In this episode of Coffee with Carl, attorney Carl Zoellner explains the basics of personal property trusts.

Updated March 4,2022

What are Personal Trusts, how are they used, and why they are useful tools for real estate investors and traders is answered here.

Many of our clients here at Anderson utilize personal property trusts in their business entity structures and investing game plans. Whether you invest in real estate or the stock market, this tool could be the missing piece in your overall investing strategy.

Personal property trusts are grantor trusts. This means they fall in the same category as living trusts and land trusts, but are instead used only to hold personal property. These types of trusts are useful for both stock traders and real estate investors, but the purpose of using them is widely different in each arena.

Legal Background of Personal Trusts

First, let’s cover the legal basis of what these tools are. From the legal perspective, property is classified in one of two ways. Real estate is generally referred to as “real property” in law. “Personal property,” then, is basically the legal term that refers to any other type of property that’s not real estate. For instance, if you own your brokerage account directly, it would be considered personal property.

Personal Property Trusts in Real Estate Investing

If you invest in real estate, you may be wondering how this tool could be useful to you. Although we commonly use land trusts for holding real estate (or “real property” in legal terms), personal property trusts have their place in some real estate investors’ structures. If you have an LLC that owns real estate directly or holds the beneficial interest in a land trust, then a personal property trust could still fit in by holding the membership interest in that LLC. This is because LLC membership interests are considered “personal property” and not “real property” (this is true even if the LLC owns “real property,” i.e., real estate).

The benefit of this strategy is that, when asked, “Do you own an LLC?,” my answer is “No.” I own a personal property trust. I don’t individually own an LLC. Yes, the personal property trust may own an LLC, but I only own the trust. This may seem like a small distinction, but it can have big ramifications depending on your situation — for instance, if you’re a California real estate investor.

Personal Property Trusts in Stock Trading

For stock market or brokerage accounts, we tend to use personal property trusts to hold the accounts when:

1. The brokerage will allow you to roll all your positions into a trust but not an LLC, or
2. The brokerage will allow you to roll your brokerage account into an LLC, but will then want to charge “professional fees” since the account is now held by a business entity instead of some sort of trust or individual account.

In both of these scenarios, personal property trusts can help. Ultimately, this type of trust is a tool for stock traders to work with brokers.

For traders, there are two main purposes behind using this type of trust: helping traders avoid paying professional fees to brokers, and helping traders remove their brokerage accounts from their individual names without having to cash out their positions. Traders often find they need some workaround tools when working with brokers. 

The Takeaway

Overall, this type of trust is a neat tool that’s an unsung hero in many of our clients’ business structures because of its wide usage. When determining which business entity tools are right for your individual investing and business, it’s critical to get the input of experts. One small misstep could result in a major tax headache or other snags that could impede your business growth.

That’s why I recommend anyone interested in personal property trusts or any other type of business entity schedule a complimentary Strategy Session with a Senior Advisor. On the call, you and an experienced Senior Advisor will discuss your individual investing situation and goals, then the Advisor will lay out the best custom entity structure for you. You can schedule online or by calling 888.871.8535.

Watch as Carl breaks down the essentials of personal property trusts and how investors and traders use them to their benefit.

Resources Mentioned in This Video

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Got an idea for a future Coffee with Carl? Send it to Carl at cwc@andersonadvisors.com.

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