Florida Land Trusts - Part 3

SOME OF THE MANY ADVANTAGES OF A LAND TRUST

A Land Trust is a remarkable way to own, hold, and sell property, either Individually, or with your Spouse, your Living Trust, Your IRA, or with any number of unrelated Investors, each holding a proportional share of the Land Trust. It essentially converts the treatment of your property from Real Property to Personal Property (a Grantor Trust with special features) which allows it to be governed under Standard UCC Sales Laws instead of the much more complex State Real Estate Regulations. This simplifies all paperwork, reduces major costs and regulations, lowers taxes, provides privacy, and offers enhanced Protection of your other personal assets outside of the Trust in the event of a judgement against the Trust itself. Because the cost to create a Land Trust is only about $20 in filing fees of the Deed, we recommend holding each of your properties in separate Land Trusts for all the reasons shown below.

1. COMPLETE PRIVACY FOR ALL TRANSACTIONS

Protects Your Personal Name and Address – Although you may certainly use your own name in the title of a Land Trust, or act as its personal Trustee (instead of an LLC), the number one reason that Land Trusts were created was to provide for Anonymity of Ownership. There are many additional reasons why a person may want to keep their name and address private in today’s world. First of all, is a simple desire for privacy so you are not constantly contacted by real estate and insurance agents, vendors, and other service companies who have picked up your name from public records and constantly calling or sending you offers on their products or services. You also do not want them showing up knocking at your door every week.

Protects Your Identity – One of the more recent fraud schemes is for a criminal to obtain a copy of your files Mortgage paperwork and scan it into their computer (along with an image of your signature), and then apply for credit, or loans, or mortgages under your name, and using an image of your signature to complete the transaction. By keeping your personal name and address off titles and deeds, you have taken the first step in protecting your identity.

Lets you Buy Property at Lower Prices – If you have a highly recognized name and are trying to buy additional properties in the area, you might not want the seller to know what other properties you already own nearby, which might then cause the asking price to be increased. When Disney needed to acquire a large group of connected properties in Florida to create Walt Disney World, they used a series of blind Land Trusts to make the purchase as a normal buyer at the lowest possible cost. Then after everything was acquired they were later assigned over to Disney to form a single corporate ownership.

Legal & Equitable Interest is Held in Trustee’s Name – Just like a Trustee of a Bank holds title to a property until the mortgage is paid, a Land Trust is designed to give the legal and equitable title to your trustee, and as a result your name is not available in the public records. You can of course be your own Trustee, but it is better to use the name of your LLC or another person for full privacy. The Deed of Trust is recorded in the trustee’s name in the county records as the real property owner, and therefore the actual Beneficial Owner is not found in the chain of title, nor disclosed to the public. This is one of the first steps in providing more privacy to yourself and your family.

Another method of partially shielding names is to always place the title and the name of the Trustee (Grantee) at the END of the Deed of Trust after the formal name of the Trust (instead of at the beginning). There is no rule as to what item is first or second on a Deed, and most county records are only able to store the first 25-30 characters of the Title Holder. So anything longer than that will be present on the original document, but will not be searchable in the computer system. A few examples are shown below:

Placing your name FIRST makes it fully searchable in county computer records:

Johnathan Smith, Trustee of 12345 Pennsylvania Avenue Trust

When using yourself or another individual as Trustee, put it at the end:

12345 Pennsylvania Avenue Trust, Trustee Johnathan Smith

When using your Living Trust as Trustee:

12345 Pennsylvania Avenue Trust, Trustee Johnathan Smith Living Trust

When using your LLC as Trustee:

12345 Pennsylvania Avenue Land Trust, Trustee Global Investment Group LLC

In the first two examples, when the name of the individual Trustee changes, the new owner will have to file a new Deed of Trust. In the last 2 examples, only the name of the ENTITY was given as Trustee. In the event there are other successor Trustees in a Family Living Trust document, or successor Managers in a Family LLC document who are assigned internally to handle your Land Trust, NO change of Deed is required, since the same entity is still in control of the Land Trust as Trustee.

No Recording of the Trust Agreement is Required – This is one of the greatest features of placing your property in a Land Trust, and is simply comprised of 2 basic documents.

The first document is the Trust Agreement between the Beneficial Owners and the Trustee, which details the specific duties of the Trustee, the duties (if any) and percentages of ownership of each Beneficial Owner, and what happens to an Owners share in the event of death, divorce, etc. It can be a simple 2 page agreement, or very detailed document in every respect. Each Beneficial Owner and the Trust gets a copy, but this Trust Agreement DOES NOT ever have to be filed in public records, thereby shielding and protecting all Beneficial Owners Names, Addresses, and Percentages of Ownership

The second Document is a Deed of Trust which is simply a WARRANTY DEED or QUIT CLAIM DEED which will transfer the title of the property to the Name of the Land Trust, and in the Trustees name. This Deed of Trust is then recorded at the county recorders office for the county in which the property is located.

No other form of business entity (LLC, S-Corp, C-Corp, etc) has the same equivalent privacy element as the Land Trust.

It is recommended that BOTH of these documents (the private Trust Agreement and the Public Deed) be signed in front of a Notary Public and 2 witnesses to make sure it complies with any and all state laws.

