Lawyer's point of view on LLCs and Trusts

[Faraglioni]

The topic of protecting your rental real estates concerns most of real estate investors. I spoke to a lawyer/CPA that specialized in estate and trust and has a lot of real estate investors as clients.

Here's what he said about trusts:
Trusts do not give you any anonymity until your death. Transferring assets into a trust does not hide you identity, because trust documents say "ABC Trust" John Doe-Trustee. Anyone going to a courthouse will able to see who owns the trust. The only way around it is getting someone else as a trustee, like a bank (that will charge you through the roof) or a well trusted CPA/lawyer.
LLCs:

Transferring property into an LLC violates DOS clause. As soon as you record the deed at the Courthouse your mortgage company finds out about it. As a matter of fact, I spoke to a Countrywide representative who said that Countrywide has a department that searches titles and enforces DOS clause.  A possible way around it is deeding the property to an LLC and not recording it.  However, in the event of being sued no respectful lawyer will go after what's in the LLC, but make the court issue a judgment against you personally. The court will make you list all the properties,  LLCs and trusts you own and that's when you get hit.
As a conclusion- four important aspects of asset protection:
-Having you tenant sign a document that there are no know dangers on the property upon move-in.
-Having a bullet point in your lease requiring a tenant to immediately notify the property manager of any known dangers.
-Having a property management company which serves as a layer of protection as they take care of the property and should be aware of any known dangers.
-Having a good umbrella liability policy.
 
This may not give sufficient confidence to many investors and many will choose to go with trusts and LLCs, if you find a good way to do it – please let the rest of us know!

[aak5454]

good post; I've spent a lot of time reading and talking to be people about this.  From what I see there is no bulletproof, one-size-fits-all solution.  Even bulletproff vest don't stop all bullets.

As for your list, I would be careful about Item #1.  In other types of business I have seen getting overly crazy about having people sign quasi-legal documents can cause more problems than its worth.  In the end, a pit-bull lawyer will ignor this anyways still pursue a case against you.

In end, you need a layered defense system whereby each layer makes it more and more diffiult for some greedy lawyer to grab your gold.

[colvegas]

<<I find what this lawyer said interesting. I do not know what type trust he is referring to probably a trust that just avoids probate like a grantor trust.
I can tell you that Illinois title holding land trusts when structured properly actually give you 30 or so benefits to the investor and the they do hide your identity since if a person or lawyer or creditor wish to find out what assets you own they will see the trust name not yours since the trustee job is to keep the identity of the beneficiaries secret. A good attorney who can perform the fidicuary responsiblities as your designated trustee is good and I agree with using a trusted CPA or attorney.
My view is that the investor should invest in investment properties via  corporate entity, whether that is a LLC, C-copr or whatever and a good attorney needs to setup that up for you since I can not give advise on that , and use the LLC as a beneficiary in the land trust for the property ,which actually gives you pratically bulletproof asset  protection.

As to the due on sale clause if you check the Garn St Germain Act or 12 USC 1701 (j)-3 section 8 it says that any borrower on a deed of trust can vest that title into an inter vivos trust as long as there is NOT a transfer of occupany rights and the person remains A beneficiary and I agree transferring title to the LLC in most cases if a lender finds out about the transfer, can violate the due on sale provision.

I also wholeheartedly agree to have a good umbrella insurance policy and know your coverage amounts. Bill Bronchick had a downloadable audio MP3 format  info on that from his website.

As to a charging order by a creditor or attorney if they find out the beneficiaries via a court order the worst that can happen is that  person's specific beneficiary interest will be assumed by the lender or creditor but they will not be able to dissolve the trust unless there were fraudelent conveyences. The reason is if you look at Kenoe rulings on land trusts and others the beneficial interest in a land trust is looked at in 48/50 states as personalty not realty thus being exempt from partitioning. That is why one needs to use  multiple beneficiaries or a co-beneficiary or remainder agent in the trust and this is also why they are revocable trusts and the person on the deed of trust must retain 10 % beneficial interest and 50% of the voting rights so no transfer takes place.
The real test comes on your trust integrity when the charging order is forthcoming againest the trust.
My contact info is in my signature file and if you guys wish more info I will send you the 30 identified benefits of title holding land trusts in your investing.

