Land Trusts vs. Limited Liability Companies
Randy Hughes is a 40-year real estate industry veteran and an expert on using land trusts to cut investment costs and to protect real estate assets. I’ve asked Randy to share some thoughts on the subject in this blog and to explain how investors can benefit from this knowledge.
I have also invited Randy to speak at two of our upcoming events: March 22nd in Irvine, CA and again on April 19th, in Universal City, CA. Being able to hear Randy and have him teach you what he knows is a rare opportunity and one that I am very proud to offer to anyone currently investing in real estate with Simply Do It or who is ready to start their new journey into investing.
Recently I read an article by an attorney telling his readers not to use a Land Trust. He recommended titling your investment property in a Limited Liability Company. His reasoning was that Land Trusts are only a “deterrent” to a lawsuit and they do not provide “true” asset protection. The attorney went on explaining how any lawyer “worth his salt” would find out you are the beneficiary of a Land Trust as the result of a judgment debtor’s exam (which is a hearing in a court room…sometimes called a Citation to Discover Assets). The attorney writing this article concluded that you have “zero” privacy with a Land Trust and if you want privacy you should “save the expense” of a Land Trust and title your investment real estate directly into an LLC (Nevada or Delaware).
After over 40 years of in the real estate investment business, I can spot an attorney who understands the law but does not have practical real world experience. I agree that LLC’s have better asset protection than a Land Trust, but Land Trusts have far better privacy elements than LLC’s. I use LLC’s in my business but NOT to hold title to investment property.
Let’s review the benefits of using a Land Trust
- Are NOT registered anywhere on the planet
- Do not require a registered agent
- Pay no franchise taxes
- Cost nothing to form (you can form them yourself)
- File no tax returns
- Require no tax ID number
- Can be formed in a state other than where the property is located (for terrific privacy and asset protection benefits)
- Can easily hold each property separately from other properties to keep all investments insulated from each other
- Can have an LLC, Corporation or Personal Property Trust as its beneficiary
Experienced real estate investors understand that putting all of your properties into any one entity (be it an LLC, Corporation or a Land Trust) is a nexus for a lawsuit. Remember grandma’s advice to not put all your eggs in one basket? It makes logical sense to put each property into its own separate Land Trust and then make the beneficiary of the trust your LLC or Corporation.
This yields the best of both worlds from a privacy and asset protection standpoint. Since the Land Trust Agreement is not recorded anywhere no one can find out who the true owner of the trust is without a full blown lawsuit…which is expensive for your adversary. Furthermore, if the property is in one state, the Land Trust is formed in another state, and the LLC beneficiary is registered in a third state you get a dy-no-mite structure that is not only difficult to unravel but legally expensive to pursue. Most contingency fee lawyers would give up and start looking for another sucker to pursue.
Real estate investors are more susceptible to a lawsuit than most other Americans. The general public’s perception of a real estate investor is that they do not have any debt on their property, have lots of cash in the bank and tons of positive cash flow. So, even if the investor is upside down on their property debt and suffers monthly negative cash flow they are still at the mercy of the contingency fee lawyer and his/her dead beat client. Keeping property isolated in separate Land Trusts makes logical practical sense to those of us in the trenches every day.
A huge benefit to holding title to each property in a separate trust is the ability to finance without affecting the other properties. You can also sell property on an installment contract basis without affecting other properties. If you title multiple properties in one LLC the lender will want to tie up all the assets of the LLC as collateral for the loan on just one property.
Join me at one of my two upcoming events, along with Simply Do It, to learn more about the unique opportunities for financial privacy that each of us have as real estate investors:
Take your advice from a streetwise investor with decades of real life experience. Register today to learn how to us a Land Trust to hold title to your investment real estate…you will be glad you did!