In this episode of Coffee with Carl, attorney Carl Zoellner explains how to use land trusts to avoid real estate transfer taxes in some states.
Updated August 13, 2020
If you’ve watched my other videos on land trusts, you already know that land trusts can be useful for privacy. They also help prevent the churning of title. Another important benefit of land trusts is avoiding real estate transfer taxes.
Different states have different rules when it comes to what’s acceptable and what isn’t regarding taxable events. Some states make any transfer of real estate a taxable event, even if the transfer is from you to your LLC. Generally, land trusts will prevent real estate transfer taxes in states where transfer taxes apply.
The reason is simple. For real estate transfer taxes, most states have an exemption for grantor trusts wherein the beneficiary is the same as the grantor. This is because, to a taxing authority, a grantor trust looks like a living trust. Since living trusts are important estate planning tools, most states don’t want to penalize people for responsible estate planning.
Thus, if I lived in a state that required me to pay real estate transfer taxes on a transfer from my individual name to my LLC, I would first put that property into a land trust. This way, I can completely avoid paying transfer taxes if I live in a state that has an exemption for land trusts.
Keep in mind: this is state, sometimes even county, specific. Knowing the state-specific details is crucial to the success of this strategy. If you’re planning to use a land trust in this way, I would absolutely recommend getting a qualified professional to review the specific laws in your state. Call us for a free consultation to speak with an advisor about using a land trust in your state.
Watch as Carl goes over how land trusts enable you to avoid paying transfer taxes on the transfer of real estate in some states.
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