Today, Mr. Land Trust, Randy Hughes is back with Part 4 of his awesome and informative series on Land Trusts.
You may recall Randy’s previous lesson, “Land Trust Essentials: The Deed in Trust (This Time, It's Personal),” in which he explained the difference between a standard Warranty Deed and a Deed to Trustee, or the terrific live training call we did with him on the topic…
In each great lesson, Randy has been explaining to us that Land Trusts can be an extremely powerful device in your real estate investing business – when used the right way. And, of course, Randy has been showing us just how to use them to effectively, creatively and ethically leverage them to protect your assets and your privacy as a real estate investor.
Randy, take it away…
From Randy Hughes…
Okay, Moguls, now that you know how the Trustee holds title to property inside a Land Trust, let’s explore who should/could be your Trustee and why.
First, understand that the best Trustee is one who has a different last name than you AND lives outside of the county in which the property is located (preferably out of the state where the property is located).
Remember, the main reason why people use Land Trusts to hold title to their real estate investments is to have anonymity of ownership. Smart real estate investors realize that the general public perceives investors as easy targets for lucrative frivolous lawsuits…
Not owning real estate in your personal name prevents a lot of lawsuits. This may sound simplistic, but real-life experience taught me that the less you “own” the less of a target you are for all kinds of problems.
Take it from a street-wise, full-time real estate investor since 1969, keeping your assets private will save you aggravation, money and sleepless nights!
Now, about those Trustees
When trying to decide who you want to ask to be your Trustee you should consider the following attributes:
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Trustworthiness
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Accessibility
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Honesty/Integrity
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Domicile
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Age (maturity)
Your Trustee can be an individual, entity or professional Trustee. There are benefits to each of these types of Trustees, but it’s hard to beat an individual Trustee that meets your criteria.
If you know an individual that you trust (a close relative or business associate that you have known for many years), who is easy to get in touch with and has assets of their own…they would be a good candidate.
The domicile (the state where the person lives) of the individual is important because it’s my suggestion that you choose a resident of the same state where you form your Land Trust. That’s right, you don’t have to form a Land Trust in the same state as where you or the property (going into the Land Trust) is located. There are huge asset-protection benefits to using “out-of-state” Trusts to hold title to in-state property. (Really, huge!)
If you choose to use a professional Trustee, you will benefit from their experience, forms and liability insurance. However, the professional Trustee will charge you from $160-$300 per year (ouch!) for each trust plus fees for anything else they do for you (i.e. mail forwarding, signing documents, etc.). Professional Trustees are also not as accessible as individuals and may only be open Monday-Friday 8:00 am to 5:00 pm.
It is NOT advisable to have the Trustee and the Director be one-in-the-same person. Since the Director instructs the Trustee as to what to do and when to do it, it would be a conflict to have one person (or entity) serve in both capacities.
It Boggles the Mind
The flexibility and creativity allowed for Land Trust Trustees is mind boggling. Take this scenario for example:
Suppose you were 50 with a kid who’s 25. Make the kid your Trustee while you remain as beneficiary (this can be pretty foxy if the kid happens to be a daughter who gets married and who has a different last name). Then provide the direction as your heir learns the job…
Later on, you can begin gifting shares in the trust as ‘bonuses’ for good work. One day, you will have passed on your estate – while retaining a minority beneficial interest to fund your retirement. If that make you nervous, retain options to buy back the beneficial shares at their basis anytime the kids start getting too creative.
If you are going to use an individual as your Trustee you should pick one that does not have your own last name and preferably lives out of town.
Why?
Because to sue a Land Trust, you must “serve” the Trustee to initiate the lawsuit. Now are you getting the picture? (More about this technique in future lessons.)
If you want to use individual Trustees but do not trust just one person, you can appoint a Board of Trustees. The Board would only act upon your written direction and all Trustees would have to sign off on any documentation. This would be your ultimate fail-safe protection against a rogue Trustee.
It is important to understand that Trustees can be hired and fired at a moment’s notice and at YOUR whim! Don’t feel like once you appoint a Trustee that you will have to stay with that Trustee for the life of the Trust (usually 20 years). If your Trustee does something you don’t like or fails to be as available/cooperative as promised… fire them! Appoint a new Trustee and off you go.
Who Do You Trust?
As you can see, Land Trust Trustees are very unique in that they can be individuals, corporations, LLCs or professional Trustees.
Some states require entities that serve as professional Trustees to be insured, bonded and have a minimum net worth.
You should never have your own entity serve as the Trustee of your own Land Trust (whether it meets state laws or not). And, you should be able to trust your Trustee and have one that is accessible (in case you need to move fast in a real estate transaction).
In my next lesson we will explore the world of Beneficiaries. Like Trustees, Beneficiaries can be individuals or entities too. Learning how to link Land Trusts with other-asset protection entities is crucial to the survival of the real estate investor.
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.
Questions, Comments, Thoughts…
Hit me up in the comments section for below for anything Land-Trust related. I’d love to answer questions a hear your thoughts.
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Make a list of 3 people that you would ask to be your Trustee.
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Call your local title company and see if they would provide Trustee services and at what costs.
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Ask your attorney if she/he would serve as your Trustee for free.
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.