How To Create Land Trusts: A Free Land Trust Mini-Course

By
Education & Training with Make Profits Easy
http://actvra.in/MFK

LAND TRUST MINI-COURSE LESSON 1: WHAT IS A LAND TRUST?

 A trust is one of the most potent tools available to the real estate investor.  But if you're like most people you only have a vague notion of what a trust is and how it is used.  To wit:

 A trust is a legal entity whose sole purpose is to hold assets.  Trusts can hold any type of asset, including real estate.  A land trust is a trust designed for the purpose of holding real estate.

 So what makes a trust?  There are different types of trusts, but all trusts have the following elements in common:

  Beneficiary - The individual(s) who control the trust and its holdings.  As the beneficiary of a land trust you have control of the property held in trust just as if you were the owner, and you are entitled to earn profits from the sale or rental of the property.

 Trustee - The individual who actually owns the property in trust.  The trustee is responsible for managing the assets held in trust, and distributing income according to the terms of the trust.  The trustee owes a fiduciary duty to the beneficiaries and must carry out their instructions.

 Trust Agreement - This outlines the terms of how the trust is to be managed and administered.  It spells out the responsibilities of the beneficiaries and the trustee.

 A land trust, then, is essentially a legal entity capable of holding real estate that is formed by a written agreement between two parties, the beneficiary and the trustee.  The beneficiary controls the trust and the underlying property but does not have ownership.  The trustee legally owns the property but must act according to the wishes of the beneficiary.

Perhaps you are asking yourself "Why on Earth would somebody use such an arrangement?"  As it turns out there several advantages to controlling real estate without owning it. 

To Learn how to create a land trust visit http://www.createalandtrust.com

 

LAND TRUST MINI-COURSE LESSON 2: BENEFITS OF USING A LAND TRUST

As we have seen, a land trust is the ultimate form of control of property without ownership.  As beneficiary you control the trust and its assets, but the trust itself is the legal owner of the property.  So, let's look at some of the advantages of using such an arrangement.

Privacy of Ownership

The owner of record of a property held in trust is the trust itself.  The trust agreement, which lists you as the beneficiary, is not made a matter of public record.  Therefore holding a property in trust allows you to control the property without creating any public record listing you as the owner or associating you with the property in any way.  This is a great thing if you don't like lawsuits.  Publicly owning real estate makes you a fabulous target for them.  Think about it, if you were an attorney being hired to sue someone, would you rather take on a legitimate case where the defendant is actually guilty of wrongdoing but has no assets, or a case where the defendant didn't really do anything wrong but does have lots of assets?  Believe it or not, just having publicly recorded assets makes you a more appealing target to predators and creditors of all sorts regardless of what you actually do.  Holding a property in trust will also keep the price you buy it and sell it for off of public record, which can come in handy in certain situations.

 Ease of Transfer

Transferring a property held in trust is much easier than transferring a property that you own.  Beneficial interest in a trust is considered to be personal property, not real property.  Therefore you can assign your beneficial interest in a trust to another party without a formal closing.  The event is treated by the law as a transfer of personal property, not real estate.

Ease of control by Multiple Owners

If a property has multiple owners, those owners can place the property in a trust and assign themselves as beneficiaries.  Then, only the trustee's signature will be required to execute documents relating to the property, rather than that of each of the beneficiaries.

Given these benefits of using land trusts, hopefully you are excited to find out exactly how you can use them in your real estate business. 

To Learn how to create a land trust visit http://www.createalandtrust.com

 

LAND TRUST MINI-COURSE LESSON 3: WHAT ARE TRUSTS USED FOR?

We've seen that a land trust can allow for greater privacy in your real estate transactions and property ownership as well as a greater degree of control over the transfer of property than holding title in your own name.  Let's look at some of the ways these factors can work to your advantage in your real estate deals.

 Lease Options

In some states a lease option contract may give the tenant buyer "vested rights" to the property.  This means that in the event the tenant defaults you could have to initiate costly foreclosure proceedings rather than file an ordinary eviction.  However, you can get around this possibility by placing the property in a trust.  Simply have the tenant buyer sign two separate agreements: 1) a lease agreement and 2) an option agreement to buy the beneficial interest of the trust.  This agreement can be made null and void in the event that the tenant buyer defaults on the lease agreement.

Wholesaling

Certain institutional sellers, such as lenders, will not approve a sale of a property by assignment.  However, they will approve a sale to a land trust, and if you want to you can assign the beneficial interest in that trust to another party, right?  You don't even have to tell them about it if you don't want to.  Problem solved.

Owner Financing

If you want to buy a house with owner financing, the seller might not be willing to transfer title to you right away.  No problem, simply create a land trust to deed the property into and name yourself (and perhaps the seller as well) as a beneficiary.  This allows you to profit from the property without transferring the title to your own name.

 Subject To

The due-on-sale clause can be an issue whenever you take title to a property subject to the existing financing.  However, transferring title of a property to a land trust will almost never trigger the due on sale clause (because there is a specific exception in federal law that provides for this), nor will assigning the beneficial interest in the trust (because the lender generally has no way of finding out that this has taken place).

