Why I Avoid Using an LLC As a Land Trust’s Trustee

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By: Mr Land Trust

Many of my students have asked me the question: “Can I use my LLC as the Trustee of my Land Trust?” While it might seem convenient, in my view it creates more problems than it solves. Worse, it can be a fatal flaw in your Land Trust.

Here are a few reasons I avoid using an LLC as a Land Trust Trustee.

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Privacy Vanishes: The Public LLC Problem

One of the primary benefits of a Land Trust is anonymity. You shield yourself from frivolous lawsuits and unwanted attention by keeping your name out of public records.

That veil of secrecy is torn away if your LLC is registered in a state that publicly discloses member information and serves as the Trustee. Anyone can search the state’s business records and discover your connection to the property, defeating the purpose of the Land Trust. This is especially true in states with transparent LLC registries.

The Self-Dealing Dilemma: Contractual Limitations

In most jurisdictions, you cannot legally contract with yourself. This is because the legal concept of a contract requires two distinct parties. When your LLC, which is solely owned and controlled by you, acts as the Trustee, and you are the sole member of your LLC Beneficiary or the sole individual Beneficiary, you essentially create a situation where you’re contracting with yourself. This can lead to legal complications and challenges to the validity of your Land Trust. This obstacle creates a situation where the authority of the Trustee can be called into question.

Operating Agreement Exposure: Authority Challenges

At some point, your Trustee will likely need to demonstrate their authority to sign documents, whether for a sale, refinancing, or other transaction. If your LLC is the Trustee, expect to be asked for your LLC’s Operating Agreement. This document reveals the members, managers, and internal workings of your company, again compromising your privacy and potentially exposing sensitive business information. This is an unnecessary and avoidable disclosure.

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Side-stepping Another Potential Pitfall

Beyond privacy and contractual issues, when you avoid using an LLC as a Land Trust Trustee, you automatically avoid creating issues with title companies unfamiliar with this arrangement.

Why an Individual Trustee is Superior

Now, let’s explore the advantages of using an individual as your Trustee. First and foremost, you can choose someone you trust, like a family member, business associate, attorney, accountant or friend. They might even agree to serve for a nominal fee or for free, saving you significant costs.

Secondly, you can use creative naming strategies to allow one individual to serve as the Trustee for multiple Land Trusts, further simplifying your management. This method creates a layer of professional and organized anonymity that is difficult to replicate with an LLC.

An individual trustee offers flexibility, privacy, and simplicity. They are less likely to raise red flags during transactions and provide a more straightforward approach to managing your Land Trusts. And they can be available to act without regard to standard business hours

In Conclusion

While using your LLC as a Land Trust Trustee might seem like a shortcut, it’s a path riddled with potential problems. Protecting your privacy, maintaining contractual integrity, and avoiding unnecessary disclosures are paramount. When you opt for an individual Trustee and leverage creative naming strategies, you ensure your Land Trust remains a powerful tool for asset protection and privacy.

Mr Land Trust, Randy Hughes

I encourage you to learn more about the benefits of using a Trust to hold title to your real estate investments by going to my FREE online training at www.landtrustwebinar.com/411 and text the word “reasons” to 206-203-2005 for my free booklet, Reasons to Use a Land Trust. You can also reach me the old-fashioned way by calling me at 217-355-1281. (I actually answer my own phone, unlike most other businesses in America today!)

Are We Becoming a Nation of Renters? (Some People Might Hope So)

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By Mr. Land Trust

My mentor, Jack Miller, told me 20 years ago, “Eventually, our nation will become like the housing market in Europe where 90% of the population rents, and instead of passing down property to heirs, they pass down leases to their children.” I think we are headed quickly in that direction.

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I have been a landlord for 53 years and have NEVER seen a rental market like the one today. I realize all markets are different (and local), but my market (like most others) has changed dramatically. For 50 of my property management years, I had about 80% of my tenants renew each year and 20% move out. In recent years, since Covid, 95% have renewed their lease with me and only 5% have vacated at the end of their lease. This represents a drastic change in the market. Why did this happen?

