If you are a real estate investor interested in purchasing real estate in Florida, you may wish to consider the benefits of a land trust. A land trust is established by an express written agreement in which authority is conveyed to a trustee (may be a person or entity) to hold legal and equitable title to property on behalf of a beneficiary. A trustee may be the beneficiary of the land trust for which the trustee serves as the trustee. The land trust can offer many benefits to the real estate investor; however, it is important to understand the nuances of a land trust before you decide whether or not it is right for you. An experienced real estate attorney can help you understand the pros and cons of land trusts, including whether you should serve as your own trustee, how to maximize asset protection, and how to minimize your costs.
PROTECTS OWNER PRIVACY
So, for instance, let’s say someone wants to build a very large theme park on some swampland south of Orlando, but they know if anyone finds out they are in town buying up large swaths of property, people will immediately become curious. What they might do is hire a law firm or lawyer to set up a land trust and act as their trustee to purchase the property on their behalf. After the trust is set up, they might even quietly change the trustee to another entity, one in which they are in charge, but which still protects their anonymity. The trustee, whether the trustee also is a beneficiary or not, can build, rent, sell or transfer to heirs throughout the life of the land trust and remain completely anonymous—as long as there is no financing involved. If the beneficiary pays cash, it’s all good.
However, anonymity can start to unravel once any property is financed and these documents are recorded. Any savvy attorney or title agent conducting a title search soon will be able to reasonably determine property ownership through financial documents. Still, if the purpose of anonymity is to get a jump on a project before others are in the know, the mission may already be accomplished before anyone finds out, and the land trust may have served its purpose.
Asset protection can be another benefit of land trusts. While land trusts, in and of themselves do not provide asset protection, there is a strategy to achieve asset protection if this is your goal. Land trusts, but nature, are revocable. It is a fundamental tenant of U.S. law that a person cannot protect his or her assets from creditors by putting property in a trust that the person fully controls. (An irrevocable trust would be a trust that a person does not control.) Most land trusts are set up so that the trustee also is a beneficiary of the trust, and thus is in control of the trust. However, once an investor has established a land trust to hold legal title to property and after title is recorded in the name of the trust, the beneficiary can quietly assign his interest to a limited liability company (LLC). Because the transfer is unrecorded, it goes unnoticed by the lender. The LLC now is liable for the debts and obligations, and the land trust is protected from the investor’s personal creditors.
Transfer of real estate to an LLC within a land trust also could help minimize transfer costs. Transfers generally are exempt from transfer taxes provided the beneficial ownership remains the same.
Other reasons you might wish to consider forming a land trust:
1. Ease of control by multiple owners. Only one trustee is required to sign contracts and paperwork.
2. Avoidance of probate. Contingent beneficiaries are listed in the trust document so property is conveyed to heirs without need of probate.
3. Minimizes closing costs when there are simultaneous closings.
4. Minimizes fees. Unlike corporations or other limited liability companies, land trusts do not have annual filing fees with the state.
5. Simplifies gifting. Land trusts can gift assets to minimize estate taxes.
To discuss these and other benefits of land trusts and whether they are the right vehicle for your investment needs, please contact Sultana Law today.