Would titling my investment property to a land trust be preferable to an LLC?
Land trusts are chiefly used in Illinois, Florida, Georgia, California,
Colorado and several other states, but can be used in any state. The land
trust can own any type of real estate, including the family home, but
usually it's used only to title investment properties. A bank is normally
the trustee. How well the land trust protects the beneficiaries' interest
in real estate depends chiefly upon whether the trust contains spendthrift
and anti-alienation provisions. As with any entity, the land trust must
be properly drafted. As the trust beneficiary you wouldn't directly
own the real estate. It would instead be titled to the trustee. You'd
own only a beneficial interest in the trust. This is considered personal,
not real property. But owning only a beneficial interest in a land trust
doesn't, in itself, sufficiently protect you. Your personal creditors
can usually seize this beneficial interest. You then need added protection.
For this you would title your beneficial interest in the land trust to
a limited partnership, LLC or irrevocable trust. You and your spouse can
also own the beneficial interest as tenants-by-the-entirety if your state
recognizes this form of ownership, and if it would sufficiently protect
As with LLCs, it's also best to use separate land trusts for each property.
One limited partnership or LLC can be the beneficial owner for multiple
trusts, though more cautious asset protection attorneys might suggest
different LLCs (or different cells) within a Series LLC as the beneficiary
of each land trust.
Land trusts are increasingly popular for real estate investors who want
anonymity an extra layer of protection, since the property in trust wouldn't
be directly connected to them through the public records. Privacy, not
asset protection, is then the land trust's major advantage. The beneficial
owners' names are not public record because the property is titled
to the trustee. As secrecy aids asset protection, the land trust aids
secrecy. However, there are two disadvantages with land trusts: First,
they are costly to prepare and administer. Second, financing and managing
the trust properties are also more cumbersome than properties titled to
your own name, which is always a dangerous plan. We use land trusts to
a limited extent.