Gives You Opportunities for additional Loans

If you are planning on applying for additional loans in the future for property, vehicles, or other items, you may not want to disclose your entire list of property holdings (particularly those with private mortgages), as it may affect the granting of, or the limiting of any additional mortgages or loans.

Also if you are over-burdened with numerous other loans and mortgages and cannot qualify for an additional mortgage, you can ask the seller to place his property into a Land Trust, and then assign the beneficial interest to you in exchange for a written agreement to make payments to him, which the seller will use to continue to pay on the original mortgage (which will still be in place). Later on when your financial picture is better, you can apply for a new First Mortgage under your name and retire the Contract-For Deed arrangement you had with the Seller.

Creates Uncertainty for Plaintiffs in Lawsuits

If you or your property become threatened as a named defendant in a lawsuit, keeping your personal name and address private makes it much harder for an attorney to prepare and serve paperwork, take depositions, determine ownership and valuations, as well as keeps all of your other personal assets private and out of public view.

And if the suit is against your Land Trust, and both your LLC as well as your Trustee (or a Personal Trustee) have out of state addresses, this makes it even harder for a plaintiff to serve and handle an out of state defendant, causing many to abandon the effort on smaller claims because they will lack jurisdiction to recover any judgement without great additional litigation expenses in two states.

Furthermore, an attorney may find it difficult to determine the actual ownership, the size or number of owners, whether or not they have a legal department, or the size and power of the Land Trust itself. They also know if they happen to sue the wrong person, then both the law firm, its individual managing partners, the associate, as well as the original plaintiff could all be sued back and suddenly find themselves as defendants in a “wrongful litigation” suit themselves. For this reason, most attorneys are very reluctant to initiate a suit until they have all the facts, and a Land Trust (particularly with an out of state Trustee) is a particularly good way to keep all of your details very private. If you have a major liability that you feel may be coming, this information delay will give you time to transfer all other properties held by your LLC to a different LLC or Trust before any suit is filed. This leaves only the single property in question left as an asset in the LLC in the event a suit if filed and a judgement is obtained.

Remember however, that In order to maintain ABSOLUTE privacy you must

(1) Must Not use your name in the DEED OF TRUST filed for the Land Trust,

(2) Must Title the property in the Name of the Trustee of your Land Trust,

(3) Must Use a spouse, other person, or preferably an LLC as the Trustee, and

(4) Must NOT use your home address as the legal address for the Land Trust (use a PO
Box or other address instead).

2. PROTECTS PRICES AND OWNERSHIP INTERESTS

Protects Disclosure of Your Original Purchase Price – If you are buying a property that is already in a Land Trust, you may simply purchase the LAND TRUST itself (as a personal asset), and the amount of purchase does not have to be recorded in any County public records (except doc stamp fees in some states).

Protects Your Future Sales Price – Likewise, if you are selling a property that you have previously placed into a Land Trust you simply sell the Land Trust itself to the Buyer, and provide the Operating Agreement and Trustee Agreement to the buyer at the time of sale. So you are selling the LAND TRUST itself (this is like a personal property stock sale), and the actual property continues to remain inside the Trust as an asset.

Personal Property sales do not have to follow the rules and guidelines of a real estate sales transaction (closing fees, inspections, surveys, appraisals, new title insurance fees, new mortgages, etc.). The buyer (who will be the new Beneficial Owner) can then either use the same Trustee (if he is agreeable), or assign a new Trustee to the Land Trust, in which case the Trustee will file a new Warranty Deed with the county recorder of deeds, and the transfer is then complete.

In some states like Florida or Illinois a doc stamp fee will still have to be paid by the new Owner (based upon the percentage of beneficial ownership transferred), but the purchase price and names of all the owners are not required to be made public. There are many investors who intentionally do not publicly record the name of the new trustee to avoid paying doc stamp fees (it only amounts to a small doc stamp fee and fine for the new owner), but I would recommend against this because your trustee will want to officially be out of the title chain after you make the sale.

Provides You with the Ability to Buy and Sell Anonymously – Under Florida law, you are NOT required to provide the county recorder of deeds or any other party with a copy of the OPERATING AGREEMENT of your Land Trust! The TRUSTEE, who is the party that has signature Authority, simply has to sign the new WARRANTY DEED in his legal capacity and have it stamped and filed with the Recorder of Deeds. If the Land Trust is new, or it is being sold to another party who will be using a new Trustee, some Doc stamp fees may have to be paid in some states.

The disclosure of the names, addresses and percentage of ownership of any and all BENEFICIAL OWNERS and the specific details of ownership and governance of the Trustee is NOT REQUIRED.

Protects Your Percentage of Ownership – Because the Trust Agreement is never required to be made public, and you have the ability to shift the amount of ownership shares from yourself to your spouse or children quickly and privately, without the need for any filings with the Recorder of Deeds. This allows you to make regular $15,000 per year tax free transfers on short notice, and also shields the amount of your actual ownership from prying public eyes.

3. SIMPLIFIES OWNERSHIP WITH MULTIPLE PARTNERS

Keeps all Owners Names off of Public Records – This is absolutely the best way to hold ownership of property with other parties. It keeps you from becoming associated with other parties who may in the future become involved in their own separate personal suits and judgements, and helps to avoid becoming a witness or a mistaken defendant to those same type of suits.

