Land Trust Essentials: The Deed In Trust...

Howdy Moguls, today, we’ve got a great follow-up lesson with Mr. Land Trust, Randy Hughes…

As Randy has been so wisely telling us, when Land Trusts are used well, they can be an extremely powerful device in your real estate investing business. Thankfully for us here at Mogul, Randy is THE guy to talk to about how to effectively, creatively and ethically leverage them to protect your assets and your privacy as a real estate investor.

You may recall Randy’s previous lesson, “Land Trust Essentials: Knowing the Players and What They Do” or the terrific live training call we did with him recently on the topic.

Let’s not drag this on…there’s important Land Trust deets to get to…

From Randy Hughes, Mr. Land Trust

As a real estate investor you are accustomed to seeing Deeds come and go during a transaction…

Warranty Deeds and Quit Claim Deeds are often used to convey title from the person we are buying property from to ourselves (or our entities). In this lesson you will learn what the difference is between the deeds you typically use in a real estate transaction and the deed you use to create a Land Trust (Deed to Trustee or Deed in Trust).

The Deed to Trustee is very much like a Warranty Deed but contains a few provisions not found in a Warranty Deed. In a Deed to Trustee, instead of inserting the investor’s name as Grantee you would insert the Trustee’s name and the name and number of the Trust. This allows conveyance of the property from whoever owns the property now to your Land Trust (of which you or your entity would be the Beneficiary).

Other differences between a standard Warranty Deed and a Deed to Trustee include provisions that limit the liability of the Trustee, such as:

“…and the Trustee shall have no obligation whatsoever with respect to any such contract, obligation or indebtedness except only so far as the trust property in the actual possession of the Trustee shall be applicable for the payment and discharge thereof…”

And:

“In no case shall any party dealing with said Trustee in relation to said property, or to whom said property or any part thereof shall be conveyed, contracted to be sold, leased or mortgaged by said Trustee, be obliged to see to the application of any purchase money, rent or money borrowed or advanced on said property, or be obliged to see that the terms of this trust have been complied with, or obliged to inquire into the necessity or expediency of any act of said Trustee, or be obliged or privileged to inquire into any of the terms of said trust agreement; and every deed, trust deed, mortgage, lease or other instrument executed by said Trustee in relation to said property shall be conclusive evidence in favor of every person relying upon or claiming under any such conveyance, lease or other instrument, (a) that at the time of the delivery thereof the trust created by this Indenture and by said trust agreement was in full force and effect, (b) that such conveyance or other instrument was binding upon all beneficiaries thereunder, (c) that the Trustee was duly authorized and empowered to execute and deliver every such deed, trust deed, lease, mortgage or other instrument, and (d) if the conveyance is made to a successor or successors in trust, that such are fully vested with all the title estate, rights, powers, authorities, duties and obligations of its, his or their predecessor in trust.”

And:

“The interest of each beneficiary under the trust agreement hereunder and of all persons claiming under them or any of them shall be only in possession, earnings, avails and proceeds arising from the sale or other disposition of said property, and such interest is hereby declared to be personal property, and no beneficiary hereunder shall have any title or interest, legal or equitable, in or to said property as such, but only an interest in the possession, earnings, avails and proceeds thereof as aforesaid.”

I Spy with My Little Eye Something… Different…

The above paragraph is one of the most important differences in a standard type deed and the Deed in Trust. The fact that the Beneficiary of a Land Trust holds his/her/its interest as “personal property” is critical to the creation of and benefits to a Land Trust. (In future lessons I will elaborate on the advantages of owning personal property and not “real” property.)

Another big difference between a standard deed and a Deed in Trust is the fact that you may or may not follow the state laws of where the property is located. Since there is no Federal Land Trust Law, each state may have its own Trust Law. Therefore, when setting up your Land Trust, you may decide to use the laws of a different state as the “situs” of your Trust. Here is the language as it is found in the Deed in Trust:

“The situs of the domicile of said trust shall be the domicile of the Trustee and of any successor Trustee who shall henceforth act in that capacity. The said situs of the Trust shall be the governing jurisdiction for any legal action undertaken pursuant to the assets of the aforesaid trust.”

The concept of using another state’s laws to set up a Land Trust to hold title to property in your state is very foreign to most people (even to most attorneys). However, this technique can be VERY beneficial from an asset protection standpoint. (Future lessons will elaborate on this and other asset protection benefits of using a Land Trust to hold title to your investment real estate.)

You Say Tomato… I Say Just Make the Trust Language Work for My State

While there are other differences between the Standard Deed and a Deed in Trust, I’ve just covered the most significant.

Also, please be aware that some states require specific language or formatting for their deeds (no matter what type of deed you are creating). So, it is a good idea to have your deed reviewed by someone with experience and competence prior to recording to make sure it meets state statute requirements and local custom.

You now understand that a deed used to create a Land Trust is different than a standard Warranty Deed or Quit Claim Deed. You have learned that the Trustee of a Land Trust holds full legal and equitable title to the property inside the Land Trust and has no personal liability for doing so.

You have also have learned that the Beneficiary of a Land Trust holds a Personal Property interest NOT a Real Property interest.

in my next lesson, we’ll cover more about the role of the Trustee of a Land Trust. Trustees can be individuals (like a friend, relative or confidant) or they can be professionals (like your attorney, a title company or trustee service). Prepare yourself to go even deeper into the unknown world of Land Trusts!

In the meantime if you want to continue your Land Trust education, please feel free to enjoy a webcast training I’ve prepared on how to create your first land trust.

--Randy Hughes, aka, Mr. Land Trust