Just got done reading Wealth Protection Secrets by William Bronchick. The book came highly recommended by REI. Anyway, in the book the author recommends using a Land Trust in conjunction with a LLC. In essence the LLC becomes the beneficiary of the Trust(s). So each rental property besides being in a LLC will be titled to a seperate "trustee". Has anyone ever used Land Trusts in conjuction with LLCs????????
Thanks!!!
I use land trusts with my LLC for all of our subject-to purchases. I've read through Bill's courses and utilize parts. For sub-to, it's not necessarily for asset protection, but from DOS clause protection (to a degree, that's a whole 'nother story). The land trust is recorded as the owner of record. The Trustee has the power to sign on behalf of the trust, much like a manager usually does for an LLC.
A Land Trust isn't meant to be the 'end all be all' of asset protection, it simply adds another layer. The idea is that should someone wish to pursue a frivolous lawsuit, upon examination a lawyer will be easily able to find the beneficiary to sue and will then ask for a $5,000 retainer to keep working. Most people with a frivolous lawsuit will look for an easier target than bringing $5k out of pocket. Again, this is Bill's pitch, the reality of it is up for argument.
It's highly unlikely you'll get financing through a Trust, it can be done but there's a lot of extra work involved and with banking regulations these days I wouldn't get your hopes up. Insurance isn't a problem, just add the trustee and beneficiaries as additional insured on top of the land trust (remember, the trust is actually the owner).
When you sell the property you actually have a couple options. Number one you can appoint a new trustee (someone close to you or perhaps yourself) and sign the sales docs. Or you can assign your beneficial interest in the trust to someone else (similar to assigning ownership interest of a company). The advantage of assigning your interest in a trust is that it is considered personal property and not real estate. Even though the only thing the trust owns may be a house, the actual beneficial interest in the trust which owns the house is just personal property. This might save you on transfer taxes, title insurance, etc.... Depends on your state.
Word of caution, if you don't use a closing company or title agent that has experience with this you're going to want to bring a backpack full of reading material, snacks, and water..........it's going to take them a while to figure out what your're doing and how to get it done.
Yes,
Mike
So how has that worked out for you Mike?
I only do that with my apartment buildings, because of the increased risk. Having that structure helped prevent one lawsuit already. I believe that the structure was so complicated that the contingency lawyer just decided to move on to easier pickings!
Mike
Do you mind sharing how you set up a Delaware LLC and what are some costs that we should look out for? Thanks.
Ray Keziah
Ray,
Consider just using a OR LLC as you are based in OR. Assuming you will be investing in OR there is little to be gained from a DE LLC. DE has a lot of benefits for corporate but an LLC for RE is not going to pick up much in the way of added benefit. I have not strictly compared a DE vs OR LLC but I have had both (for different reasons).
John Corey
Thanks!!!
I am glad you enjoyed the book. Is it a simple read as I have told people?
I see it as a great primer before you speak with an attorney to get things organized.
John Corey
I wanted to bump this thread.
It seems an interesting topic to me as my reasearch in asset proptection has led me to believe this is one of the best strategies.
Mike,
Would you please describe your set up?
Is it as simple as writing a land trust document and then naming your LLC as beneficiary, please describe some of the intricacies or other pertinent info.
I understand that this structure is probably best suited for apartment buildings because of the increased risk exposure. I am interested because aprtment investing is a field I am interested in.
I know a land trust can hide that an asset is in your name, so if a lawyer did research on what assets and LLC's you own, they could not find an Land Trust because it is not recorded. If it is not recorded who is the custodian of the document.
And how would a lawyer find it, by backing into it onc ehe finds your LLC and then somehow figuring out tha tthe LLC is a beneficiary of a Land Trust, it seems like that wouldbe impossible to find out that the LLC is a beneficiary?
I also wanted to ask how a Land Trust complicates issues such as financing, insurance, and what happens when you goto sell?
