In this episode of Coffee with Carl, attorney Carl Zoellner discusses some of the state-specific issues you may encounter when using land trusts for real estate investing.
To continue my series on land trusts, I want to talk specifically about certain states with unique considerations.
Despite people’s assumptions, land trusts aren’t used for the state of California or to avoid reassessment. With California, land trusts can be used to connect out-of-state LLCs and avoid the California franchise tax. Thus, it’s more about moving the beneficial interest privately and still having asset protection (when coupled with an out-of-state LLC) without creating a California LLC. This is especially important considering that California doesn’t do a good job of protecting its LLCs.
In Florida, the concern is the stamp tax. Furthermore, Florida also doesn’t do a great job of protecting its LLCs. We can use a land trust in this state to help mitigate these issues.
In Tennessee, you could also use a Tennessee LLC or a series LLC to achieve these ends. There are differing opinions about this. However, my recommendation with Tennessee is to use a land trust to step outside the FONCE tax, which stands for “family-owned non-corporate entity.” Tennessee has a state tax associated with LLCs not wholly owned by an individual, so land trusts are useful to avoid this.
The unique thing about Pennsylvania in relation to land trusts is that land trusts must look like living trusts in this state. Pennsylvania distinguishes between living trusts and land trusts. The timing is an important factor with this state. You wouldn’t want to file five land trusts that look like five living trusts to one individual; otherwise, you’d run into issues with the county recorder.
Overall, land trusts can be a boon to your real estate investing strategy regardless of the state wherein you reside or invest. This strategy is relevant in all 50 states, but it’s important to work with a professional who knows the intricacies that come with different jurisdictions. Land trusts may not be the best strategy for every investor, but they’re one more tool in your REI toolbox.
Watch as Carl goes over state-specific concerns related to the use of land trusts in your investing.
Got an idea for a future Coffee with Carl? Send it to Carl at firstname.lastname@example.org.