There are only six states that have an actual Land Trust statute (or case law recognition) and they are; Illinois, Indiana, South Dakota, Florida, Virginia and Hawaii. Does this mean if you do not live in one of these states (and own property in the same state) that you cannot form a Land Trust? Absolutely not!
Does Your State Have Land Trusts?
Most states recognize the validity of a Land Trust and allow its citizens to form a Land Trust to hold title to property in their state. This is typically done “under the laws of the state of ________.” You can fill in this blank depending on which state your property is located.
For example, California does not have a specific Land Trust statute but you can still form a California Land Trust to hold title to California real estate by stating in your Trust Agreement that the trust is formed under the laws of the State of California.
Quite often professional “advisors” tell their clients, “you can’t do that in this state” (i.e. form a Land Trust). Unfortunately for the client the “advisor” did not bother to research the subject adequately or admit their lack of knowledge.
Why Should Investors Even Care About Land Trusts?
Why should you care if you can form a Land Trust to hold title to your investment real estate (especially when advisors are recommending an LLC)? First, understand that titling multiple parcels of real estate in a single entity (be it a Land Trust, LLC or Corporation) is just plain dumb!
This practice creates a nexus.
If you agree with the philosophy of titling property in separate entities for asset protection (to insulate each property from the others), this leaves you with the question of which entity to use (LLC, Corporation or Land Trust)? Logic tells you that setting up a separate LLC or Corporation to hold title to each of your properties would be cost prohibitive (let alone, time consuming and frustrating).
Putting each property into a separate Land Trust is easy to do and costs NOTHING! Furthermore, the Land Trust provides privacy of ownership unlike other entities.
Privacy Benefit – Not Even The Government Would Know
Land Trusts are not recorded or registered anywhere on planet earth! WOW, is that possible in light of the Patriot Act? Yes, your Land Trust Agreement is NOT recorded anywhere and therefore gives you an element of privacy unlike all other entities (no one knows who the beneficiary of the Land Trust is). Asset protection begins with privacy and privacy for real estate investors begins with using a Land Trust to provide anonymity of ownership.
Asset Protection Goes Beyond LLC’s & Corporations
Yes, I use Limited Liability Companies and Corporations but not to hold title to investment real estate. Since the liability on property held inside a Land Trust flows through to the beneficiary, most real estate investors make the beneficiary of their Land Trust their LLC, Corporation or another trust. Linking these entities together with the Land Trust provides the best of both worlds…privacy and asset protection. If you want one LLC to be the beneficiary to multiple Land Trusts I suggest you google the Series LLC.
Out of State/In State Land Trusts
For those of you real estate investors who want a more diabolical approach to titling your real estate consider this; you can form an out-of-state Land Trust to hold title to property in your state. The basis behind this logic is that there is no Federal Land Trust law. Therefore, trust laws are all determined on a state-by-state basis. Some state’s laws are better (in my opinion) than others.
If your property is located in a state that does not have a Land Trust statute, you might consider forming your Land Trust in a state that does have a statute. Your Trustee (whether an individual or entity) should reside in the same state that you form your Trust. This technique yields multiple asset protection benefits and confuses the heck out of anyone attempting to attack the Trust.
Just imagine this scenario. Your Land Trust is formed in the state of Florida to hold title to property in California and the beneficiary to the Land Trust is a Nevada LLC. This scenario will stop 99% of those frivolous lawsuits filed by contingent fee lawyers looking or I have just scratched the surface of possibilities using Land Trusts to hold title to your real estate investments.