I plan to hold only one lare apartment per Land Trust/LLC set up - is that the way to go? And then if you sell you sell the trust or sell your rights as beneficiary?
A land trust is not irrevocable so how much protection does it really offer?
I use land trusts with my LLC for all of our subject-to purchases. I've read through Bill's courses and utilize parts. For sub-to, it's not necessarily for asset protection, but from DOS clause protection (to a degree, that's a whole 'nother story). The land trust is recorded as the owner of record. The Trustee has the power to sign on behalf of the trust, much like a manager usually does for an LLC.
A Land Trust isn't meant to be the 'end all be all' of asset protection, it simply adds another layer. The idea is that should someone wish to pursue a frivolous lawsuit, upon examination a lawyer will be easily able to find the beneficiary to sue and will then ask for a $5,000 retainer to keep working. Most people with a frivolous lawsuit will look for an easier target than bringing $5k out of pocket. Again, this is Bill's pitch, the reality of it is up for argument.
It's highly unlikely you'll get financing through a Trust, it can be done but there's a lot of extra work involved and with banking regulations these days I wouldn't get your hopes up. Insurance isn't a problem, just add the trustee and beneficiaries as additional insured on top of the land trust (remember, the trust is actually the owner).
When you sell the property you actually have a couple options. Number one you can appoint a new trustee (someone close to you or perhaps yourself) and sign the sales docs. Or you can assign your beneficial interest in the trust to someone else (similar to assigning ownership interest of a company). The advantage of assigning your interest in a trust is that it is considered personal property and not real estate. Even though the only thing the trust owns may be a house, the actual beneficial interest in the trust which owns the house is just personal property. This might save you on transfer taxes, title insurance, etc.... Depends on your state.
Word of caution, if you don't use a closing company or title agent that has experience with this you're going to want to bring a backpack full of reading material, snacks, and water..........it's going to take them a while to figure out what your're doing and how to get it done.
I appreciate the response, Andy.
Another question I have is about how you take title. As far as from a privacy standpoint, it defeats the purpose to purchase a property and then put it into a land trust because the public record will show that.
Let's say I am about to purchase a 50+ unit apartment, if someone could please lay out in detail how to go about making offers and funding a land trust to make acquisitions - including financing situations, etc.
Finally, do the complexities of tranascations in a land trust cause enough burden to justify not using them. Oviously I wouldn't use land trust for flipping but instead would like to use this Land Trust and LLC beneficiary strategy to hold apartments.
But lets say I held a few 1-4 family units in a Land Trust/ LLC structure and wanted to sell a few/ hold a few/ and buy some others - or even do a 1031 - is the logistics of dealing with such transcations in a land trust just too cumbersome to justify and outweigh the "asset protection" and privacy advantages?
You can take title directly in a land trust, no need to purchase in your own name and then sell to a land trust. You asked a lot of questions here, some of which you can search the forum for more detailed answers. A good deal of what your asking is subjective, meaning you should talk with a well qualified CPA and attorney to see what kind of asset protection you actually need. Financing through a trust could be cumbersome, but the remainder is no more difficult than purchasing through an LLC or corporation.
Andy gave you some great material to study. He hedged a bit on the DOSC, which I respect. For the purpose of this thread it seems like you are intending to finance apartments on your own and just use the land trust to disguise ownership if an attorney goes snooping to decide whether or not to sue you.
My personal take is that lawyers are hungry right now and are more likely to sue than ever. I recently had a threatened suit from a property I took subject-to. Although we had all of the proper paperwork, disclosures, etc. the original seller's financial situation changed and they wanted to make life difficult. I think the only real defense here is to threaten reporting the frivolous suit to the state bar, but that risks escalating the fight and making it personal for the attorney suing.
In my experience, subject-to purchases should be viewed as SHORT TERM financing. There is simply too much risk of the seller hiring an attorney if you leave the note in place long term. This risk is far higher than the DOSC problem IMO.
