Is the Secrecy of a Land Trust Lawful?

By Randy Hughes, Mr. Land Trust

Land Trusts have been used in the United States for over 100 years, primarily for privacy of ownership. Many people, for various reasons, want to own real estate without public knowledge. Perhaps they are a celebrity, politician (President Obama owns his house in the Chicago suburbs in a land trust) or an individual that just doesn’t want the general public to know their private business. Such persons might also fear the wrath of disgruntled tenants, vendors or building inspectors. Further, if it were public knowledge that the richest man/woman in town owned local rental property perhaps rent increases and maintenance requests would be perceived differently.

Since title to property ownership is public information many real estate owners and real estate investors opt to take title to their real estate investments in land trusts. Land trusts hold title in the name of a Trustee and the trust itself. The Beneficiaries of the Land Trust are not disclosed to the public and are only named in the Trust Agreement (a non-recorded contract between the Trustee and the Beneficiary). The Beneficial Owners can be individuals, a corporation, a Limited Liability Company or another trust. Consequently, the true beneficial holders can be buried deep for privacy and asset protection reasons (with no document on the public records indicating true ownership and control).

The beneficial interest holder of a land trust is liable for what happens on the property that is held in a land trust. Therefore, most real estate investors will own the beneficial interest via another entity (i.e. a corporation or limited liability company). Unfortunately, some land trust beneficiaries are unscrupulous and attempt to conceal ownership to avoid conflict of interest and/or building code violations. Consider for example, Chicago alderman, Thomas Keane, who owned an interest, through a land trust, in a corporation that obtained a lucrative parking lot with city owned O’Hare International Airport. The alderman did not reveal his ownership interest when he voted to grant the contract (see Land Trust Secrecy—Perhaps a Secret No More, 23 DePaul L. Rev. 509,511 n.10 (1973)).

The technique in using a land trust to hide ownership has been raised to an art form in Cook County, Illinois. It is estimated that over 90% of the property owned in Cook County is held in a land trust!

So, why is it important to record title in an individual’s name or the Trustee of a land trust? Everyone who owns property places in the public records some kind of document recording their interest. Failure to do so raises the risk that subsequent purchasers or creditors of a previous owner may deprive the present claimant of his title. But it is also true that the recorded title need not disclose the personal name or identify him/her in any way! Instead, a nominee, corporation, trustee or other entity may be interposed as legal title holder. Its relationship with the beneficial interest holder may be (as mentioned previously) represented by a private unrecorded document that is not disclosed to anyone without a court order or discovery process instituted.

Is it immoral to not reveal the true identity of the controlling party of a piece of real estate? Some would say yes but, once you own real estate in your own personal name and experience some of the inherent legal risks you might be more understanding of those who do not want to own title in their individual name. Real estate ownership carries risk and sometimes excessive oppressive risk. While it is true that real estate ownership should carry with it some responsibilities (i.e. to maintain, comply with building codes, meet minimum housing standards, etc.), it should not be a target source for contingency fee lawyers and other frivolous legal attacks.

Furthermore, some real estate investors are concerned about Federal and State government intrusion in their lives (read: Patriot Act). Since there is no requirement to itemize specific property ownership details on your IRS 1040,  holding real estate in a Land Trust keeps the investor’s name out of all city, county, state and federal databases.

Since Land Trusts are not registered at the State or Federal level (unlike Limited Liability Companies –LLC’s and Corporations), they are the last useful non-entity entity available to owners of real property (land, improved property, commercial buildings, residential buildings, real estate options, real estate contracts, etc.). Yes, LLC’s and Corporations offer more direct asset protection benefits, but the Land Trust provides more privacy of ownership and indirect asset protection benefits. Therefore, it is best to link Land Trusts, LLC’s and Corporations together for the best of both worlds.

By structuring the Land Trust with an LLC or Corporation as the beneficiary, the real estate investor creates a unique structure with symbiotic benefits. For example, changing ownership of the beneficial interest (being held by an LLC), would effectively change the owner/control of the title holding Land Trust without public notice or knowledge. Not only would this be a deeply private transfer of ownership and control but taxing authorities would be left out of the loop resulting in substantial tax savings!