Land Trusts Allow fractional interests without being “General Partners” – The very worst way to hold ownership of property with other parties is as “General Partners” because it creates a personal liability to each party for the actions of any other party in the management and operation of the general partnership related to its expenses, loans, debts, mortgages, overdue credit cards, liability lawsuits, foreclosures, partitions of ownership, IRS Tax liens and much more. If there are not enough assets in the partnership to satisfy a judgement, the plaintiff may seize the personal assets from each of the general partners if needed.

Also, if a general partner has a personal judgement filed against them and their personal assets and insurance are not enough to satisfy the judgement, the court would be allowed to seize that partners % Interest in the property, which would then normally force all owners to have to liquidate the property to satisfy that judgement.

A Land Trust prevents all of these consequences. Any general partner may obligate all the others to decisions they make, and for loans as well as sales of property, ALL General Partners must sign all documents. This is problematic and cumbersome. A Land Trust allows you to create interests with co-owners by defining their interests and resale restrictions as “Personal Property” instead of being classified as “General Partners” which carries substantial personal liabilities for you.

Land Trusts Allow one party (Trustee) to handle and sign all transactions – A Land Trust allows an unlimited number of Beneficial Owners to invest in, or to participate in the ownership and profits of the property, but only requires a single person (the Trustee) to sign all legal paperwork (as they define in the OPERATING AGREEMENT). The TRUSTEES DUTIES are usually limited to receiving, delivering and signing legal documents per the Beneficial Owners written instructions (unless expanded in the Operating Agreement). This protects the Trustee from outside liability and judgements against the Land Trust.

If the Trustee is an LLC or another Trust, then Successors can Automatically Govern - If your Trustee is an LLC, Corp or a Living Trust, the DEED of TRUST for your Land Trust never needs to be changed or re-filed with a new name for control of authority. Usually a managing member of the LLC is appointed to sign all documents.

In these cases the ENTITY itself is acting as the Trustee, and not as an individual. So if the person acting FOR the Trustee dies or is removed, the SUCCESSOR TRUSTEE of that entity automatically becomes the new Trustee for purposes of the Land Trust. In the case of an LLC, then successor Managing Member becomes authorized. If it is a Living TRUST or Will and the original Trustee of that Will dies or becomes unavailable, then the Successor Trustee of the Living Trust automatically becomes the person of authority for the Land Trust. No other documents required!

If however an INDIVIDUAL (such as a husband or wife) is the named Trustee on a Land Trust DEED and dies or becomes unavailable, there is no fallback, a new DEED must be filed to have their legal authority affirmed (unless the original DEED for the Land Trust had previously named one or more Successor Trustees within its own document).

Beneficiaries can appoint a Director to Interact with Trustee and Daily Management

If desired with a large group of investors, the Beneficial Owners may appoint one member of their group to act as a DIRECTOR to interact with the Trustee, and they themselves (or the DIRECTOR) are the ones actually responsible for the everyday management of the property (unless they Appoint a separate PROPERTY MANAGER to perform this task.

Each Owner signs and receives a copy of the Operating Agreement and the percentage of ownership when they invest cash into the Land Trust, along with any other duties or obligations. You can add or remove beneficial owners as needed, and assign different percentages of ownership to each one (as determined by financial contribution or amount of active management), and no public paperwork is ever required to be filed for these changes.

No Complicated Tax Forms to File – a Land Trust is considered as a pass-thru entity by the IRS and at the end of the year (or after a sale), a Simple statement is sent out to each Beneficial Owner indicating the total profit of the Land Trust along with their percentage of profit. They then use this to report “additional income” on their respective IRS Form 1040. No separate forms are required to be sent out by the Land Trust to the IRS for end of year Tax reporting. If each property were held in a separate LLC, each LLC would have to obtain their own tax numbers and file IRS Form 1065's. This would easily cost $1,000 to $2,000 per year for a tax preparer to file each one (along with state annual registration fees). A single LLC can act as the beneficial owner of many Land Trusts, and will only have to file 1 1065 tax return, and issue 1 set of K-1 Forms to each individual for their own taxes.

Perfect Method for Fannie Mae Loan – Because Corporations or Limited Liability Companies have separate Federal Tax ID numbers and are treated as separate entities, Fannie Mae will not allow them to hold Title to properties whose mortgages are financed by them. So If you are using financing that must qualify under secondary market guidelines you must sign all documents personally. An exception however, it that you can legally assign title to your property to your own Land Trust after the initial closing. The Federal Government created a nationwide rule that since a Land Trust is a Revocable Granter Trust and the IRS treats it as a pass-through entity without the need for any separate Tax ID, it acts as one-in-the same as the Beneficial Owner. Because of this well-founded law, Federal Mortgage Lenders are forbidden to reject and may NOT accelerate the loan after closing if a personally titled property is later placed into a Land Trust.

Perfect for “Assignment of Title“ on all Real Estate Purchases – Every Commercial and Residential Real Estate Sales Contract has a provision in it where you can take title in your own personal name, OR the select the Option to Assign the title to another party at the time of Closing. Family and Estate Planners use this to Assign the name on the Title to their personal Living Trust, their personal LLC, or simply a basic stand-alone Land Trust. Investors who Flip Properties use this to try to sell the contract to another Wholesaler or retail buyer prior to an actual Closing, and thereby walk away with the profits between both sales.