IMO trusts are good as a "line of defense" in case an attorney wants to do a sanity check to decide whether or not you are worth suing. If the seller suspects you are worth a bundle the attorney can break through this line of defense fairly easily. If the seller is motivated enough and is crazy (which happens frequently with distressed sellers) they will likely sue anyway. It may be harder for them if you didn't buy subject-to and they don't know who you are.
It depends on what you mean by financing, but it will be drastically complicated by using trusts and most lenders will be scared of it. You will have to line up specialized financing to get things done. I have had to move properties out of trusts to refinance in the past to get the new financing I wanted.
You really need to talk to an attorney about protection and transfer of beneficial interest questions. The only benefit I can see is anonymity and "hiding" the DOSC for properties taken subject-to. Note that any manner of things (wrap sale with newly recorded deed, water bills, change on insurance, POA with lender, etc.) will put the lender on notice of the sale. They are not idiots and won't call the note while this is in their best interest. What happens if rates rise, the media runs stories on "evil investors" using this "trick," or any agencies decide to make examples out of people? Those are a lot of bullets to dodge if this is used for long-term financing.
Is the apartment complex you are buying going to be in your name for the financing? Are you planning on transferring beneficial interest for property you signed for? What is it that you are trying to do?
Once again, I appreciate all the feedback it has been tremendously helpful. I feel like i know a decent bit, but it's nice to be able to ask specific questions I don't understand and get such great responses.
I understand every situation is different and that I should speak to a professional, and I agree. But I also am of the opinion that many professionals aren't worth much more than the cushy leather chair they're sitting in - I want to find the best in my area to draft my land trust - but I also want to be well informed when I walk into an attorney/CPA office.
I am trying to execute a buy and hold strategy on larger commercial multi-family units. It seems to me that traiditional financing won't be easy to come by if you want to buy in a land trust.
I plan on transferring my beneficial interest to an LLC as beneficiary of the trust.
It seems that, as you have mentioned, I will have to get the financing in my name and then transfer into a trust - but even this seems like it would make a paper trail from the mortgage docs that would allow someone to track down what is held in the trust and who owns it.
I feel like I understand pretty well now how it all works, the Land Trust provides a layer of protection and anonymity, and the LLC is set as beneficiary to be another layer of liability seperation.
What my specific question is about the exact logistics and process of obtaining financing in such a structure without creating such a paper trial. When you goto hunt for financing or a property you just tell them what your trying to do? And most conventional lenders will likely turn you down? Or what.
More specifically, there is an apartment complex REO in my area that I am interested in.
(1) If I pull together some cash to buy it in a land trust, executed a value added play and reduced vacancies and then tried to refi in a year or two - what kind of problems, if any, would my Land Trust/LLC ownership structure create
(2) If i didn't have the cash and pursued more traditional financing for an apartment that wasn't an REO and was in a nicer area of town and was occupied, how would this structure effect such a situation? Could i get a loan in the trusts name? If it is in my name that defeats the purpose as I said because it leaves an easy paper trail.
finally, I understand your comment about the LT risks in this - and I agree, over time people may attack this structure and land trusts, but I also know land trust aren't good for a six month flip strategy. Adn if i do want to buy and apartment and sit on it for 50 years this seems to be the best strategy, unless you know a better one?
The Garn-St. Germain Depository Institutions Act:
allows you to transfer your property to an estate planning device like a trust. I believe all you are trying to do is to buy the property in a LLC and transfer it to a trust. Alternatively you are trying to buy inside of a trust with a LLC as the beneficiary. I don't know the legalities, but I am pretty sure that this would be okay with a LLC instead of via your personal name. You may try reading the Act to see if this is covered.
Commercial lenders are quite a bit more sophisticated than residential lenders and a lot of the difference in process has to do with what happens to the loan once it is closed. A lot of small, regional banks actually keep commercial paper instead of selling it on the secondary market. I think you are likely to find a bank that will let you buy straight into the trust with the LLC as the beneficiary if you use one of these small banks. The problem is that they will likely have inferior product to what you will find from other lenders. I have some great brokers you can talk to about this if you PM me.