The very low-interest rate climate of the early 2000s is partly the cause of this change in the rental market. Rental property owners could sell at a high price for cash to homeowners. This took the rental houses off the rental market permanently, which reduced inventory for those wanting to rent. The other factor in play is the shortage of housing nationwide. The US population is still increasing but not enough houses are being built to accommodate the need. Government regulations, building permit restrictions, and environmental limitations have made it time-consuming, and expensive to build. In that regard, to a certain degree, we are creating our own problems.

What does this mean for investors in single-family homes for rent? BUY NOW! Many investors buy for appreciation, and I like the benefits of my houses going up in value without me having to do anything in return (if I keep the properties adequately maintained and occupied). But appreciation is “gravy.” You cannot count on it.

Think about it. Would it be ok if your houses did not go up in value, but you could live off the positive cash flow? I think so. Money is money. Many real estate investors are “equity rich and cash flow poor.” The future rental market may be the solution to their problem.

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I graphed out my houses over a 40-year period. The trend lines were interesting. When the houses increased in value, the rents did not (or not very much). When the rents increased, the house values leveled off. Either way, I won. If my houses stopped increasing in value, but my rents tripled because of the “new American housing market” do you think I would complain that I was receiving no appreciation?

It is still important to negotiate when you are buying rental houses. Get the best deal you can but I can tell you from experience, that losing a good long-term rental house over a $5,000 (or less) price negotiation difference, is crazy. Those houses that I did not buy because of ego in the negotiation process, cost me hundreds of thousands of dollars in the long run (appreciation and cash flow).

Now go out and find a “Killer Deal.”

Randy Hughes, Mr. Land Trust

I encourage you to learn more by going to my FREE online training at www.landtrustwebinar.com/411 and text the word “reasons” to 206-203-2005 for my free booklet, Reasons to Use a Land Trust. You can also reach me the old-fashioned way by calling me at 217-355-1281. (I actually answer my own phone, unlike most other businesses in America today!)

Considerations When Selling on an Installment Contract

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By Mr. Land Trust, RANDY HUGHES

One of the many ways to make money in the real estate business is to buy low and sell higher on an installment contract.

The traditional method of contract selling is known as “Contract for Deed.” It is a risky way of selling property when the buyer does not have cash or conventional financing. The risk involves the buyer defaulting on the contract.

Where’s the Risk?

By law, even though they have defaulted, the buyer still has an “equitable interest” in YOUR property. That interest must be foreclosed upon.

Foreclosure is a time-consuming and expensive legal process that can take months to accomplish while the contract seller makes payments on her underlying loan with no income to offset her payments. This is the WORST part of real estate investing.

One of the many benefits of using a Land Trust to hold title to investment real estate is the ability to sell the Beneficial Interest (which is personal property and not real property in most states) on an installment contract with the capability to “repossess” the Beneficial Interest when default occurs instead of having to “foreclose” the interest. Repossession takes about 30 days, foreclosure can up to a year.

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A Guiding Example

Regardless of which method you use to “sell on a contract,” selling the real property or the Beneficial Interest, you should check your State’s law regarding Contract Sales. For example, in Illinois, there is the Installment Sales Contract Act. It represents an excellent example of why I am always recommending that you seek competent legal counsel. There are certain disclosures required under the Illinois Installment Sales Contract Act.

The Act states that it means a “. . . legal device whereby a seller agrees to sell and the buyer agrees to buy a residential real estate.” Wait!, you say. Didn’t you just write that the Beneficial Interest is personal property? You are correct. I did. It is in most states and that is why I like to set my trusts up in states that consider the Beneficial Interest of a Land Trust personal property. And as documented in the DePaul University Law Review, volume 18, issue 2, article 37, page 878, it is.

Since the Beneficial Interest is not real estate, does the Act apply? The attorney in Illinois with whom I consulted encouraged me to comply with the Act anyway in case a judge rules that the Act does apply. When you go in front of a judge, anything can happen . . . no matter what the law in your State says. Judges “make law” every day in their courtrooms and if you don’t like it, you can appeal.

This Could Be a Good Thing

Even if you view the attorney I consulted as being overly cautious, you might consider fulfilling the requirements under that law. They could make your contract even more defensible if it should be challenged.

