Personal property to land trust then to Corp??

[pansy]

I see a lot of post about personal property to land trust and then to LLC. Are the rules the same if a Corp is involved instead of an LLC and are there are substantial benefits for the Corp route as opposed to the LLC.

[Redwing384]

When you say "personal Property" do you mean your personal house, or do you mean personal property, like a car?

A land trust can only hold real estate.  It cannot hold personal property, like a car or refrigerator.  

if you mean your personal house, then you would want to create the "land trust" and place your house inside it.  Then you would assign a portion of beneficial interest in the "Land Trust" to an LLC or individual or Corporation or a combination thereof.  It has been recommended that you assign beneficial interest to 2 or more people/corp/LLC.  For instance, you may assign 90% to an LLC or Corp.  and keep 10% so you would retain the ability to "fee simple" rights of ownership...ie...land & water rights, quiet enjoyment, tax deductions, etc ...  You would want to speak with a knowledgeable CPA on the taxation issues regarding LLC and Corp.  It all may depend on how your LLC or Corp is structured or viewed by the IRS for taxation purposes.  Nonetheless, every situation is unique and thus must be treated separately.

I hope that helps you come to a conclusion about using an LLC vs. Corp.

[mcwagner]

Pansy, there are substantial DISadvantages to a corp as beneficiary.

The trust owns the property on behalf of the beneficiary, who takes "beneficial ownership."  In effect, the beneficiary "owns" the property and gains tax deductions, etc.

If the LLC is the beneficiary, and you are personally sued, you don't own the property and it is protected from judgement creditors.

If a corp is the beneficiary, and you are personally sued, your shares of stock, which are considered an "investment" may be siezed by a judgement creditor.  Now they own the corporation that is beneficiary owner of the property.  They own your house.  Of course, you can revoke the trust, but then you become owner again and they place a judgement against it anyway.  Lose lose.  I suppose you could direct the trustee to sell the property and buy another for you to live in and go on like that.  Seems like a lot of trouble that could be avoided, though....

Member interest in an LLC is considered "personal property" by statute and is not available to satisfy judgement creditors.  This prevents the adversary from gaining control of the LLC and it's beneficial assets.  You remain in control of the LLC that remains in control of the property you live in.

This is not a tax issue, as there is no tax difference between an LLC and a corporation or s-corporation.

[mtnwizard]

Great answers.  You da man, Mark.  

Da Wiz

[pansy]

Pansy, there are substantial DISadvantages to a corp as beneficiary.

The trust owns the property on behalf of the beneficiary, who takes "beneficial ownership."  In effect, the beneficiary "owns" the property and gains tax deductions, etc.

If the LLC is the beneficiary, and you are personally sued, you don't own the property and it is protected from judgement creditors.

If a corp is the beneficiary, and you are personally sued, your shares of stock, which are considered an "investment" may be siezed by a judgement creditor.  Now they own the corporation that is beneficiary owner of the property.  They own your house.  Of course, you can revoke the trust, but then you become owner again and they place a judgement against it anyway.  Lose lose.  I suppose you could direct the trustee to sell the property and buy another for you to live in and go on like that.  Seems like a lot of trouble that could be avoided, though....

Member interest in an LLC is considered "personal property" by statute and is not available to satisfy judgement creditors.  This prevents the adversary from gaining control of the LLC and it's beneficial assets.  You remain in control of the LLC that remains in control of the property you live in.

This is not a tax issue, as there is no tax difference between an LLC and a corporation or s-corporation.

Sold.. I will onvert the Corp to an LLC and proceed.

Oh Wiz, it is a house.. I figured since it was a real estate forum - I could get away with listing it as personal prop.
Thanks Gang.

[Dave T]

Oh Wiz, it is a house.. I figured since it was a real estate forum - I could get away with listing it as personal prop.

If you could pick up your house, take off the roof, then turn your house upside down, everything that falls out is "personal property".  Because this is a real estate forum, we tend to be precise in the meaning of the terms we use.  The answer in a real estate forum to a question about "personal property" could change dramatically when the question is really about "personally owned" (real estate) property.

[mcwagner]

great analogy, Dave.  I'll have to remember that one!

[Dave T]

Mark,

I take no credit for it.  That, I give to my insurance agent who told it to me when I was trying to figure out how much personal property I really had in an unfurnished rental property.  Turns out I had quite a lot -- stove, refrigerator, washer, dryer, wall to wall carpeting.  Some question about whether an under-counter dishwasher is really built-in and covered by the condo association's master policy or should be included in my HO-6 policy.

We decided it did not really matter at the time, since the insurance company I was using also happened to be the carrier for the association's master policy.

[FloridaInvestor]

Great answer. :D

I believe that Bill Bronchick mentions that you could have your Land Trust's beneficiary be an LLC and  that the Member could be a self-settled Personal Property Trust (a nominee trust just like a Land Trust, not a regular Living Trust. Altough a Land Trust and a PPT are both types of revocable living trusts).

What do you think?

Property--->Land Trust--->LLC--->PPT--->YOU

As an alternative when you have multiple properties each could be in its own LT and each have as beneficiary a single member LLC whose member is another LLC. This LLC could be a Family LLC, or single member but either way the main LLC would have one single member LLC and LT combination per property.

Isolate and separate! Is this necessary, well it depends on what you want to acomplish.

I personally like things as private as possible and as physician who deals with risk management on a daily basis, I like to decrease liability as much as possible.

What do you think?

In Florida the cost to establish an LLC is 125 + 50 a year to keep it registered.

Pansy, there are substantial DISadvantages to a corp as beneficiary.

The trust owns the property on behalf of the beneficiary, who takes "beneficial ownership."  In effect, the beneficiary "owns" the property and gains tax deductions, etc.

