Land Trusts are one of the best ways to hold property
Advantages of Land Trusts
So many people have asked us why they would want to use a land trust that we have made this special page listing all of the advantages of land trusts. Twenty years ago we didn't have as long a list, but every couple years someone finds a new advantage. Today the important question is why would you own a property any way except in a land trust?
These are just short summaries of each advantage, for more details on how they work and how to specifically use them you may want to get our book, take our course or schedule an appointment.
Liability Protection. Since 2006, Florida's Land Trust Act has stated that the beneficiary of a land trust is not liable for the property, merely due to being a beneficiary. He might be liable for doing something wrong, but he should not be liable for accidents on the property or liabilities based on the ownership of property.
Privacy. By using a land trust no one knows you own a property. No one knows how much a person has in the bank or what stocks or bonds you own; why should all your real properties be public record? There is no public record of the properties you own in land trusts. This means creditors, ex-spouses, tax authorities, lawyers and others do not know you own the property and will be less likely to be able to seize it.
Keep purchase price secret. By using a land trust you can keep your purchase price of a property secret.
Keep sale price secret. By using a land trust you can keep your sale price of a property secret.
Keep change of ownership private. When you buy or sell a property in a land trust, you can use a transfer of the beneficial interest of the trust, rather than conveying by deed. This way no one knows the property has been sold.
Protection from judgments. Judgments filed against you in the property records, including deficiency judgments in foreclosure cases on other properties, are liens against any real estate that you own, except property owned through land trusts.
Protection from liens. Liens filed against you by the IRS and other government entities do not attach to property that you own in land trusts.
Avoiding deficiency judgment. If you expect your property to be foreclosed, you can deed it to a land trust and the foreclosure will then need to be filed against the trustee. If you are not easy to find for service of process, the case may proceed without you being a party, meaning no deficiency judgment can be filed against you.
Avoiding condo and homeowner association judgments. Some people who have lost their property in foreclosure to a bank have judgments for thousands of dollars entered against them for unpaid association fees. This could be avoided if the property was owned by a trust and not in their name.
Avoiding probate. When you die you can have your trust property instantly go to whomever you name in your land trust. No probate, no delay, no lawyers. For non-residents of Florida it can avoid having a second (or ancillary) probate.
Avoiding lawsuits. Lawyers are eager to sue people who own lots of property. If it doesn't look like you own much property it is less likely someone will sue you. Or if they do sue you there is a better chance they will accept settlement with your insurance company than go after property they don't know you own.
Ease of control. When you have several partners owning a property, a land trust can allow you to manage it more easily.
Ease of management. When you are dealing with tenants, you can position yourself as merely an agent of the trust. This allows you to sympathize with their problems while insisting that they comply with the lease.
Ease of negotiation. When buying or selling property for a land trust you can set strict rules for the trust and then present yourself to the buyer or seller as the good guy, wanting to make the deal, but limited by the trust.
Improved financial statement. When you have mortgages in your own name the amount of debt goes on your financial statement and if you have a high debt ratio you may look like a bad credit risk. When a property is in trust the mortgage can be in the name of the trust alone and you can list only your equity on your financial statement.
Saving on title insurance. If you sell the beneficial interest in a land trust, rather than deed the property, you do not need to get new title insurance.
Ease of transferability of interests. With a land trust you can transfer fractional interests in a property with a quick signature, rather than needing a notarized deed.
Simplification of making gifts. Interests in land trusts can be made as gifts to family members to take advantage of the gift tax exclusions.
Limiting liability. By having a land trust trustee sign notes and mortgages you can limit your liability for a default judgment if there ever is a foreclosure.
Avoiding partition. When a property is in a land trust, a disgruntled partner or heir of a partner can't force the property to be sold, if this is put in the trust or a side agreement.
Ease of foreclosure. When you sell the beneficial interest it is possible to take it back more easily then if you sold the land and took back a mortgage.
Safer Lease/Options. Unlike a regular lease/option where a tenant can get a vested right to the property, a lease option through a land trust can be structured to separate the lease (with the trustee) from the option (with the beneficiary) and you can keep the option from vesting until the tenant has built up substantial equity.
Avoiding personal problems of beneficiaries. When an investment is correctly structured in a land trust you don’t have to worry about the spouse of a divorcing partner changing the deal.
Avoiding real estate brokerage laws. Since a beneficial interest in a land trust is personal property, you could perform brokerage services for it without violating the real estate brokerage laws.
Avoiding seasoning problems. Some lenders won’t loan on a property if it has not been owned a certain length of time, such as six months or a year. When a property is in a land trust it can be sold several times but the ownership on the public records remains the same, building up seasoning.
Loaning money. If you wish to loan money to someone, one form of security you can have is to have them deed it to a land trust and make you the director. That way you would have control of the property until you were paid.
Buying foreclosures. Bank owned properties and short sales often cannot be resold for several months. Buying in a land trust allows you to sell the trust without violating the prohibition on deed transfers.
Buying distressed properties. If you want to get control of a property that will soon be foreclosed, and not pay doc stamps on a deed, you can have the seller deed it to a trust in which he is the beneficiary and you are the “director.” This gives you control without buying it. Also, it might protect the seller from a deficiency judgment if he moves away and the bank can only serve the trustee.
Equity stripping. If you own properties that are free and clear or with a lot of equity, you can strip the equity out of them by putting mortgages on them that are held by trusts that you control. It looks like you have no equity and people are less likely to sue you.
Protecting retirement accounts. If your IRA owns real property directly, an accident on the property could cause you to lose your entire IRA. If your IRA owns a property in a land trust, you could limit the liability to that land trust.
Holding mortgages. If you own mortgages from properties you have sold, they are assets that can be seized by creditors who get judgments against you. By holding mortgages in a mortgage-holding land trust, you keep them hidden.
Timesharing a property. If you own a vacation property with friends, you can use a land trust to set it up as a time share without going through the formal process of making it into a timeshare under the timeshare laws.
Holding judges property. Judges are allowed to own interests in land trusts without violating ethical rules.
These are just quick summaries of the benefits. They are explained in more detail in the book, Land Trusts in Florida.