Here are highlights of those requirements:

  1. The contract must be in writing;
  2. The Seller must give the Buyer a copy of the contract at least 3-days before closing.
  3. The contract must contain many disclosures, including, but not limited to the following:
  • Purchase price
  • Down payment
  • Interest rate
  • Payment due date
  • Balloon payment due date (if any)
  • Amortization Schedule
  • Statement of who is responsible for repairs.
  • Who pays real estate tax bills
  • Who pays for property insurance
  • A list of building code violations
  • Amount of any unpaid real estate property taxes
  • If there are any liens against the property
  • If the property has been condemned
  • The Seller must record the contract or a memorandum of the contract at the Recorder of Deeds Office in the county where the property is located
  • The Seller must provide the Buyer with an account statement upon request
  • No pre-payment penalties can be charged for payments not due yet
  • If you default, you have the right to pay all fees and charges currently due under the contract to cure the default in 90 days.

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I encourage you to learn more by going to my FREE online training at www.landtrustwebinar.com/411 and text the word “reasons” to 206-203-2005 for my free booklet, Reasons to Use a Land Trust. You can also reach me the old-fashioned way by calling me at 217-355-1281. (I actually answer my own phone, unlike most other businesses in America today!)

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411Expo.com or our Eventbrite landing page, CLICK HERE.

Behold the Cockroach – It has survived and thrived

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By Randy Hughes, Mr. Land Trust

Starting in the late 1970s and up through the 1990s pitchmen were all over television extolling the ease at which you could “become rich in your spare time” if you just followed their real estate investment “program.” After 52 years in the real estate investment business, I know of no one who became rich through real estate quickly (I am sure some investors got rich quickly through luck, but I have never met one).

I do know a lot of people who became rich using real estate as their vehicle. They all earned it by working hard and putting in years of devotion.

This article for Realty 411 is for all of you who have not yet become a millionaire in your “spare time.”

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What does all this have to do with cockroaches?

When it comes to being able to survive and expand its operations, nothing has ever surpassed the lowly cockroach. Despite chemical warfare, I often find them in my houses after tenants vacate. Some tenants seem to cohabitate with cockroaches intentionally (and quite well)!

In New York’s Museum of Natural History, they used to point tourists’ attention to a pickled roach between the toes of their biggest dinosaur to demonstrate that roaches have survived in the same form since the period before dinosaurs stalked the Earth.

This means that cockroaches lived on even after the mass extinction of the dinosaurs. For perspective, man has been on Earth during only 1% of the time that cockroaches have existed on the planet!

How have cockroaches survived?

How have cockroaches survived so successfully for millions of years? 1). It never challenges anything bigger than itself 2). It stays out of sight 3). It can survive for lengthy periods under adverse conditions or in a hostile environment 4). It is fast and elusive 5). It lives in the cracks of society never calling attention to itself 6). It reproduces quickly and with ease 7). It can make a meal out of about anything organic regardless of how unappetizing!

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What can we learn from the cockroach lifestyle?

We small investors must be adaptable, maintain a low profile, and be prepared to move quickly when either an opportunity or danger presents itself. We must be able to recognize opportunities, whether foreclosures, rehabs, discounted paper, single-family house opportunities, or value-added property prospects. We must also avoid hostile environments (and hostile tenants) which are high on risk and low on rewards.

You can skip “make a meal out of about anything organic”. I don’t recommend that.

About those Pitchmen

I knew a real estate guru once that bragged that he bought a property every month. He later confessed that he felt so obligated to follow through with that public statement that he would buy bad deals just to “keep up his image” as a monthly property buyer.

Be patient, be diligent, analyze, and then act. Some investors never succeed because they catch the “paralysis of analysis” fever. They buy books (sometimes they even read those books they buy), attend meetings, talk with other investors, analyze data, buy mentor programs, and never buy any real estate.

I encourage you to learn more by going to my FREE online training at www.landtrustwebinar.com/411 and text the word “reasons” to 206-203-2005 for my free booklet, Reasons to Use a Land Trust. You can also reach me the old-fashioned way by calling me at 217-355-1281. (I actually answer my own phone, unlike most other businesses in America today!)

Apply these lessons from a cockroach lifestyle and you WILL succeed!

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411.com or our Eventbrite landing page, CLICK HERE.

