Lawyer's point of view on LLCs and Trusts

[FloridaInvestor]

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

Are you a member of CFRI???

I'm a new member. I did not go because it was on Saturday and I don't do business or go to business meetings on the Biblical Sabbath! Otherwise I would've been there with bells on.

I did see him the week before at the CFRI general meeting in Orlando when he spoke for about 45 min.

[jimbojr]

Yes.

[mtnwizard]

Trusts are legal in ALL STATES under Federal Law.  
 
The Law (The Federal Depository Institutions Act of 1982) strictly prohibits ANY lender from taking exception to a borrower's placing its property into its own inter-vivos (living) trust (such as a NARS Title-Holding Land Trust) and appointing a 2nd party to function as a co-beneficiary or remainder agent. Further, there is NOTHING to prevent those same co-beneficiaries from leasing the property out to any one they may choose…say, to the 2nd co-beneficiary, for example.

Overall, the process described here creates what is tantamount to a legally constructed, and very safe and well-shielded ‘Wrap-Around Seller-Carry’ device. Since the original owner of the property has named the second party as a beneficiary in the trust and leased to the property to him or her under a triple-net lease (i.e., net, net, net lease, wherein the tenant pays mortgage interest, property tax and handles all maintenance), the resident beneficiary (or investor co-beneficiary) has obtained all the benefits of a sale… without there actually having been one.

In fact, in this situation, the Lessee is considered by the IRS to be an "owner" of the property and gets the mortgage interest writeoff.  Share future appreciation with your lessee and you can charge much more per month for the lease payment than you could on an ordinary lease or rental.

[Investment Loans]

Why not just have title vested in the LLC at closing.  

There are lenders that will do this.  GREAT RATES TOO!

[qwerty]

I am no attorney,  but did go to a course on asset protection and it was the best I have ever seen. The man was a lawyer and an investor.  As he put it you place the property in a land trust, the trustee will be a trusted lawyer who will resign after recording the trust (all in the agreements of the trust you form) the beneficiary will be your LLC, (which you do not have to record) and you control and own the LLC. In California a LLC will run you $900 per year. So you record your LLC in a non taxing state like Navada.Whitch has better tax benifets, You do not have to record it in CA because your LLC is not doing bussiness in CA your trust is. The LLC is just the beneficiary.  He covers all the tricks in most states!!  I purchised his take home course and had my lawyer watch it and set it up for me.  I recommend the course to any  larger investors.  It contains all the forms needed, you can do it your self, they will do it for you, or your attorny can. The coruse is $1,000 or so, but well worth it ,just the $900 I saved one recorded LLC paid for my course

  If you are doing quick flips you want to use a self directed IRA or S or C corp.
he explains it all.  I don't think I can post it on this fourm so Email me and I will let you Know who he is so you can investigate for your self. ITs worth ten minutes of your time.

    I in no way have any connection or am I trying to advertise this man or bussiness!

 qwerty

[mtnwizard]

"Trusted lawyer" is an oxymoron.  Most lawyers know nothing about a land trust, but it's hard to find one to admit it.  You said the Trustee will "resign after recording the trust".  That is because you are going on title.  My trustee is a corporation that remains throughout the trust and does all the work for me.  He collects the lease payments from my tenant, pays the mortgage, taxes, insurance, etc., and sends me a check each month for my profit.  I am never on title or on any loans, have NO property management, no collections, no maintenance and repairs, etc.  If my tenant is late with payment, the Trustee sends out the default notice.  There is NO WAY I would want to be my own trustee and have to assume all those responsibilities.   This may be a land trust, but it is NOT a NARS land trust which has been successfully used since 1984.   There is a big difference.

[FloridaInvestor]

I am no attorney,  but did go to a course on asset protection and it was the best I have ever seen. The man was a lawyer and an investor.  As he put it you place the property in a land trust, the trustee will be a trusted lawyer who will resign after recording the trust (all in the agreements of the trust you form) the beneficiary will be your LLC, (which you do not have to record) and you control and own the LLC. In California a LLC will run you $900 per year. So you record your LLC in a non taxing state like Navada.Whitch has better tax benifets, You do not have to record it in CA because your LLC is not doing bussiness in CA your trust is. The LLC is just the beneficiary.  He covers all the tricks in most states!!  I purchised his take home course and had my lawyer watch it and set it up for me.  I recommend the course to any  larger investors.  It contains all the forms needed, you can do it your self, they will do it for you, or your attorny can. The coruse is $1,000 or so, but well worth it ,just the $900 I saved one recorded LLC paid for my course

  If you are doing quick flips you want to use a self directed IRA or S or C corp.
he explains it all.  I don't think I can post it on this fourm so Email me and I will let you Know who he is so you can investigate for your self. ITs worth ten minutes of your time.

    I in no way have any connection or am I trying to advertise this man or bussiness!

 qwerty

What happens when your trutee resigns? Are you appointed the successor trustee? If that is the case, this is a flaw. Everything else seems to be ok.