Never let an opportunity go by without at least assigning Title at Closing to a Land Trust that your create for the property (such as 1200 Elm Street Trust), since you can later immediately re-assign Beneficial Ownership of the Land Trust to your family LLC or Living Trust without any additional paperwork with your mortgage, Property Insurance and Title insurance completely intact.

Ease of Managing Death, Buyouts or Conflicts of a Beneficiary – Land Trust agreements can provide buyout provisions in the event of death or a conflict among beneficiaries. The agreement can detail what will happen if a beneficiary dies or wishes to end their participation in the Land Trust. Is their share absorbed by the remaining Beneficiaries, or will they have first right of refusal? Is there a specific buyout amount? Does their share go to their spouse or their Family Living Trust? In a Land Trust, the Beneficiary or Beneficiaries can set forth specific details for addressing these issues.

When you go through the normal process of buying or selling a property by preparing a Deed, signing Mortgage and other Paperwork and Recording all the Instruments, it can turn into a very lengthy and detailed process, and will cost about 2% of the value of the property being sold. Furthermore, the Title Insurance and Property Insurance will become void and you will need to acquire new policies to insure the new deed owner.

If your property is already in a Land Trust it is considered as personal property under standard UCC Laws and is not governed under normal real estate transaction laws, and you can immediately Assign all ownership or a share of ownership of the Property to a new Beneficial Owner, and/or remove or assign a new Trustee to handle the legal paperwork of the Trust. All these changes can be made in the privacy of your own office, and no public filings will be required (except the name of a new Trustee if it has been changed).

Shields all Owners from one Beneficiaries 3rd Party Judgements – One of the first provisions you should place in you Trust Agreement is that the Trustee will NOT be personally liable for any judgements against the property or the trust. And will only liable for violating the fiduciary duties of the trustee (ie. fraud by the trustee) with the Beneficiaries.

Judgments Against a Beneficiary Do Not Attach to the Property. Because the Trustee of a Land Trust is the real property owner (legal and equitable title holder), third party judgments against a single beneficiary (in the case of multiple beneficiaries) for actions which occurred outside of the Trust do not attach to the Land Trust property which would force it to liquidate to satisfy that persons personal judgements. This is because the interest of each beneficiary is treated as a personal property interest in the Land Trust – and it is not treated as real property interest.

Since the Trustee owns the legal and equitable interest in the property, any unrelated third party judgment against a Beneficiary personally would not attach to the Land Trust itself. This also allows individuals who may have other judgments and or liens to continue to buy and sell real estate freely in separate Land Trusts without having to worry about those judgments or liens attaching to the other Land Trust property.

Note: Some investors use an LLC or Corp. to act as a Beneficial Owner to directly hold title to their real estate investments. However, if you own all your properties in one entity such as an LLC, a judgment against that LLC or Corp Owner will create a lien on ALL property owned by it. Therefore, it is best to put each property into its own Land Trust so losses and judgements against a property in one Land Trust will not affect the assets contained in other Land Trust properties, as they can be quickly moved out to another LLC or Trust without public notice.

Easily combine and LLC or other Entity for full Asset Protection – Except in Florida and the other 5 states that have specific enhanced protection rules (Florida Statutes 689.071(8)(a) and (8)(d) and 689.071 (12)), Land Trusts used alone by themselves were not designed to be 100% foolproof Asset Protection devices. They were designed to be completely private, simple and inexpensive to operate, easy to transfer, and to avoid many state laws and reporting rules that affect taxes and probate. However, when used together with other entities (such as an LLC or CORP) who are acting as the Trustee, Land Trusts can benefit from formidable Asset Protection benefits for properties that have a high risk of liability.

By forming an LLC or CORP which is owned by you as the Beneficial Owner and then putting each property into its own individual Land Trust held by the LLC, your are “insulating” each property from the others in the event of a single loss, as well as preventing any unsatisfied judgements against that single Land Trust from being able to use a charging order to attach the real owners other personal family assets. In simple terms, if you are under-insured you may lose all the assets in the single land trust with a court judgement against it, but they cannot use a charging order to come after your other personal assets for satisfaction.

Furthermore, if your LLC or CORP is set up and domiciled in another state (like Wyoming or Nevada) that have strong privacy laws, it is very difficult for an attorney in the state where the property is located to locate and serve the actual beneficial owners of the LLC, or to manage a lawsuit between two different states because they would have to be licensed in both states or hire additional local attorneys in one state at great expense to assist them in the suit.

Land Trusts can last 100+ Years – Land Trusts are well established and have been in existence for more than 500 years worldwide, and in America, Chicago Title developed the first Land Trust here on what is now commonly referred to as the Illinois Land Trust. Only 6 states have actual Land Trust Statutes, but there are years of case law in the USA regarding Land Trusts, which make it easy for legal decisions and a Land Trust can last at least 100 years without expiring, making it multi-generational for continued ownership.

4. SIMPLIFIED PAPERWORK AND REPORTING REQUIREMENTS –

No Separate Bank Account is Needed – One of the benefits of a Land Trust is that because the IRS considers a Revocable Land Trust to be a “Pass-Thru” Entity, no separate Tax Return or separate EIN# are required. Because of this, no separate bank account is needed, since the profits of rents or sales would normally go directly into the banks account of the Beneficiary (or proportional amounts for Trusts with multiple Beneficiaries).

