Hello Pennsylvania Investors,
My question today is regarding the use of land trusts in Pennsylvania to hold title to residential real estate. Is it better practice to first deed the property into your personal name and then transfer the property to a land trust or is it preferable to never take title in your own name and simply deed the property into trust directly from the seller? Also, does Pennsylvania assess a transfer tax on real property that is transferred out of an individual's own name and into the name of a land trust? If transfer tax is paid upon purchase it would seem punitive to have to pay it again when transferring your purchase into a land trust.
PA will attempt to hit your with a transfer tax even though the form you submit to the state says that you are exempt. It is easier to just buy in a trust directly. You also have the added level of protection by never having your name directly on the property. In the case of an environmental issue, they can go back after the ENTIRE chain of title. You are better off if your name is not on that chain !!
I would suggest not using the word "Land" in your land trust docs. The Commonwealth's position is that if the property is held in a Trust, they may NEVER see another transfer tax no matter how many times the property is "transferred".
To stay on the right side of the powers that be, NEVER transfer the trust to a third party, or allow a buyer to become a beneficiary. When the property is sold, the trust is extinguished.
If you do the paperwork incorrectly, it is possible PA will not recognize the trust as what you intend it to be, and try to assess all kinds of corporate-type taxes.
@Josh Caldwell is correct--take title in the trust's name from the get-go. Remember, if you are the trustee, whenever you sign a document, add "Trustee" after your signature.
Disclaimer: I am a real estate broker and investor, not an attorney; I am speaking from my personal experience only.
That's great advice, thanks gentlemen.
Quick question: the lenders I speak with who offer 30 year conforming loans tell me that they will not lend on collateral titled in the name of a trust or any other entity. They will only lend on residential collateral titled in the individual buyer's name. How do people get around this without first buying in their own name and then later paying transfer tax and fees to re-record the deed in the name of the trust post-purchase? Not to mention that their personal name would still be on the chain of title. How does one purchase directly in the name of a land trust without having to later transfer title and simultaneously still have access to a cheap, federally backed 30 year loan?