A land trust is an arrangement in which:
• a property owner transfers legal and equitable title to real property to a
trustee;
• the transferor retains all of the rights and privileges of ownership as a
beneficiary;
• the trustee has limited duties as defined in the land trust and acts only at the
direction of the beneficiary; and
• the beneficiary’s interest in the real property is transformed into personal
property.
Land trusts have no special distinction in the Internal Revenue Code. They are considered pass thru entities so no separate tax return is required.
EncoreRE provides comprehensive land trust services for investors including
• Proprietary land trust documents
• Facilitation of trust transactions
• Trustee services
Benefits for Real Estate Investors
Ease of Conveying Ownership
Since the beneficiary holds a personal property interest, conveyance is completed by a simple written assignment rather than recording of a deed. This provides a means for investors to wholesale properties without public disclosure.
Mitigate Title Seasoning Restrictions
Some lenders require that title to the property be held for a certain period of time after purchase. Using a land trust allows the property title to stay with the same owner (trustee) while also allowing the beneficial interest (practical ownership) to change hands.
Privacy and Confidentiality of Asset Ownership
The deed transferring title to the trustee is recorded; however, the identify of the beneficial owners is not a matter of public record. The trust agreement specifically prohibits the trustee from disclosing the beneficiaries unless required by law. This privacy can protect you from lawsuits, annoyances of ownership, and keeps your wealth private.
Insulation from Liens and Judgments
Since the beneficial interest in the trust is that of personal property and not real estate, judgments and liens against the individual beneficiaries do not attach to the property itself.
Avoiding Transfer Taxes
In some states the transfer tax can be avoided because a personal property interest is transferred, not real property. The real property stays in the name of the same trustee.
Income Tax Deferral
Income tax on capital gains that would otherwise be due upon the transfer of title and possession can be deferred until the ultimate disposition of the trust property. A 1031 Exchange election to defer any gain associated with the sale of the property would therefore also be deferred as well.
No Real Estate Transaction
Transfer of interests in a land trust is that of personal property and not real estate, and therefore, avoids real estate brokerage restrictions.
Avoidance of Probate
Because the trust agreement governs the ownership of the property and not a will, the property is excluded from the probate estate. As such, the long time delay inherent in probate will not apply and title to the land vests immediately upon the death of the beneficiary.
Ease of Foreclosure
When a beneficial interest in a land trust is given as collateral, a collateral assignment of the beneficial interest and a UCC-1 financing statement are used as security. In such case, the foreclosure is handled under the Uniform Commercial Code and is a much simpler procedure a real estate foreclosure.
Facilitates Seller Financing
Conveyance of beneficial interest is silent and not of public; therefore, does not usually trigger a lender’s “due on sale” clause.
Call EncoreRE for a Free Consultation to Understand Your Options
888-272-3162