No Annual Trustee Fees – If you are using your own LLC, CORP, or Living Trust to act as your Trustee, or you use your Spouse or other friend or family member to act as a personal Trustee, there would usually not be any annual fees, and you can keep the costs down considerably. Of course, you can always use a third party Trustee such as a Bank’s Trust Department or your personal Attorney. In these cases, you would expect to pay an annual fee of $100 per year or more to administer the Trust by receiving and forwarding all legal letters and information to the Beneficial Owners. They may also charge additional fees for setting up the trust, as well as fees for every signature required of the trustee.

No separate Federal EIN# is required – The only time a separate tax return would have to be filed is when an entity such as an LLC or CORP is the actual Beneficial Owner of the Land Trust. An LLC for example would normally report all of its income and expenses on an IRS Form 1065 but would pay no taxes itself. Instead, it would issue an IRS Form K-1 to each individual Beneficial Owner stating what their personal share of Income or Loss is attributed to their ownership, and each owner would then list that on their personal IRS Form 1040 under “Other Income” and attach the K-1.

A Trustee of the Land Trust is not required to file any Federal Tax Returns, unless they are also a beneficial owner OR being paid a fee for their representation

Land Trusts and Corporations – If carefully structured, the ownership of commercial real estate placed into a Land Trust can be an effective means to separate and protect the actual land and property from the much higher liabilities of operating a large corporation which is dealing with the public

No State Formation Fees or Annual Renewal FEES – A Land Trust is not required to be registered in the state in which the property is located, either as a domestic entity or a foreign entity. This saves thousands of dollars in initial fees and expenses as well as hundreds of dollars each year in annual renewal fees

No State Regulations for Land Trust Reporting – When you operate an LLC or a Corporation, the state in which you are registering REQUIRES that you operate according to specific sets of rules, and that to disclose certain personal information. You also have to provide a Registered Agent within the state of incorporation (for purposes of legal service) and have to provide the names and addresses of all corporate officers or members. This information becomes instantly available via the internet on the state’s website.

There are no such requirements when forming a Land Trust. The only traceable information related to a Land Trust is the Deed to Trustee. This simple two page document is recorded in the county where the property is located and reveals very little information about your Trust Agreement (the heart of the Land Trust).

No State Annual Reports are required – A Land Trust is not required to files any Annual Reports with the state, which usually includes all of the names and addresses of each officer or director. Also, no state franchise fees are required. This saves you hundreds of dollars each year in fees and $1,000 to $2,000 per year in accounting expenses

No State or Local Business Licenses – Just as you may personally buy, hold or sell land and property in your own state or other states without being required to obtain state or county business licenses, Land Trusts enjoy the same benefits because they are seen as “pass-thru” entities. An exception might be in the case of actively operating and managing a large apartment complex where you are generating a substantial amount of active monthly rental income in that state or county and the Beneficial Owners also reside in that state and operate it as a business

No Registered Agent Required – No separate registered agent is required in a Land Trust, since the purpose of the Trustee is to receive and forward all legal paperwork to the Beneficial Owner. This of course can save you $50-$100 per year

No Separate State Income Taxes To File – Because a simple Land Trust is seen by the IRS as a “pass thru” entity and the profits are reported on your own IRS tax From 1040 as additional income, you will save thousands of dollars each year by avoiding additional accounting and the preparation and filing of another tax return.

Easy To Manage the Death, Disability, or Resignation of the Trustee. Another benefit to using Land Trusts is the ability to name Successor Trustees directly inside the initial Deed of Trust, which allows for automatic succession in the event the original personal Trustee dies, becomes disabled, quits or you wish to replace him. Since the Original Deed has the approved names of the Successor Trustees listed on it, no new deed has to be drawn up and filed with the county, saving considerable time and expense.

One example is that Florida does not have a Beneficiary Deed that transfers real estate to another party after the death of the original title holder (like for example Missouri and other states DO provide). So at your death, the Beneficial Ownership of the deed of trust is automatically assigned to the surviving wife or a child according to the private Operating Agreement of the Trust , accomplishing the same thing without the need to take any other actions.

Of course, the best method is to simply use your own Family LLC or your Family Living Trust to act as the Trustee of the Land Trust, because it creates a perpetual Trustee. In the case of an LLC or Corp, one of the Officers (or a designated company manager) can act as the Trustee, and if that specific person ever becomes unavailable, the LLC or CORP can assign another person within the entity to carry out those duties without having to file any new deed of trust or other public paperwork with the county.

If you are using your family Living Trust to act as the Trustee of the Land Trust, the current Trustee of your Living Trust has the power to make all decisions and sign documents for your Land Trust. When that particular Trustee dies or becomes incapacitated, the Successor Trustee within your family Living Trust is automatically moved up into the position of Trustee for BOTH the Living Trust, as well as the LAND TRUST without any additional changes to public Deeds or paperwork required.

Sale of a Land Trust is not subject to Real Estate Laws – A very unique feature of a Land Trust is that it is no longer subject to all of the rigorous Real Estate Laws and Rules concerning paperwork and reporting sales and transfers. The Land Trust has effectively converted the individuals interest in the property to an interest in the shares of the Land Trust, and is governed by the far less restrictive UCC Personal Property Codes and Rules.