[realestatellc]

I own an investment property (non residence) outright in Texas. (no mortgage) .... A week ago, my wife (account in her name) got notice of an Arbitration claim with a creditor she did not pay... A few days later, notice of a lawsuit was served to her for another account only in her name, and the suit was filed several months ago.... I set up a LLC yesterday, to transfer the house into it ASAP. Is this a fraudulent transfer?

There is no judgment. The house is in my name. The debt/creditors/arbitration/suit is in her name only. I set up the LLC under my name, but listed her and my kids as members too. I put the following languange in the Articles of Organization to add further protection.....

1. Admittance to voting membership requires unanimous vote of the existing membership.

2. Membership transfers, including distributions, proportionate shares of profits, and any and all other rights and benefits of membership, are limited to family members unless approved by unanimous vote of the existing membership.

3. Members may indemnify and advance expenses to members, employees, agents, or other person serving at the request of the corporation who was, is, or is threatened to be made a named defendant or respondent in a proceeding.

4. Reasonable expenses incurred by a former member, or a present or former employee or agent who was, is, or is threatened to be made a named defendant or respondent in a proceeding may be paid or reimbursed by the corporation, in advance of the final disposition of the proceeding, on any terms the members consider appropriate.

5. Payment or reimbursement permitted under the Texas Business Corporation Act shall be deemed to constitute authorization of that payment or reimbursement.

6. Membership may be broken into two or more classes, including Voting Members and Non Voting Members, each having different rights, powers, duties, and obligations, if it so chooses.

-----
Also, we can get the Arbitration thing dismissed with prejudice because our notice was served too long since the claim was filed, under the Arbitration rules, as well as Delaware law.... So, I think that will go away fairly easily.

The lawsuit filed against her is filed by a collection agency that does not have a surety bond filed in Texas, so we can counter-sue and file against them for deceptive trade practices and also frivilousness because they have no right to collect debts in Texas.....

Anyway, does it look like we are doing the right things, or did we do the wrong things to protect this investment house? I understand you are just speaking generally and we can't hold any claim against you for bad advice. (-;

[FloridaInvestor]

The topic of protecting your rental real estates concerns most of real estate investors. I spoke to a lawyer/CPA that specialized in estate and trust and has a lot of real estate investors as clients.

Here's what he said about trusts:
Trusts do not give you any anonymity until your death. Transferring assets into a trust does not hide you identity, because trust documents say "ABC Trust" John Doe-Trustee. Anyone going to a courthouse will able to see who owns the trust. The only way around it is getting someone else as a trustee, like a bank (that will charge you through the roof) or a well trusted CPA/lawyer.
LLCs:

Transferring property into an LLC violates DOS clause. As soon as you record the deed at the Courthouse your mortgage company finds out about it. As a matter of fact, I spoke to a Countrywide representative who said that Countrywide has a department that searches titles and enforces DOS clause.  A possible way around it is deeding the property to an LLC and not recording it.  However, in the event of being sued no respectful lawyer will go after what's in the LLC, but make the court issue a judgment against you personally. The court will make you list all the properties,  LLCs and trusts you own and that's when you get hit.
As a conclusion- four important aspects of asset protection:
-Having you tenant sign a document that there are no know dangers on the property upon move-in.
-Having a bullet point in your lease requiring a tenant to immediately notify the property manager of any known dangers.
-Having a property management company which serves as a layer of protection as they take care of the property and should be aware of any known dangers.
-Having a good umbrella liability policy.
 
This may not give sufficient confidence to many investors and many will choose to go with trusts and LLCs, if you find a good way to do it – please let the rest of us know!

Your lawyer demonstrates a glaring lack of understanding of Land Trusts. He probably knows trusts, and deals with them, but he missed the day in school when they discussed Land Trusts (it probably was not in the curriculum anyway).

