What are the circumstances appropriate for setting up a Land Trust?
In this episode of Coffee with Carl, attorney Carl Zoellner guides you through the process of setting up a Land Trust.
When it comes to investing, Land Trusts can be a very handy tool to have.
A couple of things that we want to look at are, do you have a location in which you’re investing where a land trust would benefit you? Is there some sort of cumbersome transfer tax or some other reason to use one?
Really the broadest appeal with a land trust is using a nominee trustee to get an additional layer of anonymity. Now you’ll notice I said anonymity, not asset protection. Land trusts are in the same family as your living trust, the same family as a personal property trust.
Those types of grants or trusts do not provide asset protection. So it’s the reason we link the beneficial interest of those land trusts to LLCs so that they then have the protection of an LLC. If I’m using a land trust for investing, it’s usually for that layer of anonymity or for a reason to be able to step around or use an exemption that’s out there for the transfer tax.
Other than that, it sort of becomes a one-off scenario. Did I move a property into an LLC, and for some reason my lender’s unhappy about it? Okay, if that happens, usually you get a letter saying you need to put it back in your personal name, not a big deal.
But you do that and then a lot of times if you wait a little bit and then put it into a land trust, that same issue doesn’t arise.
It’s pretty simple and not quite high stakes. It’s more of just hey, we noticed you moved this. You’re not supposed to move this. Okay, I’ll put it back. And then later you could, if you move it to a trust instead of directly to a business entity, a lot of time that relieves that type of pressure if it even pops up.
So that’s why I say it’s reasonable to use a land trust in certain situations. It’s a great tool to have in your toolbox, as well as if you are someone who really puts a heavy focus on anonymity, or you don’t want people to know that your name is associated with your personal residence.
Oftentimes for our online events, we will include a bonus land trust, and sometimes people kind of struggle and say well where do I need one technically? You can always use one in your personal residence. Putting in a land trust isn’t going to affect things like your homestead exemption, any, any items like that, but you can achieve an additional level of anonymity, which is awesome.
If you are going to use a land trust, you should always consider and always reach out when you’re going to do something with the property. Just because there can be some pieces of it, like say if you want to refinance a property, you should either do that before you put it in the land trust or at least expect you’ll have to take the property out of land trust.
It’s not a big deal. However, it does happen. And lenders tend to like to have your refi outside the land trust because most of them have trouble selling that mortgage on the secondary market. So just as an FYI.
Is it appropriate for every single situation, no but If you have one you’re trying to use, you could certainly use it in your personal residence.
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