Some theorists contend that property should be owned only in individual names so the “public good” can be served by holding owners accountable for what occurs on property (liability for people and condition). At the Federal level some even refer to two statutes of importance: The Freedom of Information Act (1976) and the Privacy Act of 1974 as reasons to compel ownership in the name of individuals and not trusts (or at least limit the privacy of Land Trust’s through legislation).

In Arizona, for example, the fear of organized crime prompted action by its legislature (see New York Times, March 30th, 1976 at 20, col 4). The AZ legislature enacted, as an amendment to the recording statute, a provision requiring every conveyance to or from a Trustee to include the names and addresses of the beneficiary or persons representing the beneficiary. However, it is unclear under this law if the Trustee of another Trust (i.e. a personal property trust), a corporation, or a nominee can be listed as the beneficiary and still comply with the law.

In Illinois the land trust statutes seemed to have evolved from legislative apprehension over slum housing problems and corruption among public officials (as with the previously stated Thomas Keane case). A 1963 law enacted in Illinois requires full disclosure of a Land Trust beneficiary “within 10 days of receiving a notice or complaint of violation of any ordinance relating to condition or operations of real property affecting health or safety.” The apparent intent was to force disclosure of the “true owners” of buildings with housing code violations. While there is a $100.00 per day penalty for non-compliance of the law, no- where does it spell out specific procedures to compel disclosure.

Iowa’s primary concern when it comes to privacy of ownership is the possibility of hiding ownership of property by nonresident aliens. Under Iowa law (see Property Rights of Aliens under Iowa and Federal Law, 47 Iowa L. Rev. 105) a nonresident alien may not own more than 640 acres located outside the corporate limits of a town or city (see Iowa Code Ann. 567.1). However, the prohibition on nonresident alien ownership in Iowa speaks of “acquiring title to or holding” real estate. It is unclear whether indirect ownership (i.e. via a Land Trust or nominee) is prohibited. It is also interesting that the Iowa law mentions no penalty for non-compliance!

What is interesting about some states attempt to control Land Trust information (and force disclosure) are their statutes are event-based. The event that triggers disclosure is the transfer of title into or out of the trust. Occurrences after conveyance into the trust, such as beneficiary changes or amendments to the trust agreement, need not be disclosed.

There is an inherent conflict between those who want to own property privately and the interests of the general public (and some governmental agencies). While it is true that some nefarious characters will attempt to use a land trust to avoid code requirements, tax re-assessments or the due-on-sale clause, a vast majority will not. Most people who utilize a land trust do so with good intentions in mind. (i.e. estate planning, privacy concerns, asset protection, etc.).

Certainly public officials should not be allowed to use land trusts to defraud the public (and building code violators should be held accountable), but in the typical residential real estate sales transaction the buyer is protected via the seller disclosure laws, title companies and attorneys involved in the transaction (regardless of whether a land trust is used or not). Further, the liability for the property held inside a land trust flows through to the beneficiary. While an LLC or other entity can be the beneficiary to a land trust, ultimate liability is not avoided by using a land trust.

Because our American legal system has run amuck and contingency fee lawyers abound, I do not favor the free flow of information as it relates to property ownership. Since there is no Federal land trust law (only state-by-state), the likelihood of legally compelling land trust beneficiaries to disclose information voluntarily about the title or condition of their property is unlikely in most states, if at all.


P.S. If you want more information on Land Trusts, please text “reasons” to 206-203-2005 for my FREE booklet with over 50 reasons to use a Land Trust (title holding trust). You can also attend my FREE Land Trust webinar by going to: www.landtrustwebinar.com. Or, call me. I actually answer my own phone! 866-696-7347.

 

Is It Honest to Use A Land Trust?

By Randy Hughes, Mr. Land Trust

I have been using Land Trusts for over 40 years in my real estate business, but every now and then someone will challenge me as to the purpose and “honesty” in using a Land Trust to hold title to real estate investments. Let’s clear the air.