What is a Trust?

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By Randy Hughes, Mr. Land Trust

Has anyone asked you yet, “What is a Trust?” I am asked many times each month what a trust is and why someone should use a trust to hold title to their real estate investments. Oftentimes the person asking me these questions is a real estate investor or an attorney. Most attorneys are not familiar with Land Trusts, also known as title holding trusts, because most law professors do not teach about them in school. The result is that they typically do not recommend them to their clients. Many attorneys opt to suggest the use of an LLC to hold the title.

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You May Be in the Same Situation

If I am frequently encountering these questions, you may be too. Your current attorney may ask, “Why are you messing with all that unnecessary Land Trust stuff?” Or you could be interviewing a new attorney to work with, and they want to know why you are interested in trusts.

Perhaps a fellow member of the real estate investment club or association of which you are a member, or a real estate friend of yours asks, “Why bother with Land Trusts?” (By the way, if you are not a member of a real estate investment club, I encourage you to find one that suits your style and join. The benefits to you and your business are numerous.)

Let’s face it, the answers to these questions may not flow off your tongue. Since I’ve had more practice than you responding to these inquiries, I’ll share with you some of the points I make.

You know by now that there are many ways to hold title to real estate, whether it is a personal residence or an investment property. The title can be held in an individual’s name, joint tenancy, corporation, limited liability company, joint venture, partnership, limited partnership, association, or trust.

Each of these forms of holding the title carries benefits, detriments, tax, and asset protection implications. There is not space enough in this issue of my Land Trust University newsletter to compare and contrast all these consequences. We can concentrate on the Land Trust and its many advantages to the everyday real estate investor.

Start with the Basics

Let us start at the beginning. What is a trust? It is merely a few pieces of paper whereby one person or entity (the Trustee) holds the title for someone else (the Beneficiary). The Trust Agreement is a contract between the parties involved and as such, dictates the actions of all parties involved. There are many types of trusts available to use. As members of the Land Trust University, we typically deal with a Grantor Revocable Trust (GRT) to hold title to our real estate investments.

Technically, the IRS says that a GRT is NOT an entity but a “contractual arrangement.” The IRS does not require that a GRT has a tax ID number, and they don’t demand that a tax return be filed on behalf of the trust. All tax results from the property held inside the trust flow through to the Beneficiary who files a return. (See Revenue Ruling 92-105 and IRS Code Section 677.)

When combined with Corporations, LLCs, or other trusts, the Land Trust can be a formidable opponent to those who would like to inflict financial pain on the owner.

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Land Trusts were not designed to be asset protection tools on their own. Some practitioners perceive them as great estate planning tools that prevent the Beneficiaries (and Successor Beneficiaries) from experiencing probate.

However, I have found that the mere fact that a real estate investor does not own property in their personal name is a great benefit. And if the investor makes the Beneficiary of the Land Trust an LLC or Corporation, it yields the best of both worlds. Primarily, you receive the privacy of ownership afforded by the Land Trust (there is no “registry” for Land Trusts) and the asset protection benefits of the LLC/Corp as the Beneficiary.

Privacy Makes a Difference

Why is privacy of ownership important? I receive calls every month from people across the nation that think I am the trustee of a trust they are trying to investigate. (They find my phone number when they search the Internet for Land Trusts.) Typically, these inquiries are about a problem the caller is having with a tenant next door or across the street from them. They want to register a complaint or find out who to sue over their dissatisfaction with the adjacent property owner.

If your attorney or your real estate friend have not yet heard a war story from someone who was sued just because their name was on the deed, they will. You can also encourage them to read the testimonials and blog posts on my website. People whose lives were turned upside down because they were the defendant in a lawsuit contact me frequently.

These calls and the challenges people have lived through represent the top reason real estate investors use trusts. It is to stay out of the public purview. Trusts can help avoid frivolous problems. We have a highly litigious society in America today. If you make it easy for someone to sue you, they probably will. If it is difficult to sue you, or they can’t discover who you are, they probably will not . . . they will take someone else to court who is an easy target.

Many advanced Land Trust strategies can be employed in conjunction with other entities that can create dy-no-mite asset protection for the everyday real estate investor.