Land Trusts are not your garden variety trusts.

First of all, the name of the Trust doesn't always tell you who owns the trust. You can have a trustee other than you. This applies to any trust.

Second, a Land Trust is set up specifically for privacy. The Trustee is a nominee trustee. The trustee doesn't have many more duties than a figure head, and will need to sign papers when needed.

In a Land Trust the title of the property (deed) doesn't have to mention the trustee, but most people will put the name of the trustee there anyway. The trustee is NOT the owner of the trust, if you do that you have actually invalidated the Land Trust.

In a properly set up Land Trust the beneficiaries are not mentioned, disclosed, or in any way referred to.

You, Faraglioni, buy a property and ask the seller to deed it your Land Trust.

I am the trustee and the deed will read:

123 Main Stree Trust, FloridaInvestor, (as) Trustee.

Or it could read:

123 Main Street Trust, whose trustee is named below (then you bury the trustee's name in the body of the Deed)

In Florida (and in most Land Trust law) you cannot, as a matter of statute, disclose the name of the beneficiary. Only a court order could make you tell. The trustee is protected by the law as well as the beneficiary.

It gives you complete anonymity the moment the trust is formed. I think your lawyer is wrong, probably because he just doesn't understand Land Trusts. Even though they are in fact a Living Revocable trust, it is not a regular one.

Florida probably has the best in the country, only after Illinois. That is why it is also called an Illinois-type Land Trust.

Here are 2 links that explain Land Trusts and Personal Property Trusts.

http://www.legalwiz.com/articles/landtst.htm

http://www.legalwiz.com/articles/ppt.htm

[rhm76384]

Hey,
     Thanks for the info and discussion. Will be passing it on to my attorney on my next purchase. Keep up the good work. Thanks again for sharing.
Peace,
Richard

[FloridaInvestor]

I own an investment property (non residence) outright in Texas. (no mortgage) .... A week ago, my wife (account in her name) got notice of an Arbitration claim with a creditor she did not pay... A few days later, notice of a lawsuit was served to her for another account only in her name, and the suit was filed several months ago.... I set up a LLC yesterday, to transfer the house into it ASAP. Is this a fraudulent transfer?

There is no judgment. The house is in my name. The debt/creditors/arbitration/suit is in her name only. I set up the LLC under my name, but listed her and my kids as members too. I put the following languange in the Articles of Organization to add further protection.....

1. Admittance to voting membership requires unanimous vote of the existing membership.

2. Membership transfers, including distributions, proportionate shares of profits, and any and all other rights and benefits of membership, are limited to family members unless approved by unanimous vote of the existing membership.

3. Members may indemnify and advance expenses to members, employees, agents, or other person serving at the request of the corporation who was, is, or is threatened to be made a named defendant or respondent in a proceeding.

4. Reasonable expenses incurred by a former member, or a present or former employee or agent who was, is, or is threatened to be made a named defendant or respondent in a proceeding may be paid or reimbursed by the corporation, in advance of the final disposition of the proceeding, on any terms the members consider appropriate.

5. Payment or reimbursement permitted under the Texas Business Corporation Act shall be deemed to constitute authorization of that payment or reimbursement.

6. Membership may be broken into two or more classes, including Voting Members and Non Voting Members, each having different rights, powers, duties, and obligations, if it so chooses.

-----
Also, we can get the Arbitration thing dismissed with prejudice because our notice was served too long since the claim was filed, under the Arbitration rules, as well as Delaware law.... So, I think that will go away fairly easily.

The lawsuit filed against her is filed by a collection agency that does not have a surety bond filed in Texas, so we can counter-sue and file against them for deceptive trade practices and also frivilousness because they have no right to collect debts in Texas.....

Anyway, does it look like we are doing the right things, or did we do the wrong things to protect this investment house? I understand you are just speaking generally and we can't hold any claim against you for bad advice. (-;

Did you already transfer the property into the LLC?

