You wouldn’t walk around with a financial statement taped to your back, would you? Then why are you holding title to your real estate in your own name? Whether it’s your personal residence or your rental properties, you are a “sitting duck” for disgruntled tenants, ex-employees, ex-spouses, the IRS and their attorneys. Real estate is very public, and ownership is public record for anyone to view online.
Land trusts are a very powerful tool for the savvy real estate investor. A land trust is a revocable, living trust used specifically for holding title to real estate. Each property is titled in a separate trust, affording maximum privacy and protection.
Here are Four reasons to use land trusts for titling property to real estate. We will give you 3 additional reasons in our follow up article Part 2.
1. Privacy. In today’s information age, anyone with an internet connection can look up your ownership of real estate. Privacy is extremely important to most people who don’t want others knowing what they own. For example, if you own several properties within a city that has strict code enforcement, you could end up being hauled into court for too many violations, even minor ones. Having your real estate titled in land trusts makes it difficult for city code enforcement to find who the owner is since the trust agreement is not a public record for everyone to see.
2. Protection from liens. Real estate titled in a land trust name is not subject to liens against the beneficiary of the trust. For example, if you are dealing with a seller in foreclosure, a judgment holder or the IRS can file a claim against the property in the name of the seller. If the property is titled into trust, the personal judgments or liens of the seller will not attach to the property.
3. Protection from title claims. If you sign a warranty deed in your own name, you are subject to potential title claims against you if there is a problem with the title to the property. For example, a lien filed without your knowledge could result in liability against you, even if you purchased title insurance. A land trust in your place as the seller will protect you personally against many types of title claims because the claim will be limited to the trust. If the trust already sold the property, it has no assets and thus limits your exposure to title claims.
4. Discouraging Litigation. Let’s face it, people tend to only sue others who appear to have money. Attorneys who work on contingency are only likely to take cases which they can not only win but collect since their fee is based on the collection. If your properties are hard to find, you will appear “broke” and less worth suing. Even if a potential plaintiff thinks you have assets, the difficult prospect of finding and attaching these assets will discourage litigation against you.
Please note that Land Trusts are but one ingredient in a comprehensive Asset Protection Plan.
Stay tuned for Part 2 of this article, where we will reveal 3 additional reasons to use a land trust!
Free eBook: Asset Protection Strategies
Download this FREE eBook, "Asset Protection Strategies for Real Estate Investors". It will show you how to use land trusts in conjunction with LLCs, corporations, and family limited partnerships to protect yourself, your family, and your business from lawsuits, taxes, liabilities, and other financial pitfalls.
Attorney William ("Bill") Bronchick, the host of Legalwiz.com, has authored six best-selling books and is sought nationwide for his 30+ years of real estate and legal knowledge. He has been interviewed by numerous media outlets, such as CNBC, TIME Magazine, USA Today, Investor Business Daily, Forbes, and the LA Times, to name a few. William Bronchick is the co-founder and past President of the Colorado Association of Real Estate Investors and the President of the Colorado Landlords Association. Click on the "About" link above for more information on William Bronchick.