Conroe, TX · Member since 2016 · 237 posts · 43 votes
Does anyone have experience or knowledge about using land trusts instead of an LLC, for both privacy and legal protection? I am not speaking of living trusts but land trusts. Of course the more private the entity the legally safer you will be as well to some degree.
It's like comparing shoes v. socks. You put both on your feet, but for completely different purposes, and often together.
LLCs are legal protection devices. If you're sued, and you set them up correctly - they're supposed to protect you.
Land trusts are devices for hiding and transferring ownership, primarily. No legal protection.
You can combine them to achieve the benefits of both. Details are up to attorneys (I'm not one), and they notoriously disagree on the best structures.
You just missed an excellent meetup on land trusts, but we have tons of networking here in Houston, so there will be more. Contact me privately via my website if you need information on local REI scene.
Does anyone have experience or knowledge about using land trusts instead of an LLC, for both privacy and legal protection? I am not speaking of living trusts but land trusts. Of course the more private the entity the legally safer you will be as well to some degree.
Thanks
I was advised to use an LLC in Texas but not a Land Trust. LLC s are recognized everywhere. Land Trusts are used to "hide ownership" is how it was explained to me. Land Trusts don't offer any greater legal protection but they do raise "red flags" with some banks. If you buy a property in your name and then transfer it to an LLC or a Land Trust, the lender could look at it as a transfer of Title in violation of your loan agreement. I buy in Texas using an LLC. Talk to a real estate attorney in Texas for further information.
I use both. Figure out what you are trying to do or protect against. Trusts are good for ananymity and LLCs provide a protective veil. You can use one or the other or both. The more you protect the harder it is to get a loan from a bank. I have got loans in both types of entities. Get your asset protection plan established based on your investing goals. I believe The new tax law is treating trusts differently than LLCs but am not sure yet. Either way you will be adjusting as you get older and risks and laws change.
It's like comparing shoes v. socks. You put both on your feet, but for completely different purposes, and often together.
LLCs are legal protection devices. If you're sued, and you set them up correctly - they're supposed to protect you.
Land trusts are devices for hiding and transferring ownership, primarily. No legal protection.
You can combine them to achieve the benefits of both. Details are up to attorneys (I'm not one), and they notoriously disagree on the best structures.
You just missed an excellent meetup on land trusts, but we have tons of networking here in Houston, so there will be more. Contact me privately via my website if you need information on local REI scene.
Investor · Idaho Falls, ID · Member since 2016 · 912 posts · 629 votes
7y
@Michael Plaks Are there any additional tax benefits or negative impacts vs just using the single member LLC alone? Can the trust be treated as a pass through entity as well or does the trust have to report on earnings, etc?
A revocable land trust is a pass through entity as per the IRS. Land trust income is considered personal income and reported only on your individual tax return. You are not taxed twice.
It's important you consider the tax effects of not having a separate pass-through entity (i.e. a disregarded LLC) given the new tax law.
@Michael Plaks Are there any additional tax benefits or negative impacts vs just using the single member LLC alone? Can the trust be treated as a pass through entity as well or does the trust have to report on earnings, etc?
Land trusts do not exist for the IRS. They cannot create any benefits or disadvantages because they are simply ignored.
They create some benefits which have nothing to do with taxes: anonymity, facilitating transfers etc.
A Land Trust will not provide any level of asset protection (except in FL). It will however create anonymity (that will help to hide your asset when someone is evaluating the cost/benefit of a lawsuit against you); it can protect you against the due on sale clause of a mortgage (Garn St Germain Act); it also let you transfer the underlying property without a deed letting you avoid some transfer fee in some states.
An LLC is mainly used an asset protection tool to limit the liability. If it is set up and maintained properly, it should provide inside and outside protection. Inside protection means that a liability created by something happening within the LLC should not put at risk your other asset held outside of the LLC. Outside protection means, that if you are sued personally for something happening outside of the LLC, the asset of the LLC should be out of reach. Inside protection is almost the same in every state. Outside protection however varies greatly depending where your LLC is registered; you would want to use a state that has the charging order as sole remedy.
Usually, you would use the Land Trust to own the property, then transfer the beneficial interest to an LLC. You get the anonymity of the Land Trust with the asset protection of the LLC.
Investor · Idaho Falls, ID · Member since 2016 · 912 posts · 629 votes
7y
@Michael Plaks Thanks for the response! Always a pleasure to get your insight.
@Mike S. Thanks, that was going to be my next question referring to Michael Plaks sock & shoe example, which order should they go. So you are saying the Trust should own the property and the LLC owns the trust?
Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
7y
@Mike S. Thanks, that was going to be my next question referring to Michael Plaks sock & shoe example, which order should they go. So you are saying the Trust should own the property and the LLC owns the trust?
As far as whether you wear the sock inside or outside the shoe - attorneys suggest different setups.
Clint Coons from Anderson practices one religion, and other attorneys practice different kinds. We mere mortals cannot decide which attorney to follow. Roll a dice.