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What is a land trust?

January 27, 2017

 

A land trust is a trust usually used to protect real estate investments.  There are three parties involved with the creation of a land trust: the grantor (sets up the trust and transfers assets into the trust), the trustee (manages the trust), and the beneficiary (receives the assets of the trust, or has the beneficial interest – usually this person is the same as the grantor).

 

There are multiple benefits to using a land trust: protect from “due on sale” clauses, avoiding property tax assessments, asset protection (privacy protection), and wholesaling or purchasing property that has a loan.  If you as a grantor are transferring property into a revocable trust, a lender cannot enfore the due on sale clause (Garn St. Germaine Act of 1982).  This is for the transfer of residential property into a revocable trust that does not have a change to the rights in occupancy.  There are some limitations however, so please do talk an attorney before creating this type of trust.  However, once you have transferred your asset to your trust, you can assign your beneficial interest to an LLC or another purchaser without your lender discovering anything. 

 

The second major benefit to using these types of trust is privacy protection.  There a few ways to help ensure that your privacy is maintained: using a nominee trustee, omit your name from the deed, or use a very long name with the trustee listed at the end.   

 

In the nominee trustee situation, you name someone that you trust to be the nominee trustee, and when the property is transferred the nominee trustee resigns leaving the successor trustee (you) with control.  If you do have property transferred to your land trust, make sure that you are the beneficiary.  The beneficiaries have the power.  The nominee trustee should be given some powers like dealing with plumbing, tenant issues, or making repairs, but anything that has to do with title or encumbering the property should require beneficiary approval.    

 

If you omitting your name from the deed, you need to make sure that the county recorder office does not require the trustee’s name to be on the deed.  If that is the case, then you can prepare your deed that way.  You must make sure that the county will allow for this however. 

 

Finally, the last way to hide your affiliation with your trust is to change the order in which your deed is recorded.  For example instead of saying John Jones, trustee of the Blue Shoe Trust, dated 1/2/11, you could say The Blue Shoe Trust, dated 1/2/11, trustee John Jones.  Since the county recorder websites are limited in character space, more times than not John’s name would not appear.  The only way you could discover his name is to go to the county recorder yourself and search for it. 

 

Please remember that you also need to make sure that your tax statement are NOT going to your home.  You can use a PO Box for all of your correspondence and that is a great way to hide your personal address which increases your chances for anonymity.

 

Remember, these are documents that must be created in accordance to state law.  In California a trustee must have some duties, also the county recorder’s office may request a copy of your land trust to ensure it is a kind-in-kind transfer.  Also make sure that if you are transferring your beneficial interest to an LLC, you need to ensure that your state does not require the LLC to be bonded and licensed.    Unfortunately, California does not have statues that specifically describes land trusts, so you can actually create a living, revocable trust that will do the same thing but it must be done with asset protection measures.  To learn more about these trusts or any of our legal services, please call us for a free legal consultation!

 

 

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