The Advantages of Using a Land Trust

A trust is one of the most potent tools available to the real estate investor. But if you're like most people you only have a vague notion of what a trust is and how it is used.

A trust is a legal entity whose sole purpose is to hold assets. Trusts can hold any type of asset, including real estate. A land trust is a trust designed for the purpose of holding real estate.

So what makes a trust? There are different types of trusts, but all trusts have the following elements in common:

Beneficiary. The individual(s) who control the trust and its holdings. As the beneficiary of a land trust you have control of the property held in trust just as if you were the owner, and you are entitled to earn profits from the sale or rental of the property.

Trustee. The individual who actually owns the property in trust. The trustee is responsible for managing the assets held in trust, and distributing income according to the terms of the trust. The trustee owes a fiduciary duty to the beneficiaries and must carry out their instructions.

Trust Agreement. This outlines the terms of how the trust is to be managed and administered. It spells out the responsibilities of the beneficiaries and the trustee.

A land trust, then, is essentially a legal entity capable of holding real estate that is formed by a written agreement between two parties, the beneficiary and the trustee. The beneficiary controls the trust and the underlying property but does not have ownership. The trustee legally owns the property but must act according to the wishes of the beneficiary.

Perhaps you are asking yourself "Why on Earth would somebody use such an arrangement?" As it turns out there several advantages to controlling real estate without owning it. Here are a few.

Privacy of Ownership

The owner of record of a property held in trust is the trust itself. The trust agreement, which lists you as the beneficiary, is not made a matter of public record. Therefore holding a property in trust allows you to control the property without creating any public record listing you as the owner or associating you with the property in any way. This is a great thing if you don't like lawsuits.

Publicly owning real estate makes you a fabulous target for them. Think about it, if you were an attorney being hired to sue someone, would you rather take on a legitimate case where the defendant is actually guilty of wrongdoing but has no assets, or a case where the defendant didn't really do anything wrong but does have lots of assets? Believe it or not, just having publicly recorded assets makes you a more appealing target to predators and creditors of all sorts regardless of what you actually do. Holding a property in trust will also keep the price you buy it and sell it for off of public record, which can come in handy in certain situations.

Ease of Transfer

Transferring a property held in trust is much easier than transferring a property that you own. Beneficial interest in a trust is considered to be personal property, not real property. Therefore you can assign your beneficial interest in a trust to another party without a formal closing. The event is treated by the law as a transfer of personal property, not real estate.

Ease of control by Multiple Owners

If a property has multiple owners, those owners can place the property in a trust and assign themselves as beneficiaries. Then, only the trustee's signature will be required to execute documents relating to the property, rather than that of each of the beneficiaries.

Given these benefits of using land trusts, hopefully you are excited to find out exactly how you can use them in your real estate business.