Recently I was talking to a real estate investment club owner about speaking to his club regarding land trusts. He said, “We do not believe in using Land Trusts because they are dishonest.” He then went on to explain how someone had come to his club and spoke about Land Trusts and that led him to believe that the use of a Land Trust was for deception and taking advantage of people.

I told him that I was sorry that he had been misinformed about Land Trusts and that he should reconsider their use and benefits. I went on to review with the club owner why it is important to NOT have your name in the public records as owner of real property:

1. A group of investors may be purchasing several properties for a special purpose and it may be that the desired result can be best accomplished if the objective is not made public.

2. Co-owners might desire that the interest of each beneficiary must be kept private.

3. An individual owner might not want to be hassled with inquiries regarding the property.

4. A real estate investor might not want his competitors to copy his acquisition techniques.

5. Real estate investors do not want their tenants to know they are the “owner” of the property (helps with day-to-day management and lease renewal negotiations).

6. Co-beneficiaries want to know that a lien or judgment or divorce of one beneficiary will not affect the title to the property.

7. Successor Beneficiaries avoid probate and out of state Beneficiaries can avoid probate in multiple states and other legal issues upon death of the Primary Beneficiary. This creates a smooth transition of succession.

8. A group of heirs can inherit a property held in a land trust with ease of management (by a Director) and no need for a partnership agreement or a partnership tax return

9. Co-operative housing corporations may elect to hold title to their land and buildings in a land trust. They could then issue beneficial shares to their residents in place of stock certificates-simplifying control and record keeping.

10. When a Trustee of a Land Trust signs the mortgage (that gets recorded in the county court house records) the debt will not show on the borrower’s (the Beneficiary) credit report.

Land Trusts have been used by American citizens for over 100 years for good reasons. There are many legitimate reasons to use a Land Trust for privacy and asset protection. No one will protect your assets like YOU will. Learn all you can now because “old and cold” matters. Ever since 9/11 it gets harder every year to be private and protect your assets. Do it now! Don’t delay!

I encourage you to learn more by going to my FREE online training at: www.landtrustwebinar.com/411  and text “reasons” to 206-203-2005 for my free booklet, “Reasons to Use a Land Trust.” You can also reach me the old fashion way by calling me at 866-696-7347 (I actually answer my own phone unlike most other businesses in America today).

 

Florida Land Trusts

By Randy Hughes

Oftentimes I am asked, “Which state should I form my land trust in?” As a continuation of the subject discusses in my last newsletter, you now understand that you do not have to form your land trust in the same state where you live or where the property is located. In fact, there are many benefits to using an “out-of-state” trust to hold title to your investment property. I have covered these benefits in previous newsletters. This newsletter will concentrate on Florida Land Trust Law. In future issues I will explain other major state land trust statutes.

The Florida Land Trust Act, 689.071 covers real and personal property. “Beneficial Interest” means any interest, vested or contingent and regardless of how small or minimal such interest may be, in a land trust which is held by a beneficiary. “Beneficiary” means any person or entity having a beneficial interest in a land trust. A trustee MAY BE a beneficiary of the land trust for which such trustee serves as trustee.

I have talked before about Florida being the only state that I am aware of that will allow the trustee to also be the sole beneficiary (because of the Merging of Interests Doctrine). Other states allow for the trustee to be one of multiple beneficiaries, but not the trustee if she/he is the ONLY beneficiary. Personally, I would NEVER make the trustee and beneficiary one-in-the-same because it defeats the purpose of anonymity of ownership by exposing the beneficiary to public scrutiny.

Personal Property. The Florida Statute goes on to say, “In all cases in which the recorded instrument or the trust agreement, as hereinabove provided, contains a provision defining and declaring the interests of beneficiaries of a land trust to be personal property only, such provision is controlling for all purposes when such determination becomes an issue under the laws or in the courts of this state. IF NO SUCH PERSONAL PROPERTY DESIGNATION APPEARS IN THE RECORDED INSTRUMENT OR IN THE TRUST AGREEMENT, (emphasis added) the interests of the land trust beneficiaries are REAL PROPERTY (emphasis added).

