Gain Privacy and Protection with Land Trusts-Part 1

land-trustNot everyone wants to be a public figure! Privacy and protection can be easily accomplished with the use of a land trust. With most public records now available online and in computer databases, anyone with a computer can find out who just bought a home or a prime piece of commercial property.  When your real estate is held in a land trust however, only the land trustee’s name is made public. And how about this, unless forced to by a court order, the trustee will not disclose this important information to anyone.

The Land Trust has been in existence for about 500 years. Today land trusts offer many of the same benefits as they did then and in several states the Legislature has passed laws specifically allowing Land Trusts, similar to the well known Illinois Land Trust.  The ability to have Privacy in terms of real estate owned is one of the most important benefits of creating a land trust. 

The Protection offered in transferring real estate to a trust is huge. Being sued and worse yet, losing a case, and having a judgment entered are no longer rare occasions.  Judgments are automatic liens against the real estate owned and when a lien is filed you may not be able to refinance or even sell until the lien is cleared from the Title Report. The good news is the beneficiaries in a land trust do not own real estate! The beneficial interests of a member in a land trust are considered personalty. No public record of ownership of a land trust is necessary or required.

In addition to the benefits of the concealing ownership and the protection from public view; a land trust offers a great deal of flexibility.  In recent years the real estate entrepreneurial community has latched on to the land trust as a creative method to convey interests in property and in many cases have joined forces with sellers of real estate who are willing to remain on the existing loan and allow another party (an investor) to assume all of the costs and tax benefits of the mortgage. Using this flexible tool of transfer, typically the tax basis can remain unchanged and no transfer or sales taxes are due.

Using this method of real estate ownership the trustee holds legal title to real estate, while the trust’s beneficiary(s) are anonymous but have complete control over the trustee and the property’s management. The beneficiary in a land trust simply needs to complete an assignment and notify the trustee to transfer their interest in the trust.  Interestingly, since the beneficiary owns an “interest” in the trust and not the “real property” it can be repossessed just as you would any other type of personal property.

With the changing tide in the Real Estate Market including: slowing appreciation, falling demand, interest rates adjusting and rising delinquencies, many borrowers are financially stretched to the extent they are unable to keep their mortgage current. Faced with possible foreclosure which results in the bank or mortgage company taking  whatever equity they may have, losing their credit and facing an IRS bill for debt relief; borrowers consider taking back a note on a “Subject To” or an “All-inclusive Trust Deed” (AITD) or even tempted to agree to a Lease/Option.

With the use of a properly structured land trust, the objectives sought in using the aforementioned methodology can be achieved without incurring the risks intrinsic to the structuring of these kinds of non-traditional and creative transactions.  

Note: This information is of a general nature and is not intended, nor should it be construed as legal advice. You should not act or rely upon the information herein without professional advice after thorough examination of the facts of each situation.

Article written and submitted by Thomas K. Standen, President and CEO of Equity Holding Corporation, a corporate trustee specializing in land trust services nationwide.

Be sure to read Part 2 of Gain Privacy and Protection with Land Trusts, including situations involving foreclosure, IRA investments, and due on sale clauses.

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