Land Trust -- an asset protection tool for holding title to real estate

There are two required elements to create this type of entity:

1. A written agreement creating the entity, and
2. A deed conveying title to the real estate to the trust.

Creating a firewall

Some assets have the potential of creating liability. A good example is a rental house. If a tenant or visitor trips and falls on the premises, the landlord may get sued. The danger is that the liability from the rental property may bleed over and affect all of the other assets of the landlord. If the rental house is the sole asset of a land trust created for the purpose of holding title to the property. This protection is enhanced if the beneficiary is a limited liability entity such as a corporation or an LLC because the trust itself does not have limited liability.

Maintaining anonymity

As discussed in more detail on the asset protection page, it is a good idea to maintain anonymity on the public records. If it appears that a potential defendant has no assets, it may tend to discourage litigation against that defendant.

A land trust can be named just about anything. Nothing requires that the name of the settlor appear in the name of the trust. If the trustee's name is also different from the settlor and beneficiary (such as, for example, a trusted adviser or another LLC), there is little in the public record to tie the ownership of the rental property to a particular landlord.

A note of caution . . .

Some real estate gurus recommend that the trust be created by the seller of a particular property and that the beneficial interest in the trust be assigned thereafter to the buyer. I think this is a dangerous practice and may lead to contentions of fraud. If I am buying a property in this type of entity, I always create the trust on behalf of the buyer, I have the seller convey title to the new trust, and I pay the transfer tax.

Click on the following links for more detailed discussions about these areas of law:

Asset protection Learn how to legally protect your assets from lawsuits, taxes, and foolish heirs.

Limited Liability Companies (LLCs) - the business entity of choice.

Corporations - the time honored business entity.

Limited Partnerships - the third major type of limited liability business entity.

For a one-half hour no charge consultation with Dave Guinan, click here.

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