Why is Using a Land Trust for Your Real Estate a Bad Decision?

Land trusts are increasingly popular for real estate investors who want anonymity as an extra layer of protection. The property in trust isn’t directly connected to the owner through the public records. However, privacy, not Asset Protection, is then the land trust's major advantage. The beneficial owners’ name is not in the public records because the property is titled to the trustee. However, there are three disadvantages with land trusts: First, they do not offer great Asset Protection. Second, they are costly to prepare and administer. Lastly, financing and managing the trust properties is also more cumbersome.

The land trust can own any type of real estate, including the family home, but usually it's used to title investment properties. A bank is normally the trustee. How well the land trust protects the beneficiaries' interest in real estate depends mainly 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 don’t directly own the real estate, the trustee does. You would own only a beneficial interest in the trust, 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.

To sufficiently protect yourself you need added protection. To achieve this in a land trust you would title your beneficial interest 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.

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. However, a common strategy that would offer better protection would be to have each property owned by an LLC.

By itself the land trust only provides you with a level of anonymity which is a form of protection, but for real protection you must also add the strategies mentioned above. To ensure you are protecting your property and yourself in the best way possible, call us today to schedule a complimentary preliminary consultation with one of our Asset Protection Attorneys.

The Presser Law Firm P.A.
6199 N. Federal Highway, Boca Raton FL 33487
(800) 999-9992 or e-mail info@assetprotectionattorneys.com