If you haven't, you might be better off transferring the property into a Land Trust, and naming the LLC as the beneficiary in the Trust Document (you DO NOT RECORD THE TRUST DOCUMENT), you only record the Warranty Deed To Trustee

If you already transfered the property in the LLC then LLC can put the property into a Land Trust with the LLC as beneficiary. You might lose the privacy since it will be clear the LLC owned the property after you and in most states you have to declare the members (not all states), but you are here not looking for the privacy as much as protecting the property from your wife's creditors.

The more hurdles they have to jump, going to court to jump them, the less likely they will do it. Also less likely they could attach a lien to that property since they would have to prove nexus.

[realestatellc]

Thanks, no, I have not transferred the property yet, but hope to do so ASAP... I just wanted to make sure I did the right thing the first time. I'll research the Land Trust and see if we have those in Texas. (I have no idea).

I read the Code (the Texas Law) last night, all about the Fraudulent Transfer rules and tests... As long as the deed (if we just moved to LLC) is perfected (filed) before a creditor seeks judicial recourse, we'll be safe.... The two things pending, in progress, I'm not worried about... The first one, has to be dismissed with prejudice for 3 different, separate reasons under the NAF (arbitration) rules and Delaware law. The second thing pending is only $4,000 and the company filiing it does not have a surety bond which is required to be a collection agency/creditor in Texas, they have to get lost. If not, we will try to settle with them for less than the $4k after we annoy them with a counter suit... I think.... anyway, I better read up on the Land Trusts, thanks for your help.

[FloridaInvestor]

Thanks, no, I have not transferred the property yet, but hope to do so ASAP... I just wanted to make sure I did the right thing the first time. I'll research the Land Trust and see if we have those in Texas. (I have no idea).

I read the Code (the Texas Law) last night, all about the Fraudulent Transfer rules and tests... As long as the deed (if we just moved to LLC) is perfected (filed) before a creditor seeks judicial recourse, we'll be safe.... The two things pending, in progress, I'm not worried about... The first one, has to be dismissed with prejudice for 3 different, separate reasons under the NAF (arbitration) rules and Delaware law. The second thing pending is only $4,000 and the company filiing it does not have a surety bond which is required to be a collection agency/creditor in Texas, they have to get lost. If not, we will try to settle with them for less than the $4k after we annoy them with a counter suit... I think.... anyway, I better read up on the Land Trusts, thanks for your help.

This is an excerpt from Bill Bronchick's article on Land Trust.

http://www.legalwiz.com/articles/landtst.htm

"In nine states (AL, FL, GA, HI, IL, IN, ND and VA), land trusts are specifically recognized by statute. In most other states the validity of land trusts are supported by common law and general trust principles (land trusts are not recognized in TN & LA)."

That means that you won't find statutes in Texas specific for Land Trusts whether against or for them. In that case like says you are probably still able to use them.

You can ask him directly at the CREOnline legal forum at

http://www.creonline.com/legal/wwwboard7/index.html

He won't probably give you specific legal advise there, but if you ask a general question like "Are Land Trusts legal in Texas?" He will probably answer it.

If you end up talking a lawyer (you might want to do this given the situation) make sure that you consult one that has dealt specifically with Land Trusts. Make sure you ask if he has dealt specifically with Land Trusts, not just Trusts in general. It seems that even lawyers that deal with Trusts, don't always understand Land Trusts.

I have a cousin who works doing closings for Wells Fargo. She tells me that they won't close a loan on any properties in a Land Trust. She explained to me what her company lawyers have told her. It was obvious to me from what she was told that those lawyers do not understand Land Trusts.

There are plenty of title companies and hard and solf money lenders that will close with Land Trusts involved. You just need to find them.

In your case, this is a non-issue. You are just transferring property. But you might want to make sure you cover your states tranfer fees.

The more I think about it, the more I think you might want to consult a lawyer to make sure you are doing it the right way. But like I said before, make sure your attorney knows how to deal with Land Trusts.

Good Luck!