To learn more visit Randy’s FREE online training at www.landtrustwebinar.com/411 and text the word “reasons” to 206-203-2005 for his free booklet, Reasons to Use a Land Trust. Readers can also reach Randy the old-fashioned way by calling me at 217-355-1281. (He actually answers his own phone, unlike most other businesses in America today!)

I encourage you to learn more by going to my FREE online training at www.landtrustwebinar.com/411 and text the word “reasons” to 206-203-2005 for my free booklet, Reasons to Use a Land Trust. You can also reach me the old-fashioned way by calling me at 217-355-1281. (I actually answer my own phone, unlike most other businesses in America today!)

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411.com or our Eventbrite landing page, CLICK HERE.

50 Years of Investing in Real Estate

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Image by Dewald Van Rensburg from Pixabay

By Mr. Land Trust, Randy Hughes

This is my 50th year of investing in real estate. It seems impossible, but it is true. I have invested in almost every type of real estate, but I have concentrated primarily on the Single-Family Home as a long-term store of value. I bought my first rental house in 1969. It was a two-bedroom, one-bath ranch with a one-car detached garage. I was in college and rented the house to other college students. Four of them lived in an 800 square foot box.

It took my life’s savings, $800 as the down payment. I assumed a Veteran’s fixed-rate, 30-year loan with 26 years left on the amortization. Back in that day, anyone could assume a VA loan for a $35 fee. By the time I graduated from college, I owned three rental houses. Upon graduation, I went to work for an insurance company that needed a small office to rent. I used the equity in the rental houses to fund the down payment for a small office building and rented it to the insurance company for which I worked.

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My wife and I married right out of college. We both had jobs to pay for our living expenses. This freed up the positive cash flow from the rental houses to accumulate another down payment to buy another rental house. We did this for 20 years before ever taking a dime out of our investments. Every dollar of positive cash flow was reinvested in more houses. Was that easy to do? NO! There were many temptations along the way. A new car would have been nice, maybe a motorcycle, or how about an expensive vacation?
We lived well and enjoyed those 20 years, raising two daughters. But we did not live beyond our means. We lived BELOW OUR MEANS.
Who does this in America today? Not many. It is a foreign concept to most Americans, but it really is true that if you live below your means and invest for the long term, your future will be bright. You do not have to be brilliant, cunning, dishonest, or a trust fund baby to be successful. All you must do is work hard, uphold your commitments, build an honest reputation, and keep your “nose to the grindstone.”

Image by Gerd Altmann from Pixabay

Think about it this way, when you are born you have three to four twenty-five-year amortizations ahead of you in your life. In a perfect world, you could borrow one million dollars on the day you are born and buy 5 to 10 rental houses (depending on where you live). When you turn 25 years old, you will be a millionaire! Your tenants paid the loans off for you! You could then borrow another one million dollars and do it again by age 50. And, upon retiring at 75, you would have another million dollars. So, set your goals! How many millions of dollars do you want in your future? Yes, I have seen booms and busts along the way, but I never ran scared and sold everything because of fear of “losing it all.” I reasoned that even if the houses did not appreciate, people would always need a place to live and many would pay rent to have a roof over their heads. Cash flow was my ultimate goal. After all, who wants to EVER sell a cash-cow?
So, does it matter what the cash-cow is worth? Not really, if the cow is producing. That is all that you should be concerned about. And, from a tax standpoint, you don’t EVER want to sell. The capital gains tax will kill you and deplete your earning power. The best tax plan is to die! Yes, you read that correctly . . . die! Your heirs will get a “step-up-in-basis” when they inherit your properties, and they will get to depreciate them all over again!! OMG, life doesn’t get any better!!!
I could go on and on about the wonderful world of real estate, but this article is supposed to be short and to-the-point. (You have better things to do than read too much and not be out looking for “Killer Deals.”)

Image by StockSnap from Pixabay

Therefore, I shall end this article with a few of my golden nuggets: 1. Always use a trust when buying ANY kind of real estate. 2. Do not own anything in your name personally. 3. Learn how to use options on real estate, they are almost risk-free. 4. Concentrate on getting Cash Flow FREE, not rich. 5. If it is not against the law, it must be legal. 6. Live a corporate “lifestyle.” 7. Avoid government employees at all costs. 8. Build a team with which to work (Lawyer, Title Co., Accountant, Insurance Agent, Banker) 9. Always use a P.O. Box address. (Or the street address of your Post Office.) 10. Best asset protection plan? Don’t get divorced!

