Looking for a way to keep your property ownership details private? A land trust could be exactly what you need. Unlike other asset protection methods, these helpful trust structures can hide your name from publicly listed deeds without forcing you to give up control of your property.
In this guide, we’ll explore the different types of land trusts, the main parties involved, and how they can provide both privacy and flexibility in property management. You’ll also learn about the advantages and potential drawbacks of using a land trust, along with how it fits into broader asset protection strategies.
With this information, you’ll be better equipped to make an informed decision on whether a land trust is the right option for you. Let’s dive into the fundamentals of land trusts and how they can be used to protect your property:
- What is a Land Trust?
- Types of Land Trusts
- Main Parties of a Land Trust
- Wyoming LLC Trustee
- Land Trust Pros and Cons
- How Land Trusts Protect Privacy
What is a Land Trust?
There are two main types of land trusts — title-holding trusts and conservation trusts. Most trusts fall into the former category, but it’s worthwhile to understand how each type works:
Types of Land Trusts
There are two main types of land trusts — title-holding trusts and conservation trusts. Most trusts fall into the former category, but it’s worthwhile to understand how each type works:
Title-Holding Land Trusts
Title-holding trusts are used to privately hold real estate. When most people think of a land trust, this is the structure they’re considering. In a title-holding trust, the settlor grants control of their property to a trustee, who manages it for a beneficiary. By doing this, the settlor’s name is removed from the public records. The privacy these trusts provide can keep creditors from discovering valuable real estate assets.
Conservation Land Trusts
This land trust type is used to preserve wildlife, natural resources, or historic properties. Usually, a property owner donates a piece of land to the conservation land trust to preserve it and prevent large-scale property development. Some people use these trusts in estate planning, as they guarantee that the property will only be maintained, not majorly altered.
When we talk about land trusts in this article, we’re referring to title-holding land trusts – not conservation trusts.
Main Parties of a Land Trust
Land trusts involve three main parties: the settlor, beneficiary, and trustee. Settlors create the trust and place real estate in it. Trustees manage the trust and hold the property title. Beneficiaries are any parties that might receive the property or distributions from its appreciation. Here’s a closer look at each party’s role:
Settlor
The settlor is the person who creates the land trust and places the property into the trust structure. They can also work with a professional to draft the terms of the trust agreement, outline distribution plans, and provide instructions for how to manage the trust.
Settlors can also be listed as trust beneficiaries. If the property generates any value, the trustee can distribute a portion of those proceeds to the beneficiary.
Beneficiary
The beneficiary of a land trust is any person or entity receiving benefits from the trust-owned property. For example, if the real estate in question is a rental property, the beneficiary would receive the rental proceeds. The same holds true if the property is sold. Beneficiaries can also have the power to remove a trustee.
Beneficiaries will often transfer their beneficial interest in the trust to a limited liability company (LLC). The LLC can absorb the liability if there is a lawsuit against the property owner. Additionally, if someone sues the LLC members, the business structure can help hinder a creditor’s ability to seize the real estate.
It’s worth noting that adding an LLC to a land trust is a strategy best suited to income-generating properties instead of primary residences. This is mainly because a personal residence is in a separate tax category. When you live in the house, it’s better to remain a trust beneficiary. That way, you can write off your mortgage interest on your personal taxes. Plus, when you sell your residence, you can avoid taxes on a significant portion of the profits.
Trustee
The trustee holds the title to the property. They are bound by any instructions from the settlor and beneficiaries.
Since most people establish land trusts for privacy, the trustee shouldn’t be the settlor or someone with the settlor’s last name. When the trustee is the settlor’s relative, others can easily link the parties together. If the settlor selects a professional trustee, they enjoy far more privacy.
When we help our clients create a land trust, we typically establish a Wyoming LLC to serve as the trustee. This offers two major benefits. First, the settlor can own the LLC, which gives them control over the property while separating it from their personal assets. Secondly, it prevents the settlor from selecting an inexperienced trustee who may be prone to mistakes.
Finally, because the trustee holds the title as a fiduciary, they incur no personal liability for merely being on the title. Nor can the trustee lose the property to their personal creditors.