This section of the Florida Statue stresses the fact the if you do not state either in the Deed to Trustee OR the Trust Agreement that the Beneficial Interest is “personal property,” it will be deemed as “real property.” Which is exactly what you do NOT want. I think to make it unmistakably clear, you should put in BOTH the Deed to Trustee AND the Trust Agreement that the Beneficial Interest is personal property!

Land Trust laws are not changed very often for any State, but three years ago Florida amended their Land Trust Statute which effectively made it not possible to sue the Trustee or Beneficiary of a Land Trust. This was a powerful change that made Florida’s Land Trusts even more popular to use. You might consider using a Florida land trust.

I encourage you to learn more by going to my FREE online training at: www.landtrustwebinar.com/411  or text “reasons” to 206-203-2005 for my free booklet, “Reasons to Use a Land Trust.” You can also reach me the old fashion way by calling me at 866-696-7347 (I actually answer my own phone unlike most other businesses in America).

Personal Property vs. Real Property

By Randy Hughes

It is fascinating to me that real estate starts out as personal property (boxes of ceiling tile, carpet, lumber, etc.) and once it is assembled it becomes real estate. Then, when we place the property into a Land Trust, it again becomes personal property to the beneficiary of the trust. Why is this important? Real estate laws and personal property laws are different. As all of my students know by now, the beneficial interest in a land trust is personal property and there are significant advantages to this truth.

When a piece of real estate is held in a Land Trust and the beneficiary sells the beneficial interest this is a non-recorded transaction. It is completely private and off the radar screen of tax assessors, lenders, transfer tax revenuers and in some states (i.e. CA) sales tax withholding requirements. You even by-pass the Form 1099 requirement (you still must pay any taxes due eventually).

Once transferring property into a Land Trust, the Deed in Trust must include language that makes it clear that the beneficial interest in the trust is personal property. Likewise, the Land Trust Agreement should state that the beneficiary shall have no rights or interest in either the legal or equitable title to the property. The beneficiary’s sole interests are to the rights of management, control, operation and to the receipt of proceeds from rents, mortgage financing, sales and exchanges.

Most rental real estate investors make the beneficiary of their Land Trusts an LLC or corporation (for additional asset protection). When an entity holds a beneficial interest, it should make sure not to lose its legal standing in the state it was formed. Not keeping the LLC or corporate up-to-date (e.g, paying the annual franchise fees and state taxes), effectively causes the beneficiary to lose the rights to the beneficial interest. This is another good reason to designate Successor Beneficiaries even if your initial beneficiary is an entity.

After 46 years of investing in real estate and being a landlord, I can attest to the many benefits of using a trust to hold title instead your name personally. There are only risks and no rewards to owning real estate in your name. Crazy things happen in the real estate business and if you intend to succeed long term you must learn how to protect your hard-earned assets. The least expensive and easiest way to begin your asset protection plan is by using a trust to hold title. Be a smart investor, use a trust!

I encourage you to learn more by going to my FREE online training at: www.landtrustwebinar.com/411  or text “reasons” to 206-203-2005 for my free booklet, “Reasons to Use a Land Trust.” You can also reach me the old fashion way by calling me at 866-696-7347 (I actually answer my own phone unlike most other businesses in America).

 

 

whatsinaname

What’s in a Name?

By Randy Hughes

I recently read an article on the internet by Anna Sobrevinas about the names of people who own expensive homes. She said, “These are some of the names of owners of the most valuable homes nationwide, with ‘Stuart’ in the lead with a median home value of $334,022, according to a new research analysis by Zillow. “Alison” follows closely with a median home value of $332,403 and “Peter” with $325,126.

She went on to indicate, “Anne, with a median home value of $309,491, is one of the most common names of owners of the most valuable homes, and they dominate the West Coast. Annes in California have a median home value of $669,946; in Oregon, $387,160; and in Washington; $435,308.”

“This analysis reveals a lot of interesting—fun— differences between homeowner names and the relative popularity of less common or non-traditional homeowner names from region to region,” said Zillow Chief Economist Svenja Gudell.