Randy Hughes, Mr. Land Trust

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-fashioned way by calling me at 217-355-1281. (I actually answer my own phone unlike most other businesses in America today!)

Land Trust Record Keeping

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By Randy Hughes

All you need to create a Land Trust is two documents. A Deed to Trustee and a Trust Agreement. The heart of a Land Trust is the Trust Agreement (TA). So, what do you do when you can t find your TA?

Your first phone call should be to your Trustee. She/He/It should have a copy. But, sometimes things happen and even your Trustee can’t find a copy of your TA. Your frustration mounts when you can’t locate your TA because generally you went looking for it for a reason and you need it now! Multiple USB sticks
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Image by jacqueline macou from Pixabay

Why do you need your TA? Probably because you are getting ready to sell the property out of the Trust and you need to prove to a closing agent, title company or attorney that the Trust exists. Or, you need to make a change (amendment) to the TA (i.e. change of Beneficiary or change of Trustee). First, I would suggest that you learn your lesson so this never happens again. Make sure that you keep two copies of each TA in addition to the copy retained by the Trustee. Keep a hard copy in your property files filing cabinet and keep an electronic copy on a Memory Stick in your safe at home or in your safe deposit box at your bank. Now, back to the problem. A Trust Agreement is not like a Will. By statute, Wills can be revoked by destroying it. Therefore, if no one can produce a valid Will upon the death of the testator, there is a presumption that the will was revoked. Not the case with a Land Trust Agreement. If a TA cannot be found there is no presumption that the agreement was revoked. If a photo copy cannot be found of the original TA, the Beneficiary can Restate the TA by typing up a new one! All the Beneficiary needs to do to recreate the TA is the put at the top of page one of the newly formed TA, Amended and Restated Trust Agreement. Then in the body of the TA attest to the fact that the original TA could not be found and that the Beneficiary is certifying that the is a true and accurate restatement of the original TA. So, remember. Keep multiple copies of your TA (and any amendments) in different locations. But, if all else fails you know that you can always recreate the TA, if necessary. Remember to like me on Facebook, join me on LinkedIn, and please leave me a Google Review!
Randy-Hughes

Randy Hughes, Mr. Land Trust

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-fashioned way by calling me at 217-355-1281. (I actually answer my own phone unlike most other businesses in America today!)

Always Think Safety

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By Randy Hughes

Sometimes I am questioned as to why I do not want to own property in my personal name. Am I trying to do something illegal, immoral, or fattening?

NO! I am just trying to protect my family’s assets from deadbeats and their contingency fee lawyers! Furthermore, I am trying to protect my family from crazy tenants. Can you imagine a tenant you are evicting getting mad enough to come to your home and confront you (or worse yet, your children who answered the door)? It happens, and sometimes worse. Case in point; In Hartford, Connecticut a tenant cut off the head of his landlord who was trying to evict him. Don’t be an “owner.” Be a property manager . . . you may live longer. It is YOUR responsibility to protect your family and its assets. Get busy, and use a trust. You will be glad you did!! Remember to like me on Facebook, join me on LinkedIn, and please leave me a Google Review!
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Randy Hughes, Mr. Land Trust

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-fashioned way by calling me at 217-355-1281. (I actually answer my own phone unlike most other businesses in America today!)

Myths About Land Trusts

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By Randy Hughes, Mr. Land Trust

I write and teach a lot about the many benefits to using a Land Trust to hold title to real estate investments. There is a lot of misinformation in the marketplace about Land Trusts and a lot of bad advice given regarding these Grantor Revocable Title Holding Trusts. After using these trusts for over 40 years I have found that the myths outnumber the facts. In this article I will dispel some of the myths that I hear over and over.