Sale by Assignment with a Simple Bill of Sale of the Trust as Personal Property – If you later decide to sell the property held in the trust, you can sell your beneficial interest of the trust itself instead. Also, if you are buying a property using your Land Trustee as the buyer and prior to closing you want to sell or assign the contract – you effectively do so by selling the beneficial interest.

Simple to Hold Property in Other States – All Land Trust regulations are created and administered at the state level, but because of the Federal Full Faith and Credit Act (28 U.S. Code Section 1738) all states have agreed to recognize each other’s laws, and cannot alter or dispute another states laws. This means that the rules for your Land Trust found under Florida Statute 689 concerning exemptions from Trustee liability and certain Beneficial Owner liability must be recognized for suits or judgements placed against the property held in such Land Trust.

Furthermore, if a Florida Land Trust buys and hold property in another state it creates a multi-state jurisdiction and allows you as a defendant to move the case to federal court jurisdiction, which should have the best favorable outcome for you regarding suits in other states if you are faced with a large liability suit involving death or injury. Federal Courts require a more complex process and much more expenses for a plaintiff which many attorneys will tend to avoid.

For full asset protection of high value out of state properties, you would hold title to property in a Land Trust formed in Florida, and both the Trustee and the Beneficial Owner are 2 separate LLC’s located in a state other than where the property is located (the ideal state is Wyoming, where a single member LLC has full protection from charging orders as well as no annual disclosure of owners.).

5. FINANCIAL ADVANTAGES

Avoiding Due-On-Sale Actions – In 1982 the Games-St.Germain Act was passed by the United States Congress, which allowed all Americans who owned property with a mortgage to place their property into an Inter-Vivos Grantor Trust (a Revocable Living Trust) after completing the purchase without triggering the usual due-on-sale clause that would normally apply if sold or transferred to an LLC, Corporation, or other third party. This is because a Land Trust operates under the owners social security number and is considered as still titled under the owners name, and federal law prohibits lenders from blocking title transfer to a Land Trust or accelerating the mortgage if this occurs.

This provides important advantages for both buyers as well as sellers. For the buyer it provides a new level of privacy, ease of management, and a vast reduction in federal, state and local reporting and expenses. It also allows the buyer to purchase a new property under an alternate form of ownership to the usual Contract-For-Deed by having the seller Assign Beneficial Interests to the buyer in exchange for monthly payments. This can be used when other forms of conventional financing is unavailable to the buyer due to credit limits being reached on other loans.

For the seller it provides a new way to keep the original mortgage in place and make a sale under a Standard UCC Personal Property Contract instead of the usual contract-for-deed arrangement without facing the much more restrictive real estate laws for an eviction (which could take 3-6 months) or a foreclosure (which could take 12-24 months). In this case the seller would place the property into a Land Trust BEFORE making a sale, with the seller named as both the beneficiary and trustee. This is done by a general warranty deed or a quit claim deed filed in the county. Then the seller executes a private contract agreement (which is not required to be recorded) with the buyer where the seller assigns his beneficial interest (or a partial interest) in the Land Trust to the buyer in exchange for a certain dollar amount, conditioned certain restrictions such as:

• The seller/trustee would hold a note in their name against the property in the amount of the sale price and the beneficial interest would be held in escrow and earned only after full payment of the purchase price

• The new beneficial owner would be allowed to occupy the underlying property during the payment periods, and would be solely responsible for all taxes, insurance, and maintenance expenses

• If any purchase payment is received more than 30 days late or any of the above expenses are not paid within 30 days, the buyer will be in default and will immediately forfeit any beneficial interest or rights of occupancy on the 31st day.

Mortgages on Land Trusts do not appear on your Credit Report – When you title property in a Land Trust, your personal name as beneficial owner never goes into public records or credit-reporting agencies, only the name of the Trustee is recorded. This prevents identity theft, and keeps the loans and mortgages off of your personal credit reports, which qualifies you for additional other loans for other projects.

Non-Recourse Financing is possible – When a Land Trust buys or refinances a property, only the Trustee is required to sign the documents (as the title holder). Normally they would sign as “Trustee only and not personally liable”. This would normally make the mortgage non-recourse to the equitable owner, but of course the property itself would be forfeited upon non-payment. Some lenders however may still require that the beneficial owner also sign all documents, and this would then still make the beneficial owner liable for all payments.

Land Trust Shares Can Be Used As Collateral for a Loan – The beneficiary’s interest in the Land Trust can be used as collateral for a bank loan, private loan, or contract-for-deed without affecting any of the borrowers other personal assets.

Out of State Income Tax on Property gains are taxed in Florida with no state Tax – If you lived in Florida and held investment properties in your personal name in other high-tax states (such as California for example), you would be required to pay a high California State Income Tax on the profits earned, particularly when you sell them. If however you placed each of these properties in a Land Trust with you named only as a beneficial owner, you would be allowed to declare any profits or income from the trust in the state of Florida, which has no state income tax (saving you from 6-10% depending upon the state involved). Note however, California law in particular is fast changing.

Sale of a Land Trust as Personal Property does not require an IRS Form 1099 – Since the sale of a beneficial interest in a Land Trust is treated as selling personal property the requirement to file a IRS Form 1099 is not required (like it is in the sale of normal real estate).

