Land Trusts Made Simple 101 Part 3

Here is the conclusion of Land Trusts Made Simple for Investors.  You can catch up on Part 1 and Part 2.

States have different laws when it comes to the use (and abuse) of Land trusts, but Illinois is by far the Granddaddy of them all. Illinois actually developed the modern day “land” type trust from English common law; however, specific statutes in other states permit the existence of land trusts.

When properly drafted, land trusts can be used in most all states. However, some states are smarter than others so, check your own state laws. For example, in some states you can avoid the transfer tax levied on real estate transactions by placing your property into a land trust and then selling the beneficial interest in the trust. But, other states have passed laws requiring notification of the taxing bodies if even a part of a beneficial interest is transferred (i.e. Illinois).

This way they can not only charge you a transfer tax, but also increase your real estate property taxes as a result of the new sale price. Fortunately no state has yet been able to figure out a way to tax the sale of an OPTION on a beneficial interest. Options are extremely private transactions and will be addressed in future reports.

When financing property held in trust, a commercial lender will (if they are smart) require an assignment of the beneficial interest and an assignment of the power of direction. This effectively gives the lender control of the property and prevents any funny business by the beneficiary. Obviously, dealing with a commercial lender violates your confidentiality as the beneficiary.

Although by having your trustee sign the note and mortgage (and you just signing the assignment forms and guarantee), you at least will not have your name published in the local county recorder when all the documents are filed. In other words, no one will know that the property is yours and that you are placing financing on it.

One of the most important concepts to place in your land trust agreement is the restriction on your trustee to never reveal the name(s) of the beneficiaries nor their locations. You can also prevent the trustee from revealing the location of the beneficiaries or releasing a copy of the Trust Agreement without written permission of 100% of the beneficiaries, or a written court order that contains an indemnification clause protecting the trustee from a lawsuit for “breach of trust.”

Now, if too much pressure is put on your trustee, his only alternative is to resign as your trustee–thus keeping your confidentiality. Furthermore, if your trustee is out of state and only has a P.O. Box for an address, it is going to be very difficult to find him to begin legal proceedings.

It is not illegal to operate under a “fictitious” name. Just fill out a simple form at your county court house and viola–you're someone else! Imagine that your trustee is operating under a fictitious name and your trust is operating likewise. This will drive the process servers crazy!!

I have been using LTs in my full time real estate investment business for over 30 years. I live and invest in Illinois (the Granddaddy state of Land Trust law) and use LT's in my business constantly. I have found that many times advisers tell their clients, “You cannot do that” with a Land Trust. Most of the time they are wrong!

I hope that your better understanding on Land Trust help you protect your investments!