It never ceases to amaze me how many investors buy real estate in their own name.
In today’s controversial society, this practice can prove to be an expensive mistake. Out of the blue, you are served a summons from someone you don’t even know for a property you just bought cash at auction. It happens more often than you think.
Here’s a likely scenario. A tenant files a frivolous lawsuit and his attorney is more than happy to work on contingency because the property is free and clear and the new owner (you) is easily identified. Oh, darn…you didn’t have time to get insurance coverage!
Not only that, lets say you were smart enough and took the insurance noting that it will take just three months to mature and you are well covered thereafter. Right?
But, oooh damn! The law suit just came too soon than you thought, two weeks or even two months after purchasing the piece of land!!
Frivolous or not, lawsuits are expensive to defend and you can get stuck with a judgment that will adversely affect your credit.
Enter the Land Trust
A legal title holding entity in most states, the name of the Trust and the Trustee is the only information required for recording. The Beneficiaries, who are the real owners of the Trust, are not disclosed.
The Trustee is similar to a Manager of a Limited Liability Company (LLC). The Beneficiaries can be compared to the Members of an LLC.
So, what’s so great about that? You might ask. Well, as far as privacy goes, it’s huge. The disgruntled tenant that was trying to test your financial waters will change his mind when his attorney charges him by the hour if he wants to move forward.
This being the result of the privacy feature that permits the owners of the Trust (the Beneficiaries) to remain anonymous – unless a judge orders the Trustee to reveal their identity under a court order.
It becomes even more difficult for an eager attorney to sort things out if you use an LLC as the Trustee (instead of a person).
Additional layers of protection are very effective shields that often result in a potential lawsuit never being filed.
HINT: The Trustee should never be a Beneficiary of your Land Trust. It creates a “merger of interest” issue that is outside the scope of this post.
Then there is the flexibility factor
The Land Trust Agreement can be prepared quickly and a different Trust can be created for each one of the properties you intend to bid at auction. All you need is your computer, there are no fees involved and the Agreement does not have to be recorded with the government ministry or County Recorder’s Office.
And yes, the Land Trust is a perfectly valid entity you can use to take title to a property you buy at auction or for any other real estate transfer.
Compare this simple process with the work required to create multiple LLC’s, paying the filing fees, annual reports, land rates and preparing the tax returns at the end of the year.
Is also worth mentioning that most public records are very transparent and any information pertaining to an LLC is easily found with a quick online search with exceptions in some countries where regulations is more of complications as well mere by corruptions in one way or the other.
The advantages of taking title to real estate in the name of a Land Trust instead of an LLC are clear.
Land Trusts are a great asset protection tool and a very effective first line of defense against ambulance chasers, overzealous creditors, judgments and potential liens.
Learn about these powerful title-holding entities and then add them to your arsenal of real estate strategies to build wealth and keep your name off the grid!