[colvegas]

Gentleman,
As to land trust legalities in Texas check this link out I think you will find it very informative go to http://maxpages.com/law/Page_6.
Mr Bryan Dunklin th author on this content is  a Dallas attorney whom is evidently very well versed in Illinois land trusts and how Texas uses them and relevant case law.

He has an updated version I believe you need to email him and he will forward it to you.

[FloridaInvestor]

Gentleman,
As to land trust legalities in Texas check this link out I think you will find it very informative go to http://maxpages.com/law/Page_6.
Mr Bryan Dunklin th author on this content is  a Dallas attorney whom is evidently very well versed in Illinois land trusts and how Texas uses them and relevant case law.

He has an updated version I believe you need to email him and he will forward it to you.

Thank you Covelgas.

Very informative and specific for the Republic of Texas.

Interestingly enough he relies heavily on Bronchick's material.

[realestatellc]

Thank you all so much for reading and replying to my issues! I am stunned by your generous sharing of information. I will research the responses from everyone above on this thread and will hopefully get back with my "outcome" in the next week.

I'm doing all this and launching a new web store. I'm going nuts. Thanks for all your help. Your input is tremendously appreciated.

[jimbojr]

Please check your state's sources, and proceed with caution

I'm sure some people reading this thread are confused about what you can and cannot do in a land trust (LT).

LT's are goverend by several layers of law (primarily state & common). You're going to get conflicting information because:
* Some states define trusts and their powers in statue
* others do not, relying on common law to govern them
* some states more closely follow the precedents and case law of Illionis (the most established LT state)
* there is realtively little case law and rulings in some LT states, leaving plenty of gray areas
* Some attorneys and CPA's know some kinds of trusts (persoanl property, estate) and think the same rules apply to LT's, thereby giving incorrect information
* Even knowledgeable attorneys may give "opinions" rather than precedent in the gray areas of the law. Some issues aren't really settled until a test case goes to court.

For example, if I posted in this thread that RICO lien search is required before the trustee transfers property in or out of a LT, I'd only be correct in Florida where the statue exists. This would not apply to a Texas LT or any other state's LT.

So don't be hasty to judge the validity or value of LT's IN YOUR STATE based on what others are saying in their states. You've really got to investigate it for yourself. And, you really should at very least review your state's statues on LT's for yourself to check the advice your hearing.

Here in Florida, I think they're one of the greatest invetions for investors since sliced bread!

Via La LT!

Jimbo

[FloridaInvestor]

Please check your state's sources, and proceed with caution

I'm sure some people reading this thread are confused about what you can and cannot do in a land trust (LT).

LT's are goverend by several layers of law (primarily state & common). You're going to get conflicting information because:
* Some states define trusts and their powers in statue
* others do not, relying on common law to govern them
* some states more closely follow the precedents and case law of Illionis (the most established LT state)
* there is realtively little case law and rulings in some LT states, leaving plenty of gray areas
* Some attorneys and CPA's know some kinds of trusts (persoanl property, estate) and think the same rules apply to LT's, thereby giving incorrect information
* Even knowledgeable attorneys may give "opinions" rather than precedent in the gray areas of the law. Some issues aren't really settled until a test case goes to court.

For example, if I posted in this thread that RICO lien search is required before the trustee transfers property in or out of a LT, I'd only be correct in Florida where the statue exists. This would not apply to a Texas LT or any other state's LT.

So don't be hasty to judge the validity or value of LT's IN YOUR STATE based on what others are saying in their states. You've really got to investigate it for yourself. And, you really should at very least review your state's statues on LT's for yourself to check the advice your hearing.

Here in Florida, I think they're one of the greatest invetions for investors since sliced bread!

Via La LT!

Jimbo

Here is the man who literally "wrote the book" about Land Trusts in Florida.

http://www.galtpress.com/LTB.html

You will find 2 books there.

One is for all states in general.

The second one is specific for Florida.

[jimbojr]

Yep. Got 'em.

I just saw Warda this past weekend in Orlando. He also brought Jack Shea with him for a one-day seminar.

JImbo