Preserves Title Insurance on Transfer – Title insurance is expensive and is issued to only one owner at a time. The best way to take title to a property when you buy it is to include the term “or as assigned” in your purchase contract, and have the seller transfer the title directly to the name of the Trustee of your Land Trust at the time of closing. You not only have the privacy aspect of keeping your name out of public records, but the Title Insurance will continue to be in full force if you change trustees later or add additional beneficial owners to the property.

Additionally, if you sell your beneficial interest in the property to another party, the Title Insurance continues in full force, saving the buyer substantial expenses. Also, if the new beneficial owner is planning to build a structure, the original Survey will still remain in effect for the Land Trust.

Preserves Comprehensive & Liability Insurance on Transfer – The same is true for all other property and liability insurance. If you title it in the name of the Land Trust the insurance will continue to remain in force for all future beneficial owners in the event of sale.

No costs to Transfer ownership to another Beneficiary – The normal real estate closing costs and processing fees typically cost about 2% of the value of the sale ($300k sale = $6,000) which include title search, title guarantee, title insurance, closing fees for both seller and buyer, escrow fees, court recording fees and much more.

The assignment of beneficial interest however is handled as a private UCC Personal Property transaction, and the beneficial interest and control of the property along with all of the the tax benefits can be immediately transferred to another party at no cost to either party whatsoever and no public filing or paperwork is required (unless the name of the Trustee is changed).

Avoids Increased Real Estate Taxes to new Buyer – Taxes are usually reassessed and raised on a property shortly after a new sale, and some states have homestead exemptions which prevent taxes from being raised each year for an owner. If you simply sell your beneficial interests to the Land Trust, no public records need to be filed (using the same trustee), and the prospects of higher taxation is minimized. There are a few exceptions however since some states like Illinois enacted a Transfer Tax Statue Recording requirement in 1985 for counties over 2 million population, and Florida enacted a similar one in 1983 under Chapters 201 of the state statutes to prevent loss of some taxes.

Avoids Doc Stamp Fees in Some States – Most states also charge a Documentary Tax Transfer Fee and a new Mortgage Tax Fee to a purchaser when a property is sold and/or re-financed. In Florida the Doc Stamp Tax is $.70 per $100 of the sale price and any new Mortgage Tax is $.35 per $100 of new financing. So in this case a $300,000 property with a $275,000 new Mortgage would be taxed $2,100 in Doc Stamps and $962.50 for Mortgage Taxes for a total of $3,062.50. Many states do not track the changes in beneficial owners of a Trust but In Florida this is tracked simply by real estate transactions in public record, particularly when the name of a Trustee changes.

Under Land Trust Sales however, the only document that has to be filed is a new warranty deed or quit claim deed in the name of a new TRUSTEE when it has been changed (but not the names of the beneficial owners). It would be the obligation of the buyers of the Land Trust to disclose this to the county and pay transfer taxes.

In some cases, very serious investors create a SECOND simple zero-asset LLC for the purposes of acting as a TRUSTEE, and sell that second LLC along with the Beneficial interests to a new purchaser, so the name of the LLC TRUSTEE never changes (only the name of the new manager appointed inside the LLC, which remains private).

6. Enhanced Protection of your Other Personal Assets –

The very worst way to hold ownership of property with other parties is as “General Partners” because it creates a personal liability to each party for expenses, loans, debts, mortgages, overdue credit cards, liability lawsuits, foreclosures, partitions of ownership, IRS Tax liens and much more. If there are not enough assets in the partnership to satisfy a judgement, the plaintiff may seize the personal assets from each of the general partners if needed. A Land Trust prevents all of these consequences, as you can see below.

Keeps the Land Trust Title itself free of defects – An individual can have a wide range of judgements and liabilities levied against him personally in matters concerning personal loans, auto accidents, bankruptcy, death, incompetence and divorce. These judgements are usually recorded in the county recorder of deeds office in his name, and Title Closing companies are required to search for and clear those judgements at the time of closing. By holding your real estate in a Land Trust, your name is not shown, and those judgements and liens will not be attached to the Land Trust. This makes it possible to continue to buy and sell real estate freely without having your other judgement delaying or preventing transfers

Protection against actual Title Claim Errors on Deed Transfers – When you sell a property you usually warrant that it is free and clear of all liens and encumbrances, but if an unknown lien appears at a later date (such as a sewer tax bill, mechanics lien or a County or HOA Assessment), the buyer will file an action against you personally to recover these expenses plus attorney fees. If however your property is held within your Land Trust, then the seller is the Land Trust itself (and not you personally), and since it will have no other assets to attach there is nothing that can be collected. Also, the Trustee who actually signs the sale and transfer is held legally harmless under Section 689 of Florida Statutes. This gives you an added layer of protection when buying and selling real estate.

Non-Partition allowed in case of Divorce or Partner Suits – Frequently in the case of a Divorce a spouse can petition the court to force the sale of a property in order to split the assets. Marital Assets in case of Divorce. The same would be true with other Beneficial Owners who are partners in the property. Property held inside a Land Trust cannot be separated by judicial procedures because it allows language inside the operating agreement to govern what happens in every circumstance.