But whenever there is any inquiry, the trustee is the one who needs to respond. If you are want full privacy, you should not be the trustee.

Just my 2 cents.

There are many ways to this, being that you are ultimately the beneficiary and owner of the property, you should not be the trustee.

[colvegas]

Great posts on this forum topic  and if the trustee resigns you just appoint a successor trustee.
Using an attorney as your trustee for short term holds is ok but I would certainly prefer a non-profit out of state corporation who maintains an arms length transaction and shows the fidicuary responsibility as a trustee and the experience as a trustee.
I wholeheartedly agree with Mr Floridainvestor you would not want to be the trustee since that comprises your privacy, security and in some cases your integrity. For real short term holds on real estate in a trust you probably be ok but for longer term holds not advisable.

As to the trustee resigns after being designated your trustee I would think if he was your attorney he can also use the attorney/client privilege to stop a charging order yet if he resigned you'd be back to designating another trustee so it could be a good stalling tactic againest those lawsuits or whatever.
The nice thing if a trustee needs to respond to an inquiry regarding anything about your trust the trustee under laws is protected that so it would stop there, and you would want a experienced trustee to respond in your behalf and of the designated beneficiaries.
Just my 2 cents worth

[rkvincent]

Are Land Trusts legal in the State of Michigan? If so, does anyone know of a company that provides the service of properly setting up Land Trusts in MI for investors.

[Investment Loans]

Any recommendations for an attorney in MO (St. Louis) that is familiar with setting up land trusts for investors?

Thanks!

[FloridaInvestor]

Are Land Trusts legal in the State of Michigan? If so, does anyone know of a company that provides the service of properly setting up Land Trusts in MI for investors.

First of all, Land Trusts are a type inter-vivos revocable trust, and as such they are legal in every state. But there are 2 states that do not recognize them and I don't know the details, since in those states I am sure other type of trusts are recognized.

So the answer to your question in Michigan is YES, they are legal. Now MI doesn't have any specific statutes dealing with Land Trusts, so if you ever go to court they will have to rely on other general statutes referring land trusts and perhaps a court would admit cases from Illinois or Florida (2nd state to recognize them by statute, I think)

Below is a quote from Bronchick's article on Land Trusts.

"Land trusts were first used in Illinois, hence the nickname, "Illinois Land Trust." 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)."

The link to the article is this,

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

[mtnwizard]

We require always having a third-party corporate Trustee hold title to shield the property from judgment creditors and hold one’s beneficiary interest in a separately owned LLC.  The trustees we use are each bona fide non-profit charitable organizations acting on behalf of their members.  
TRUSTEE DUTIES

The following is a list of the duties of a Trustee. Upon Acceptance of a Trusteeship

    * Administer in accordance with its terms and purposes.
    * Administer the trust in good faith.
    * Administer in the interests of the beneficiaries.

Duty of Loyalty

    * Administer the trust solely in the interest of the beneficiaries.

Impartiality

    * Trustee shall act impartially while investing or managing or distributing the trust property giving regard to beneficiaries respective interests.

Prudent Administration

    * Administer the trust as a prudent person would consider the purposes, terms, distributional requirements, and other circumstances of the trust.
    * Exercise reasonable care, skill and caution.

Costs of Administration

    * Incur only costs that are reasonable to the trust property.
    * The purposes of the trust and skills of the trustee.

Trustee’s Skills

    * A trustee who has special skills or expertise is named trustee in reliance upon the trustee’s representation, that the trustee has special skills or expertise and shall use those special skills or expertise.

Powers to Direct

    * While a trust is revocable, the trustee may follow a direction of the settlor that is contrary to the terms of the trust.

Control and Protection of Trust Property

    * A trustee shall take reasonable steps to take control to protect the trust property.
    * Record Keeping and Identification of Trust Property
    * A trustee shall keep adequate records of the administration of the trust.

Enforcement and Defense of Claims

    * A trustee shall take reasonable steps to enforce claims of the trust and to defend claims against the trust.

Collecting Trust Property

    * A trustee shall take reasonable steps to compel a former trustee or other person to deliver trust property to the trustee and to redress a breach of trust known to the trustee to have been committed by a former trustee.

Duty to Inform and Report

    * Keep the qualified beneficiaries of the trust reasonably informed.
    * Concerning administration of the trust and material facts necessary to protect their interests.

Discretionary Powers—Tax Savings

    * Trustee shall exercise discretionary power in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries.

General Powers of Trustee

    * A trustee, without authorization by the court, may exercise: powers conferred by the trust except as limited by terms of the trust other powers to achieve proper investment, management & distribution of trust property.

Distribution upon Termination

    * Upon termination of a trust, the trustee sends to the beneficiaries a proposal for distribution.
    * The right of any beneficiary to object to the distribution terminates if the beneficiary does not notify within 30 days after the proposal was sent.

Delegation by Trustee

    * Trustee may properly delegate under certain circumstances, duties & powers to a prudent trustee of comparable skills.

Don't leave home without one . . . and DON'T become your own trustee!