MYTH: My lender will not let me close my deal using a Land Trust (LT)

TRUTH: This depends on if you are using borrowed funds from a lender that must qualify you in the secondary market. If you must meet secondary market guidelines it is true that you must close the deal in your name, but you can put the property into a land trust the day after closing. Once you have 4 secondary market loans (the maximum allowed) you must use a portfolio lender and they WILL let you close by taking title directly from the seller to your trust (So, you are never in the chain of title).

Note: Bank of America WILL let you close four secondary market loans using a land trust to take initial title. However, you must use an Illinois Land Trust and the property must be in Illinois.

no-68481_1280MYTH: Do I have to get a tax ID number for my LT?

TRUTH: The answer is no. Nor do you have to register your Trust Agreement with anyone on planet earth! (There are two States that I am aware of that require disclosure of the Beneficiary upon creation of the Trust…via the Deed to Trustee…but this problem is easily solved).

MYTH: You cannot do a Short Sale using a LT

TRUTH: False. You can and I have and there are many advantages to using a LT for this type of transaction.

MYTH: Is it true that I must record my Trust Agreement to make it valid?

TRUTH: No, and 99% of the time you would not want to record your trust agreement. However, there is that 1% reason that you might want to record. Contact me if you want to why.

MYTH: My attorney says Land Trusts are illegal in my state

TRUTH: This is probably not true. Almost all states recognize the validity of a LT or a similar type entity (Title Holding Trust, Common Law Trust, etc.). My experience is that a vast majority of lawyers do not understand Land Trusts and therefore do not recommend them. Too bad for their clients…they are missing out on over 50 Reasons to Use a Land Trust (I have written a booklet called, “Reasons to Use a Land Trust” and will deliver it to you for free if you text the word Reasons to 206-203-2005).

MYTH: If I use my LLC as the beneficiary of a Land Trust, I must register the LLC in the state where the property (held inside the Land Trust) is located.

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TRUTH: Wrong! Many accountants will tell you this, but they are incorrect. The beneficiary of the Land Trust is not “doing business” in the state where the property is located…the Land Trust is…and the Land Trust is not required to register.

Note: California has a law that says if you transfer more than 49% of ANY entity that owns property in CA or is the beneficiary of a Trust that owns property in CA, they have the right to tax you.

MYTH: Land Trusts are expensive to set up and maintain

TRUTH: Not true. If you follow my advice to put each of your properties into a separate Land Trust and you hire an attorney to do this for you, it WILL get expensive. But you do not need to do this. You can learn how to set up and administer your own Land Trusts (as many as you need/want).

MYTH: Land Trusts must have incorporation papers and the State notified

TRUTH: Wrong again! Land Trusts are not registered like corporations and LLC’s on a state-by-state basis (in fact, they are not registered at all…anywhere!). This is one of the many reasons to start your estate planning with a Land Trust for each property you buy.

MYTH: I was told that my Land Trust must open an account at a local bank

TRUTH: Not true. Since Land Trusts are “pass-through” entities in the eyes of the IRS you do not need a separate bank account for each Land Trust you form. You can set up an account, but it is not required. If you set up an account for your Land Trust, you will not have a tax ID number to use so you will have to use your own social security number (or, if your LLC is the beneficiary you might use the tax ID # for your LLC).

MYTH: It is illegal to hide the ownership of property

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TRUTH: I love this one. WRONG! It is not illegal to hold title to your real estate in a Land Trust to conceal the ownership (I call this being private about your business). The past president of the United States, Barack Obama, owns his home in Chicago, IL in a Land Trust with his attorney serving as the trustee. If it is good enough for a president, it should be good enough for you!

MYTH: Can I buy the Beneficial Interest in a LT without buying Title Insurance

TRUTH: Yes, you can, but I would not suggest doing this. I would always get a title policy and have the proper “search” done prior to transferring any funds. You want to make sure that the Trustee has clear title and there are no unknown liens or judgments against the property. You should also obtain a copy of the trust agreement and make sure the Trustee acknowledges EVERYTHING!

This is certainly not a complete list of misconceptions about Land Trusts, but is enough to digest for now. I will write more on this subject in future articles. Feel free to contact me if you have any specific questions. My number is: 217-355-1281. Or, [email protected]

Randy_chair_500pxI 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-fashioned way by calling me at 217-355-1281. (I actually answer my own phone unlike most other businesses in America today!)