My view of this data is that if they know the first name of these home owners they also know the last name. In other words, the homeowner has deeded the property into their own personal name as opposed to using a title holding Trust (where their personal name would not show up in the public records).

Owning ANY real estate in your personal name is an invitation to trouble. There are no advantages to owning real estate in a personal name…only disadvantages and risks. Talk to any long term real estate investor and you will hear stories of upset tenants coming to their house late at night or liens from co-title holders destroying their equity. It gets worse.

Using a title holding trust (sometimes known as a Land Trust) to keep your real estate investments private is smart business. By using a trust, you avoid probate, tenant problems, frivolous lawsuits, due-on-sale clauses, seasoning issues, reassessment upon sale and many other real estate related risks.

If you want to learn more about the wonderful world of trusts, please go to: www.landtrustsmadesimple.com for more information. Or, if you would like to attend one of my FREE Land Trust Webinars, go to: www.landtrustwebinar.com/411 Also, feel free to call me with any questions. I actually answer my phone! 1-866-696-7347

 

 

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Trust Strategies

By Randy Hughes

After using Land Trusts to hold title to my real estate, contracts and notes for the last 40 years, I have discovered that 99% of the population does not understand the nature of a Land Trust nor the many benefits that can be derived. I consider this good news.

Because of their low profile, Land Trusts are very useful for (off the radar) real estate transactions. The following ideas are merely suggestions that you might consider. Be careful to think through all the ramifications before engaging in these concepts.

If you want to borrow money conventionally and you will use a deed to real estate as collateral for the loan, you will have to give the lender the full deed. In other words, you cannot divide a deed up into pieces no matter how much you are borrowing. For example, if you owned a parcel of real estate in your own personal name (your name is on the deed), with $100,000 of equity and you wanted to borrow only $20,000, you would have to collateralize that deed in full. In other words, you would have to give $100,000 of equity to secure only a $10,000 loan.

The Land Trust can be used to solve the problem of over-collateralizing a loan. The beneficial interest of a Land Trust can be divided into unlimited shares. Therefore, a Land Trust holding a piece of real estate with $100,000 of equity could use some of its shares (but not all of its shares as is required by a personally held deed) as collateral for a $10,000 loan. With a share value of $1,000 there would be 100 shares.

The beneficiary of the Land Trust could “temporarily assign” 10 shares for a $10,000 loan. This would leave 90 shares unencumbered that could be used for future financing. The flexibility of using a Land Trust far exceeds the standard method of title holding.

In another scenario, assume that two real estate investors have owned their properties (of similar current market value) inside Land Trusts for 30 years. Both investors are “out” of depreciation. Neither investor wants to conventionally sell their properties and incur huge capital gains.

Once again, the Land Trust trots in for the rescue. Each investor (beneficiary of the land trust) sells the beneficial interest to the other on an installment sales agreement. The terms are nothing down, interest only (no capital gain to report) and a ten-year balloon (enough time to figure out what to do next).

What this transaction accomplishes is a new amortization schedule for each investor (new basis). The deal is private and flies under the assessor’s radar (no reassessment upon the “sale”) and no transfer tax is triggered. If the parties involved so desire they can hold options to buy the beneficial interests back after (or during) the ten years has lapsed.

If you don’t think this will work, look up and read the tax court decisions on; Weaver, 71 TC No. 42. 1978; Rushing CA-5, 441 F.2d 593, 1971 and Pityo, 70 TC No. 21 1978.

The key to taking advantage of these creative ideas is finding someone who will “play.” Of course, my mind wonders to people who have studied my Land Trusts Made Simple® home study course or taken one of my live seminars. It is those who understand how the “game is played” that benefit you the most. I encourage you to seek out other “players” like yourself…it will benefit you greatly.

There are many other similar structures that I discuss in detail in my Land Trusts Made Simple® home study courses. Please go to: www.landtrustsmadesimple.com for more information. Or, if you would like to attend one of my FREE Land Trust Webinars, go to: www.landtrustwebinar.com/411 Also, feel free to call me with any questions. I actually answer my phone! 1-866-696-7347