Now that you know some of the things that you can do with land trusts to optimize your real estate business, get ready to learn about how to create one

 To Learn how to create a land trust visit http://www.createalandtrust.com

 

LAND TRUST MINI-COURSE LESSON 4: CREATING A LAND TRUST

So how are Land Trusts legally created? A Land Trust is legally created when real estate is conveyed to a trustee by means of a warranty deed or similar document.   However, before you convey real estate to a trustee you must have a trust agreement in place that dictates the duties of the trustee.  The trustee will have legal title to the property, but as beneficiary you retain nearly all of the benefits of ownership, including the beneficial interest in the land trust, which entitles you to profit from the property, and the power of direction, which binds the trustee to carry out your instructions regarding the property.

The beneficiary of a land trust can be a single individual or multiple individuals, as well as a legal entity such as a corporation or LLC.  The beneficiaries are in control, and as such they are responsible for any financial obligations or judgments relating to the property.  The trustee is a single individual or organization who is not an independent agent and can not be held liable for following the instructions of the beneficiaries.  However, the trustee does hold a fiduciary responsibility to the beneficiaries and is required to act in their best interest.  Among the responsibilities of the trustee are to keep accurate records relating to the trust, exercise reasonable care and skill in the management of the trust, and act only upon the specific written request of the beneficiaries.

Since the trustee is the legal owner of property that you wish to control, trustworthiness is obviously an important consideration in the selection of a trustee.  Reliability and availability should be factored in as well, as the trustee will be required to sign any and all paperwork as the owner of the property.  You can select as trustee an individual you know well and trust, such as a friend, relative, or attorney; or an institution such as a bank, a trust company, or other corporation.

So, to sum up, a trust is created by two documents: a trust document, which outlines the roles and responsibilities of the beneficiaries and trustee, and a deed, which conveys title to the newly created trust.  The trust document should never be recorded so as to maintain privacy, but the deed should be recorded in order to legitimize the transfer.  There will be a nominal recording fee, but in most states there will be no transfer tax because the event is not considered a change in ownership.

Just so that you don't think that land trusts are too good to be true, there are some specific drawbacks that you should be aware of in order to use them most effectively. 

 To Learn how to create a land trust visit http://www.createalandtrust.com

 

 LAND TRUST MINI-COURSE LESSON 5: DRAWBACKS OF LAND TRUSTS

 Hopefully you can see by now how useful land trusts are and how they can be a powerful tool for your real estate investing business.  However, land trusts do have some limitations which it would be wise to take a careful look at.

 

No Liability Shield

While a land trust will shield your control of a property from public view, it provides no liability protection whatsoever to the beneficiary.  If someone slips and falls on your property, having it in a land trust won't prevent you from being sued.  Nor will it prevent legitimate collection actions from taking place against the property.  For this type of protection you need a business entity, such as a corporation or LLC, to go in between you and the property.

 Choosing a Reliable Trustee

 If your trustee is not available when you need to have documents signed that relate to the property, you could be down the creek without a paddle.  That's why reliability and accessibility are important factors to weigh in when choosing a trustee.  You could pay a professional provider for this service, but it will most likely cost an arm and a leg.

 Loss of the Homestead Exemption

 Your personal residence is a home you both own and occupy.  A homestead exemption is a clause that protects a person's personal residence from the collection actions of creditors.  Even if you declare bankruptcy, in most states you will be entitled to keep the equity that is in your home (at least up to a certain amount).  But guess what, if the house you live in is owned by a land trust instead of by you, it's not your personal residence, is it?  This is a trade-off that should be weighed carefully with the help of your attorney.

 Unfamiliarity with Land Trusts

 Many people that you deal with, including some lenders and attorneys, will have no clue what a land trust is, which can create minor complications.  For example, if you want to refinance a property that you hold in trust, the lender may require that you transfer title to your person before they will lend, which would destroy your anonymity.  Or if you transfer title of a mortgaged property to a trust, the lender may call the loan due even though federal law prohibits this.

 

To Learn how to create a land trust visit http://www.createalandtrust.com

 

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Groups:
Realtors®
Investors
Online Marketing Help Center
Tags:
land trusts
asset protection
how to create a land trust

Post a Comment
Spam prevention
Spam prevention
Show All Comments
Rainer
30,159
Mike Miller
Howard Hanna Real Estate Services, Inc. - Moon Township, PA

Omar,  Thanks for the interesting read.  I've often wondered what land trust were all about.  Mike

Jul 08, 2008 11:01 AM #1
Anonymous
Lawrence
Good job Omar! You've simplified and demystified understanding how trusts work for skeptical property owners.
Jul 13, 2008 10:55 AM #2
Anonymous
Lynn

Beautiful and concise explanation of the land trust.  As a mortgage undewriter and investor, I might add that large conventional banks just don't like trusts of any kind and will rarely fund or refinance a property in a trust.   Stick with smaller banks or credit unions or, better still, private investors - at least until banks get their heads out of the sand and away from the credit scoring system.  Then maybe the country will be able to get out from under this mortgage mess by letting investors help!

Aug 15, 2008 05:43 PM #3
Rainer
21,691
Robin Moffitt
Gold Star Realty, Inc. - Nampa, ID
"Gold Star Service....Gold Star Results !"

Great article... There are so many Realtor's who just don't get the complexity of the Land Trust...even tho' it's simple in nature, there are so many misconceptions about it's use and benefits. 

 

Thanks, Robin

Jul 08, 2009 02:25 PM #4
Anonymous
krishan chaudhry

very good information

thanks 

 awesome

Jun 02, 2011 12:48 AM #5
Post a Comment
Spam prevention
Show All Comments
Rainer
13,341

Omar Johnson

Ask me a question
*
*
*
Spam prevention