Prepare for the Coming Greed Pandemic

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Protecting Your Assets Is MORE Relevant Post-COVID-19

By Randy Hughes

If you wondered about your need for privacy and asset protection before the Pandemic, it will be critical for you and real estate investors like you post-Pandemic.

gdpr-4095257_1280The effects of the epidemic will be felt for years, not only financially but legally. If you have put off creating an asset protection plan, now would be a great time to start.

We have long known, as real estate investors, we are more inclined to be sued than most other occupations. Why? Because the average American assumes that ALL real estate investors are RICH! Therefore, we are good targets for frivolous lawsuits.

People with cash in the bank and no hard assets are not good targets for lawsuits because, unlike real estate, cash can disappear quickly . . . and buildings cannot. Furthermore, unlike deeds and liens, bank account balances are not available through public records.

Until you have been pursued by a contingency fee lawyer (and his or her deadbeat client), you might not feel the need to protect your assets. But, if you are going to stay in this game long-term, it is just a matter of time before the wolves will be at your door.

moon-4908100_1280The paradox of our careers is the more successful we become, the more of a “target” we are for the nefarious characters in our society. These characters do not want to work hard (like us) to become wealthy. They prefer the “easy route” via our dubious legal system.

I spoke 33 times last year to real estate investment groups around the nation. I stressed the need to get titles to real estate out of personal names and into Land Trusts for privacy, asset protection, and estate planning purposes.

In almost every gathering, someone asked the question, “Why do I need to protect my assets, won’t insurance take care of any claims?” My standard response was, “I believe in insurance and think you should buy all you can stand, but DO NOT RELY ON IT EXCLUSIVELY!

Insurance should be only one-leg of your asset protection stool. Why? Let me give you a recent example!

When the pandemic first arrived in America and almost every business was shut down, I called my neighborly insurance agent. Here is how our conversation went: “Hi Bob, I am calling because after 40+ years of paying you a premium for “business interruption” insurance, I need to make a claim.” Bob responded, “Sorry, but pandemics are excluded!” My response was, “Really? Forty years of premiums and now I AM NOT COVERED?

It is folly to rely solely on insurance to protect you when you need it the most.

As an aside, please read your policies. You will find LOTS of exclusions and often you are not even covered for “defense costs.” In other words, you can go broke just defending yourself (read: legal fees) from a legal challenge in which you are totally innocent.

lawyer-3268430_1280What is a real estate investor’s first line of defense? DO NOT OWN PROPERTY IN YOUR NAME! I have been preaching this to my fellow real estate investors for more than 40 years. I have been a full-time real estate investor for 50 years, and early in my career I discovered the benefits of using a Trust to hold title to my investments. I have written about the benefits extensively in this publication and many others.

Some people “get it” and many do not. They live in a dream world assuming that THEY will somehow be spared the sorrow and expense of a frivolous lawsuit (or worse yet, an attack by an irate tenant on them or their family at their personal residence). Consequently, they risk years of hard work and their family’s safety and financial security because they are too lazy to fill out a few papers.

I can lead a horse to water, but . . .

What is YOUR net worth, worth? Is it worthy of protection? How much of a price have you paid for it in sweat and tears? Are your family’s safety and security important to you? Perhaps you spend hours each week watching sports? Would it make sense to spend a little bit of your valuable time learning how to create a trust to hold title to your investments? The answer is obvious, you just need to do it and DO IT NOW!

output-5045168_1280What does this rant have to do with the pandemic? Plenty. Contingency lawyers and their deadbeat clients will be developing new and creative ways to find someone to sue because of the virus and its effects on tenants, businesses, and anyone with assets they covet.

If you can believe there are elements of our society that will walk in front of a car to eventually receive a “paycheck,” then you can also believe that it is time for YOU to get OFF the title of all of your real estate investments (and NEVER buy property in your name again!). Use a trust, you will be glad you did!

Several times a year I hear from people who have heard me speak or students who did not act on what they learned from me. They tell me they failed to take my recommendation, and now they regret it.

Don’t be one of those people.

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Randy Hughes, Mr. Land Trust

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-fashioned way by calling me at 217-355-1281. (I actually answer my own phone unlike most other businesses in America today!)