So to me the question is whether or not the asset protection gained by not leaving your "paper trail" is worth the cost of the more expensive financing. IMO it isn't worth it. If someone slips and falls on the property the lawyer will know which property is targeted and look at the chain of title presumably. This will allow for an easy identification of the LLC if you do the transfer post closing. However, it will be very easy for the attorney to get this information anyway.
If, instead, you run into someone on the highway and they want to sue you personally either scenario will do a pretty good job of hiding your assets initially. If the attorney forces you to identify your assets because you are worth enough by identifying assets held outside of the trust then it doesn't help much.
I also think you can avoid a lot of this trickeration and analysis paralysis by simply buying some umbrella liability insurance. Your agent should be able to help there.
Bryan,
My plan would be to have umbrella insurance regardless, I want the anonymity / trouble to find + layered protection + insurance (even if it may be overkill).
And yes I want to avoid buying in the LLC name or getting financing in my own personal or the LLC name becuase it will leave a paper trail at the bank with the loan as will as in a title search.
So i'm wondering with the Land Trust / LLC beneficiary structure. How would the exact logistics and process work if you wanted to buy and get funding directly into the Land trust name so as to never have any paper trail.
If i have cash, put it in the trust and make acquisitions - that's easy.
Getting financing and tkaing title directly to the trust with this Land trust / LLC structure is the confusing part to me. And I don't want anyhting through the LLC either becuase they can trace it that way. I want this LLC to look empty and no one would know it is beneficiary to a trust.
you make a great point about does it outweigh the costs. and a cost benefit analysis should be considered because it's a lot of layers and trouble just to hide the name. But if i plan to acquire large commercial multi family assets and hold them for cash flow for a long period of time and don't want anyone to ever have even a clue or hint of a trial to follow, then how to I go about taking title and getting financing directly to my trust.
PS The insurance could also get confusing in terms of minimizing paper trail because I would not want my name and the trust name on that because that would be an easily attainable direct link - effectively exposing my trust and providing a paper trail.
I want to be will hidden and protected in assets of this size, and maybe if I build singificant wealth, continue to drive my '95 suburban, and have everything hidden, lawyers will move on to easier prey. Nothing is certain in the courts but the more of a detterant I can be, the better
And thanks again for your insight.
A lot of these questions really depend on your holistic portfolio and wealth. I am sure you don't want to disclose all of that on a message board so it will be difficult to cover everything definitively. I also am not an expert in these matters so others may give you better information. You should definitely explore these with your advisors prior to doing anything.
I really think the first step you need to take is to talk to a competent commercial mortgage broker. They can give you a good idea about the cost/benefit for hiding the paper trail. If the bank that will do the loan charges a lot more, has unfavorable amortization or lockout periods, etc. then it won't matter what you WANT to do. All that will matter is what the proper lender allows you to do. The intellectual exercise will go out the window at that point because the lender will dictate what will happen. I can introduce you to some great commercial brokers if you PM me.
Again, I am confident you can find lenders to let you take title in the trust with your LLC as the beneficiary. The exact logistics will be covered with their standard paperwork so that they protect their security interest. Read the DOT carefully (may be a mortgage state in Kentucky...not sure) and ask a lot of questions about what you are allowed to do up front.
Benefit: Hiding the paper trail
Cost: Potentially less favorable financing
Note: If you carry equity outside of the trust the attorney will sue you anyway and force you to disclose your valuables. What you are describing only seems to work well if you have ALL of your assets disguised via trust(s)
You need to speak with an attorney about this and how it applies to your overall asset protection strategy. There are likely better ways to accomplish what you are trying to do than to have a land trust for each project. You may need a trust for your overall assets instead...or something else entirely.