If the LLC is the beneficiary, and you are personally sued, you don't own the property and it is protected from judgement creditors.

If a corp is the beneficiary, and you are personally sued, your shares of stock, which are considered an "investment" may be siezed by a judgement creditor.  Now they own the corporation that is beneficiary owner of the property.  They own your house.  Of course, you can revoke the trust, but then you become owner again and they place a judgement against it anyway.  Lose lose.  I suppose you could direct the trustee to sell the property and buy another for you to live in and go on like that.  Seems like a lot of trouble that could be avoided, though....

Member interest in an LLC is considered "personal property" by statute and is not available to satisfy judgement creditors.  This prevents the adversary from gaining control of the LLC and it's beneficial assets.  You remain in control of the LLC that remains in control of the property you live in.

This is not a tax issue, as there is no tax difference between an LLC and a corporation or s-corporation.

[mtnwizard]

MC gave great advice.  This doesn't have to be that complicated.  Place the property into a land trust and take title in your LLC  -- NOT a corp.  You won't find any better asset protection than that.  And finally, MAKE SURE your choice of a trustee is one that will protect the structure of the trust.  A non-profit corp is by far your safest bet.

Da Wiz

[Redwing384]

mtnwizard,
you also would want to protect the equity in the property by placing a "friendly Lien" on the property, using a corporate structure that CANNOT identify its true owner (a NV C-corp with a nominee officer/director and with no stock shares issued - now you are untraceable).  Now you have bullet proof asset protection!  

Remember, A federal judge can seize anything he can "see."
he can have the trustee diposed and issue a federal court order to release the names of the benefiiaries.  Now you could possibly loose your beneficial interest in the property.  at that point, you can have the NV C- corp foreclose on the property because it has placed a lien on it and you would retain all of the equity in the property and even the title if done properly. When it goes to auction, the NV-corp. would establish the minimum bid!  see where I am going ... hmmmmmmmm.  Bullet proof!  

[mtnwizard]

Redwing,

As they say in Guinness commercials:  "Brilliant".

Da Wiz

[FloridaInvestor]

Sounds nice in theory, but have you done it? Or has anyone you know done it?

The minute that C-Corp pays dividends someone (the IRS) will know who is behind it, right?

And what do you mean by a "Friendly lien"?

Just trying to be clear.

Thanks

mtnwizard,
you also would want to protect the equity in the property by placing a "friendly Lien" on the property, using a corporate structure that CANNOT identify its true owner (a NV C-corp with a nominee officer/director and with no stock shares issued - now you are untraceable).  Now you have bullet proof asset protection!  

Remember, A federal judge can seize anything he can "see."
he can have the trustee diposed and issue a federal court order to release the names of the benefiiaries.  Now you could possibly loose your beneficial interest in the property.  at that point, you can have the NV C- corp foreclose on the property because it has placed a lien on it and you would retain all of the equity in the property and even the title if done properly. When it goes to auction, the NV-corp. would establish the minimum bid!  see where I am going ... hmmmmmmmm.  Bullet proof!  

[Redwing384]

Floridainvestor,

you have valid questions, and I am glad you asked them.  to answer them in a simple way:

yes, we have done it.  we implement these same strategies with our clients each day.   we have a staff of trained paralegals that will execute these principles for them, or we will teach them how to do it for themselves. It all depends on if they would prefer to be "hands on" or "hands off."  

when it comes to tax related issues - like paying dividends from a C-corp, we would refer you to our partner CPA firm.  They will show you how to overcome these issues.

A friendly lien is simply a mortgage.  But you must follow specific guidlines to make it valid or it can be set aside by a judge.  We show our clients how to protect their equity in a property without making any mortgage payments on these "friendly liens". It is a strategy that has been used for hundreds of years.  We suggest that the mortgage be for the amount of equity in the property + a reasonable % of interest (prime +1-2% ... or what ever), due and payable with a 7-10 year balloon.  It truly is that simple.  The interest your corporation charges you is a shield protecing your appreciation in the property.  

hope that helps.

 

[mtnwizard]

Redwing,

Your posts are very refreshing -- you are creative and well-informed.  I question one point you made, however, and would like your response.  You said, "A federal judge can seize anything he can "see." . . .he can have the trustee deposed and issue a federal court order to release the names of the beneficiaries.  Now you could possibly lose your beneficial interest in the property."  I DON'T BELIEVE WE CAN.  WE ARE PROTECTED.  

Here is how:  One's beneficiary interest (being personal property vs real property) provides a high degree of protection against a judgment creditor's partitioning of one party's interest from that of another: thereby forcing the sale of part of the property or liquidating it and dividing the proceeds. Even if the Judge could identify the Beneficiaries, he would have a tough time getting information from my Trustee.

Let's say he did find out my name.  He can't do anything.  "Since the interest of the beneficiaries is personal property, and since the trust agreement expressly precludes the vesting of any legal or equitable right in a beneficiary, PARTITION IS NOT AVAIILABLE."  A creditor of a beneficiary in a co-beneficiary land trust may not attach the land or claim an interest in its corpus. Such protection is similar to holding a property in a limited partnership or multiple member LLC.  I usually take title in my own name as I always have an unrelated co-beneficiary.

Each beneficiary can then be free of concern about the accidental or untoward misdeeds of the other (i.e., dealings that could otherwise easily involve the property's title by either party's creditor's claims, tax liens, bankruptcy, legal actions in marital disputes, probate, etc.).

So, to sum it up, your conclusion about the power of the Judge is correct to a point -- but the law prevents him from being able to partition the interests of the trust's beneficiaries, as long as two or more are unrelated.  

Keep up the great work.

Da Wiz