Hey Moguls, we have our good friend and Land Trust expert back with us for today’s info-packed lesson.
Besides just being an all-around awesome and nice guy, Randy Hughes is ‘The Man’ when it comes to all things Land Trusts. He knows them inside and out… and what’s cool for us is that Randy also knows how to break down and deliver to us tons of that valuable Land Trust info into easy-to-understand lessons.
In fact, he did a brilliant comprehensive series on Mogul that’s all about Land Trusts. I strongly encourage you to check it out staring from Part 1.
Today, Randy has even more helpful REI info to share about Land Trusts, so we’re gonna pass the baton over to him now…
From Randy Hughes…
Hey Mogul friends, I’m glad to be back for another lesson about Land Trusts…
The Land Trust is different than most other trusts in the world. The power behind the Land Trust lies in the hands of the Beneficiary (or holder of the Power of Direction), NOT the Trustee. Typically, when a Land Trust Agreement (TA) is drafted, it spells out the rights and duties of the Trustee and makes it clear that the Trustee cannot act without written direction from the Beneficiary/Holder of the Power of Direction (POD).
The Trust Agreement should also specify expressly that the interests of the Beneficiary are Personal Property. The TA also makes it clear that the Beneficiary shall have no interest whatsoever in either the legal or equitable title to the real estate held inside the Trust. The Beneficiary’s interest is confined to the rights of management, operation, control and to the receipt of proceeds from rents, mortgage financing, sales and exchanges.
The TA should also state that the authority to direct the Trustee (to take some kind of action) resides with the Beneficiary or he/she assigns it. It should also establish a fiduciary relationship between the Trustee and the Beneficiary. The TA makes it clear that the Trustee must not take any action unless she or he is directed to do so in writing by the Beneficiary (holder of the POD). Since I have written other lessons on the assignment of the POD (to other people or entities), I will not address that issue here and assume that the POD remains with the Beneficiary (no assignment has been made).
Benefits of Assigning…
Many of my students have learned the technique of assigning the Beneficial Interest in a Land Trust to a buyer to avoid the due-on-sale clause, property tax re-assessment, California sales tax, seasoning issues and transfer taxes. After such an assignment, the new buyer would have the Power of Direction over the Trustee and, therefore, could appoint a new Trustee or make any changes he or she saw fit to make to the Trust Agreement. This technique obviously maintains the new buyer’s anonymity in the public records without diminishing his or her control over the property held in the Trust.
Since assigning a Beneficial Interest is a great way to avoid certain issues I previously mentioned, some states have taken action to try to close the gap and collect more taxes. Here are some examples:
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In Illinois the law prevents an assignment of Beneficial Interest from being legally binding if it is not registered with the local taxing bodies. Reading this law closely reveals that it applies only to counties with more than 2 million citizens. Only one county in Illinois qualifies - Cook County (better known locally as “crook” county).
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In Florida there is a law that says all Land Trust Trustees must check with the State to be sure there is no RICO (Racketeering Influenced Corrupt Organizations) lien filed against the Beneficiary PRIOR to the transfer of a Beneficial Interest. If the Trustee fails to do this, he or she becomes personally liable for those liens!
The Financial Crimes Enforcement Network, an agency of the U.S. Department of the Treasury (more popularly known as FinCEN), recently issued a geographic targeting order that could affect South Florida real estate transactions…
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The order requires that if a "legal entity" buys residential property in South Florida for a total purchase price exceeding $1 million without financing, and the purchase is made at least in part using currency or a cashier's check, certified check, traveler's check or money order in any form, the transaction must be reported to FinCEN.
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The report must identify any individual primarily responsible for or owning over 25% of the purchasing entity, include official documentation of the individuals such as a driver's license or passport, and cite the closing date, amount transferred, total purchase price and address of the property.
The good news is that since a Land Trust is not a “legal entity” under the Federal Government’s own definition, it is exempt from this new reporting requirement. Although Florida already had a law on the books requiring any foreign Beneficiary to a Florida Land Trust owning more than 10% of the Beneficial Interest to register with the State.
Unlike Illinois and Florida, most states are not ahead of the curve on creative Land Trust techniques. This means that within reason, you can be as creative as you want when employing your Land Trust skills and no one will be the wiser.
Randy Hughes,
Mr. Land Trust
I’m Listening…
Comments or questions? Talk to me in the comments section below.
Understand that the power behind the Land Trust is with the Beneficiary NOT the Trustee.
Remember that a Trust Agreement makes it clear that the Trustee cannot act without written direction from the Beneficiary.
Consider the technique of assigning the Beneficial Interest in a Land Trust because of its numerous benefits, including avoiding certain taxes.
Know the Land Trust laws in your state as they vary from state to state.
Randy Hughes
bought his first single family home for rental while in college in 1969 and hasnít looked back since. Heís since purchased over 200 houses, and has developed a special expertise focused on how to protect your assets and how to become more private with your personal life through the creative, 100% legal and ethical use of Land Trusts. On the topic, Randy has written extensively for national real estate publications, has published a number of Privacy and Asset Protection books including Land Trusts Made Simple, and has been a licensed Continuing Ed Instructor for the Illinois Assoc. of Realtors for 20+ years. He even teaches land trust law and administration to attorneys.