment was against or satisfying the lien or judgment. The Trustee can be sued in its capacity as Trustee of the Title Holding Trust or in its "corporate" or "personal" capacity. The pending issue would depend on whether the Trustee was sued in its capacity as Trustee or personal. It sounds like the Trustee was sued in its capacity as Trustee of the Trust, which would mean that the lien would attach to the beneficial interest in the Trust, but only the beneficial interest in the Trust related to the beneficiary involved in the litigation.