Land trusts can provide asset protection benefits by providing you with privacy of ownership for real property. Each piece of real estate can be placed into a separate land trust. If a lawsuit is associated with one piece of real estate, other properties titled to different trusts are unaffected.
Privacy of ownership provides lawsuit deterrence, which is a form of asset protection. By privately owning property an individual who is being sued would appear to have no assets to satisfy a judgment, if no assets can be located by a legal opponent it drastically reduces the odds that a suit will be filed.
Land Trusts are private documents that hold title to real property, and although public records can be searched to identify property ownership, only the trust name is public information in this case. They are not asset protection trusts but they can help keep prying eyes from knowing what you own.
In addition, an LLC can be formed that records a second mortgage against a property that strips any equity from the real estate. These privacy techniques implement legal instruments that can deter a lawsuit.
Land Trusts can be established very quickly and are excellent at separating real estate from one’s personal name and are highly advisable for homeowners and real estate investors.
Land Trust Documents
To put a property into a land trust, there are two legal documents involved.
- The trust itself. The land trust typically names the trustee, who is in charge of the trust. It names the settlor, who had the trust assembled. This is also usually the one who places the assets inside of the trust. Finally, the beneficiary or beneficiaries are named. These are the ones who benefit from the trust. The trust document can go into a filing cabinet at home or in a safe deposit box. It generally does not need to be filed in the public records.
- A deed. The deed is the document that is recorded in the public records that conveys the title from the prior owner to the trust, itself. More accurately, the deed transfers the title to the property to the trustee in his, her or its fiduciary capacity. This means that the trustee does not own the property personally. The trustee holds title to the property under the terms of the trust.
Another document often used is an “Assignment of Beneficial Interest.” This document transfers one’s interest in the trust to another party. For example, let’s suppose a house is owned by John Smith. John Smith conveys title to the trust. The trustee of the trust is ABC Trustees, LLC, a company owned by John. John might also want Fred Jones, his brother-in-law, to be the trustee.
John wants an asset protection instrument to own the trust. So, if John is sued, there are legal provisions to protect John from losing the trust in a lawsuit. Plus, if there is a lawsuit on the property, John does not want to have personal exposure. So, John signs an Assignment of Beneficial Interest in the land trust. This document transfers his position as beneficiary over to Blue Sky Holdings, LLC, another company owned by John.