Wyoming LLC Trustee
Earlier, we recommended enlisting our Wyoming LLC to serve as the trustee. Here’s why:
- Enhanced legal protection: Our Wyoming LLCs can provide charging order protection, which can prevent a judge from ordering you to sell your property to pay a judgment creditor.
- Added anonymity: We include virtual office services with our Wyoming LLC service. When a creditor looks up your trustee, they’ll find a company based in Wyoming with a virtual address and phone number.
- Nominee manager services: Clients who use our Wyoming LLC also receive nominee manager services. By using this service, you can own and control the LLC without putting your name on any company records. When someone searches the LLC, it will show our employee as the manager, further obscuring your role within the land trust. And because of our written agreement, the manager has little to no authority unless you provide it in writing.
Ultimately, using a Wyoming LLC as a trustee gives you more control and protection than selecting an individual.
Land Trust Pros and Cons
Land Trust Benefits
- Privacy of ownership – Under a land trust arrangement, your identity as trust settlor and beneficiary is private. The legal real estate owner isn’t disclosed except when required by subpoena or court order.
- Ease of transferability – The land trust beneficiary (or “owner”) may be altered without recording a change in the public records. So, you can sell the property rights without altering the title. You do this by simply changing trust beneficiaries.
- Privacy of transfer – When you assign a beneficial interest in a land trust, that action is not part of the public record.
- Aids in lawsuit prevention – A contingency fee attorney may not accept a case if the assets that the potential defendant owns cannot be identified.
- Avoids probate – A land trust arrangement allows you to designate succession of ownership to avoid time-consuming probate proceedings.
- Allows for multiple owners – A land trust can be structured to include several owners (as beneficiaries), allowing flexible and shared ownership among multiple parties.
- You retain tax advantages – You are still eligible for the homeowner’s and senior citizen’s real estate tax exemptions.
- Can be used in any US state – Not all states have land trust laws, but these trusts can still be used countrywide. Tennessee claims to be the exception, though our TN clients have successfully used them there.
- Helps avoid due-on-sale clause – A due-on-sale clause allows a lender to demand full repayment of a loan when a property is bought or sold. The Garn-St. Germain Act allows you to transfer one to four dwelling units without invoking the due-on-sale clause.
- Keeps sales prices secret – When you assign beneficial interest privately, the sales price is not made public.
- Helps prevent property liens – When a property is held in a land trust, a judgment against the owner does not automatically affect the property. Attaching a personal lien to the property requires additional legal procedures.
Land Trust Disadvantages
Land trusts have many benefits, but there are also some small disadvantages, such as:
- Financing requirements – Lenders may require you to place the property in your personal name to obtain financing. Then, you can transfer the property back into the trust after obtaining the loan.
- Does not automatically protect from lawsuits – To gain lawsuit protection, you may need to include an LLC as the beneficiary and/or employ equity-stripping strategies.
How Land Trusts Protect Privacy
A properly established land trust is comprised of two legal documents:
- A trust agreement between the settlor and the trustee that establishes each party’s rights, powers, duties, and obligations.
- A deed transferring the property title from the settlor to the trustee.
That second document – the deed – is kept in the public record. When the deed is transferred to the trustee, the records no longer show as the property owner. Hiding your stake in the property is an excellent way to protect your real estate holdings. Litigators often search public records to find and sue successful real estate investors. If you keep your assets in a land trust, your name won’t even appear on the public ownership record.
So, although a land trust is not a true asset protection trust, in most states it is a powerful privacy tool. In many cases, land trusts can discourage lawsuits; lawyers aren’t interested in suing people who have nothing to take.
Learn more about how to set up a land trust.
Call Asset Protection Planners for Help Setting Up Your Land Trust
Whether you’re a successful real estate investor or simply looking to protect your home, consider a land trust. When used in conjunction with an LLC and backed up by an asset protection trust, a land trust can help hide your real estate investments from prying eyes.
If you’re interested in keeping your real estate safe from contingency fee lawyers and nosy creditors, Asset Protection Planners is here to assist! We’ve set up hundreds of land trusts and can help you establish one that offers the protection and privacy you need.
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