Well, Moguls, today’s awesome lesson is a continuation of a terrific series from Mr. Land Trust, Randy Hughes. He’s back today with Part 6in which he talks us through finding the right Land Trust Director.
By the way, if you need to catch up, start here with Part 1. Randy’s given us loads of great info already.
In his last lesson, Randy discussed the many ways that the Beneficial Interest of a Land Trust (a personal property interest) can be held. Many real estate investors choose to make their Limited Liability Company the Beneficiary of their Land Trust. Since the liability on the property held inside a Land Trust flows through to the Beneficiary, it is a good asset-protection technique to use an entity as your Beneficiary.
Before that, Randy talked about how a Trustee can only act upon written direction from the Beneficiary (assuming the Beneficiary retains the Power of Direction or POD). When a Land Trust is initially formed by the Grantor (the person creating he Trust) the power to direct the Trustee is usually retained by the Beneficiary.
However, the POD can be assigned by the Beneficiary to someone or some other entity (LLC, Corporation or another Trust).
And from here, folks, we’re gonna let Randy take it away …
From Mr. Land Trust…
There are many strategies that you can employ when setting up your Land Trust and designating a Director. If you do not trust any one person to hold the POD, you can set up a Board of Directors and mandate what constitutes a quorum, as well as a majority before any directive can be issued to the Trustee. (Yep, you’re pretty powerful!)
For example, you might appoint 7 Directors who would only issue directives arrived at informal meetings of at least 5 of them, with a three-fifths majority required to take any action. This would obviously take a lot of "cooperative" people to construct and might not be worth the trouble unless a lot of money is involved.
One of the advantages of using a Board of Directors is that you could place younger, inexperienced heirs on the Board and provide Land Trust training via the Board meetings. Eventually, the heirs would "graduate" to understanding the formalities of Land Trust administration and begin forming their own Land Trusts for privacy and asset protection, which, of course is the name of the game.
Oftentimes, a Land Trust has multiple Beneficiaries, and to designate just one to hold the POD is a matter of convenience and possibly business acumen. A Land Trust will operate much more efficiently if only one person holds the power over the Trustee (especially if that person has more business and life experience than the other beneficiaries – hint hint).
Occasionally, Land Trusts are established to hold income-producing real estate to provide support for minor children or mentally handicap adults. In this event, the minor or incapable adult would serve as beneficiary (receiving all the proceeds and avails from the trust property) and the parent or benefactor would serve as Director making all critical decisions over the trust assets.
You Got the Right Stuff
The POD is a Property Right and as such is considered personal property. This Property Right can be assigned away from the beneficiary temporarily, permanently or conditionally.
For example, if the Beneficiary currently holds the POD she/he could assign this right to another party for one day… for the life of the Trust… until Bakersfield, California receives 10 inches of rain in a 24-hour period… or until pigs fly.
Conditional rights like this can be fun to create and a nightmare for your adversaries to penetrate.
It would be prudent at this point to mention that anytime the beneficiary or holder of the POD is changed, the Trustee must be notified in writing. It’s also important to always protect the personal liability of your Trustee, which can be done by written notification (to the Trustee) and acceptance (by the Trustee) of any and all changes to the Trust Agreement.
With partnerships and corporations or other trusts as single or joint beneficiaries, the POD can be assigned to a specific individual (in each) acting as a representative of the organization, or by the organization itself upon proper resolution of the individual partners or Board of Directors.
Or, the whole problem might be resolved with a Beneficiary Agreement…
Agree to Agree
A Beneficiary Agreement (BA) keeps multiple beneficiaries from suing each other over the POD of a trust. The BA would set forth rules for apportioning the POD among them, provide for resolution of problems and for the broad policy pertaining to administration of the trust by the Trustee. Then the only Directives would be "as needed" exceptions rather than having every decision require a vote.
It is VERY important to note that when the Beneficial Interest of a Land Trust is transferred, it has the effect of cancelling any previous assignment of the POD (unless the assignment was irrevocable) and it then belongs to the assignee. Because this POD is not based on any document other than the Trust Agreement, which is not made public or placed into the public records, it is an easy thing for lawyers and courts to overlook.
By adroitly controlling the POD through contingent transfers, assignments and use of other Irrevocable Trusts (as holders of the POD), unique asset-protection benefits can be obtained without public knowledge for the Primary Land Trust.
For example, by designating the POD to an Irrevocable Trust, any legal attack on the Primary Land Trust could trigger a contingent transfer of beneficial shares to another trust with another Trustee in another jurisdiction with another POD in another Irrevocable Trust.(Who’s on 1st, anyone?)
Further asset-protection benefits can be obtained via the POD by using non-citizens as co-directors. If a U.S. court ordered the citizen co-director to make a disposition of the trust property (which would be against the best interests of the beneficiary), the foreign non-citizen director could refuse to cooperate and no legal directive would have effect.
Get Creative
As you can see, the sky is the limit when it comes to creative uses of the Power of Direction over a Land Trust.
And, the POD is just one of the many parts of a Land Trust that will allow you to be creative in your structuring of asset-protecting concepts.
It’s important to point out that I teach these techniques to honest, law-abiding real estate investors to protect themselves against contingency fee lawyers and their clients (and others who view real estate investors as easy targets for a lawsuit).
If you’re serious about protecting your assets, you need to learn how to form your own land trusts for privacy and asset protection now before you lose your life’s saving to the unscrupulous people in our society. Not trying to be Debbie Downer, just being honest.
Quick Recap (This Can Be Heavy Stuff, Sheesh)
This lesson has taught you that the Power of Direction is a personal property right that can be kept by the Beneficiary or assigned on a temporary or permanent basis.
The Director can be a single person, entity or a Board of Directors.
Directors have the power to instruct the Trustee what to do and when to do it. Directors have THE ultimate power…be careful who you give the Power of Direction to!
Stay tuned as we continue this great series with more helpful Land trust info soon.
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
Questions, Comments, Thoughts…
Hit me up in the comments section below for anything Land-Trust related. I’d love to answer questions and hear your thoughts.
Consider who might be YOUR Director and how he/she/it can help protect your Land Trust and the property in it.
Think of a few “conditions” under which you might assign the POD temporarily (i.e. until your minor child becomes of legal age).
Believe that a Land Trust will prevent problems in your financial life and allow you the flexibility of controlling most situations (instead of “situations” controlling you!)