Land trust

6 Replies

I am going to get a rental property here shortly. I have not began investing in real estate to this point. What would make the most sense in terms of maximum protection for myself. I plan on building up to multiple rental properties. From what iv'e learned it is best to have each property in a land trust, and have all the land trust under the same LLC. Is this the best way to do it, or even a way that makes sense?

Jason, I am not an attorney, & this is not legal advice. - for a quick answer and based on my level of knowledge, I'm going to say "no". 

You gotta think of the Land Trust as for privacy, and the LLC would be for purposes of "liability protection". If you only set up the Land Trust, you fail at having protection. If you only set up the LLC, you could have both depending on how you "structure". But if you take all those Land Trusts and place them under the LLC, and something bad happens to the LLC, I think you would be in a "pickle", because the LLC "owns" it all.

I've learned that it's best to have 3 Properties (and perhaps in Land Trust(s)) under one LLC for various reasons that could be beneficial to you. Seek professional help and do your own research.

Jason, I take back my previous comment, as I was interested in what you had mentioned and went ahead to further study the Land Trust and LLC "colabo"...

Ron LeGrand mentions that it is acceptable to have one entity that has beneficial interest in all Land Trusts setup to hold individual properties in individual Land Trusts. So for anyone else reading this for future note, the answer is "yes". 

But in my opinion I would rather set up multiple LLCs, depending on how you use the LLC.

For example - I wouldn't want my operating LLC to hold all of those Land Trusts, but a separate LLC that is to only hold my real estate would make sense, because I'm not out there "using" it everyday - my reason for saying "no" in the previous comment.

And in your example Jason, it would partly be to minimize paperwork, and filings for required entity structures. In "your way" - you are protected, and you have privacy, and you minimize paperwork and filings.

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I have recently written a BP blog post on using the trust/LLC combo. I will be addressing asset protection in an upcoming BP podcast.

Maximum protection in real estate should be looked at as bricks that build a wall. The more bricks you stack, the higher it is to climb, but the more expensive it is to build. 

At a minimum I recommend 3 LLC's. One for the operating company, one to hold or be the beneficiary of your rentals, and one to hold or be the beneficiary for your flips. The reason for separating your buy and holds as well as flips has to do with tax treatment for the IRS. If you have them all together in one company, IRS can decide to tax you at the higher rate.

The biggest error people make is not following through with all the proper paperwork for the LLC which technically makes it so that it no longer protects your ASSets.

We should be thinking about Land Trusts for ease of conveyance and to be able to obscure the actual owner of the property from the public record. The trusts should have the LLC as the beneficiary which is the recommended combo. To get even better protection, you can use a Texas Series LLC which allows you to effectively hold all your properties in their own LLC, but you only have one tax filing. Why Texas? Because it is exceptionally hard to deal with litigation over multiple states which means high costs to the plaintiff.

Hello: Thank you for the information. Can you please inform me, as I have three rental properties, how I can proceed to make changes in order to protect my primary residence and assets. I am assuming that I should set up an LLC and do a Land Trust for each rental property but would like to know how best to proceed and how. Thank you very much!