Trustee and Beneficial Owners are not personally liable for HOA Fees – When you purchase a property that is governed by a Homeowners Association (HOA), you will become personally liable for all association current, future and back dues, special fees and other periodic assessments. They have the option to place a lien on that property (which is the usual process), but they can also sue you personally for collection, and file writs of attachment on your family assets to satisfy judgements. So the better method is to place the HOA property title into a separate Land Trust which then limits the homeowner association to a single option of placing a lien just on the property itself, thereby shielding your other assets

Land Trust Agreement – Terms and Conditions you should include – We know from many of the above sections that under Florida Statute 689.071:

• Only the assets within the Land Trust are subject to Judgements and Attachments for actions that occurred from acts, fraud or negligence that occurred within the Land Trust

• Under 689.071(8)(d) The Trustee is not personally liable for any Judgements, bills, debts mechanics liens, etc. issued against the Land Trust. Trustees for Land Trusts formed under FS 689 do NOT have the same liability as a regular Trust formed under FS 736

• Under 689.071(8)(a) The Beneficial Owners are not personally liable for any Judgements, bills, debts mechanics liens, etc. issued against the Land Trust itself

• If a Trustee or a Beneficial Owner has a third party court judgement against them personally, such judgement cannot be collected from the Land Trust, nor can it cause the Land Trust to be partitioned or dissolved to satisfy the debt.

Language to Include – You should be aware that a Beneficial Ownership in a Land Trust is a personal property asset, and just like any other personal asset you may have, a third party personal judgement may be able to attach and YOUR SHARE of Beneficial Interest in the Land Trust and receive any annual or periodic INCOME that is generated it (proportional to the share that is attached).

You want to make sure that the party receiving that shares voting power does not have the power to direct the Trustee to sell the property or appoint another Manager of the Beneficial Owners by placing language inside the Land Trust Agreement shown below. (Note – if the Beneficial Owner is your LLC instead of an individual, this language should also be in its operating agreement)

• It will require a vote of 75% of the Beneficial Owner Shares to appoint a new Trustee or a new Manager/Director for the Owners. This will prevent a hostile shareholder from becoming a key player with authority to change the rules of the agreement.

• The Manager/Director of the Land Trust will determine what annual distributions are to be made each year (if any) in consideration of the cash reserves required to operate the Land Trust. A hostile attachment of a members shares by judicial judgement is certainly entitled to their share of proceeds when the property is sold as well as any annual K-1 distribution of income, but if they can see that there may not be any income automatically distributed for the foreseeable future, they may think twice about even filing a writ of attachment for that members shares. Worse yet, if the property is operating at a loss due to taxes, insurance, utilities and maintenance, they may even have to pay-in their share of the expenses to be able to continue to hold such judicial interest until such time as the property is sold.

Assignment of Direction to an out-of-state Trustee – If you are concerned about having a very high level of asset protection you should irrevocably assign the Power of Direction of a Land Trust to an Out-Of-State entity, preferably an LLC. This is because when a plaintiff files a lawsuit it must normally be filed in the state and county where the defendant resides. If this is not done the defendant may ask the court to transfer the case to the proper jurisdiction. As mentioned earlier this would require a plaintiff to secure legal representation in two different states which quickly becomes very burdensome and costly. In many cases that is enough to discourage all but the largest cases from ever being filed. We recommend forming an LLC in the state of Nevada or Wyoming, but you must consult your own legal representatives for advice that applies to your situation.

We like Wyoming because it has one of the lowest costs states to form an LLC ($149 or less for everything including a registered agent) and to operate yearly ($50 per year renewals with registered agent and legal mail forwarding). There are two other important features in Wyoming – there is no state tax or annual franchise fees and it is one of the very few states that has a long and solid record of allowing a single-member LLC to have full protection against charging orders to attach the personal assets of the LLC Members. Florida does not protect single-member LLC’s from charging orders, but DOES protect LLC’s with 2 or more members against such actions. It is far cheaper to form, operate and domicile an LLC in Wyoming than to form a Florida LLC or register a foreign state LLC to do business in Florida and pay all the annual renewal and franchise fee, business licenses, and file all the quarterly and annual reports, etc.

If an out of state Trustee LLC only receives legal paperwork and signs legal documents as directed by the Beneficial Owners they are not required to register to do business in the state where the Land Trust exists. Neither is an out of state LLC Holding company which only holds Beneficial shares in the Land Trust and does no on-site Property Management (for profit). You simply use a local third-party or Property Management firm to conduct all the local on-site duties for the Land Trust.

So for your maximum protection

• You Can form a single LLC owned by the Beneficial Owners which holds all the individual Land Trusts purchased by your group. Judgements and debts associated with one Land Trust are limited to the assets within that Trust, and will not spill over to the Beneficial Owner

• The Beneficial Owners can then allow the Managing Member of the LLC (and future successors) to become the Beneficial Director as well as the Trustee of the Land Trust to be able to sign legal documents on behalf of the LLC Trustee, or

• You can form a second Zero Asset LLC that acts solely as a Trustee for any Land Trusts you may create in the future and only does paperwork management.

• If the property in your Land Trust is large and requires a lot of on-site maintenance such as painting, cleaning, pest control, outside care, evictions, etc. you should use a local third party Management Firm, or do this thru a zero Asset LLC that is registered to do business in the state in which the Land Trust is located.

7. ESTATE AND TAX PLANNING ADVANTAGES