One of the only other options I can imagine would be an IRRevocable trust, which i have some experience with. But once you set those into motion you can't change them (and frankly i'm not old enough to be in a estate planning mindset although i do plan to pass down my welath for generations - eventually).
But i am young now and looking for high CF apartments in my area, im not sure of any better structure to hold them. I can use a regular LLC, but have been looking for the best strategies for ultimate asset protection of large assets - like apartments or shopping centers, etc.
Do you know of some better strategies, or could you provide me a springboard to research some other strategies.
One thing that frequently goes unmentioned when creating these layers of protection is: each layer may end up having to prepare annual income tax returns for both federal and state income taxes. Could be a lot more work in doing that kind of entity maintenance.
Definately something to consider, but in this particular case, I don't think that would be the result as a Land Trust is not a registered entity and has no Tax ID etc. Other registered trusts, like IRR - yes that is the case - and that is why I tend to like the Land Trust w/ LLC beneficiary strategy. It seems the only problem posed by such a strategy is more complex and difficult to get financing through the trust as it is unconventional.
The other problem I have with trusts is that you have to give away control to a trustee. No matter how well you know someone giving away control of a significant portion of assets is hard.
In the past one of the instructors I learned from claimed that the trust was supposed to file a tax return too. I always thought this was bunk and never understood how this could even be true absent an EIN. Has anyone seen a trust file a tax return before? Are irrevocable trusts entities that file returns Jimmy?
Yes I have dealt with Irrevocable GSTT trusts and they do file tax returns. the land trusts I am not so sure about since they are not recorded, and as you mentioned, have no EIN.
You make a good point about having to pick a solid truste. but the trustee has a duty to you - the beneficiary - to do as you say and act in your best inerest.
This land trust / LLC structure certainly has its pros and cons but it seems like the best structure to me because, quite honestly, I don't know of a better strcture for holding larger assets on a buy and hold strategy.
I know of hundreds and hundreds of revocable land trusts here than never file tax returns, only the beneficiaries do as a pass through. If you want you can file for an EIN and file taxes, but there's probably no good reason you would want to do so. An irrevocable trust is a different animal, but it's unlikely you would use one for this real estate purpose anyway.
As far as choosing a trustee, choose someone out of state, possibly out of country so they're hard to find if the lawyers start asking questions. I use friends out of state and family with a different last name. The trustees signature is only required for major activities like signing deeds and financing paperwork. And when it comes time to sell, you can fire your out of state trustee right before closing and appoint yourself. So what if you're name is available to the public for the 15 minutes during closing, everything's sold and done after that. In creating your land trust you are able to limit the permissable actions of your trustee.
All of your daily activities can be performed by an LLC of yours that would be hired as a property manager of the real estate held by the land trust. That way when you deal with repairs, taxes, insurance, rents, evictions, etc.. you are acting on behalf of the property manager and not the owner. In this way your property management LLC has little risk if sued, owns nothing but paper, pen, and maybe a desk or computer if you're feeling prosperous. It's another layer of protection.
Big brother is already here. My daughter used to work for an attorney that does big business in foreclosures. Their latest program is called Acura and when she typed in her name, immediate family was linked (different last names) as well as her fiance. This is very far reaching and remaining anon today seems impossible with such information gathering technology. :cry:
Linked how? The trust docs are not filed so how could that possibly happen? The name of the trust is what is on record with the county.
Maybe I'm not following properly...
Remaining anonymous is not impossible, or even very difficult in regards to Land Trusts. As Bryan says, the document is not recorded so unless someone has been rummaging through your file cabinets with a flashlight in the middle of the night, they're not going to find a beneficiary without a subpoena for the trustee. As an added layer of anonymity if you make your trustee someone who is out of state (or better yet out of country), It's going to be very very difficult to even get that subpoena.
No, the land trust wouldn't show up, but everyone's addresses, past and present, social security numbers, credit, insurance, etc. were all linked together in one file.
I'd vote for making the trustee someone out of the country that is not related in any way. Panama comes to mind.