Have you been hearing about investors enjoying the benefits of using a Land Trust? Do you know why and when you should use a Land Trust?
What is a Land Trust?
A Land Trust is a Revocable Grantor Trust which is used to title ownership of real estate. The first Land Trust that was originated was in the state of Illinois. In the states of AL, FL, GA, HI, IL, IN, ND, and VA, Land Trusts are specifically recognized by statute.
Why should you use a Land Trust?
Reason #1 Anonymity
The owner doesn’t want anyone to know what he/she owns. With a Land Trust, the Grantor’s name can be removed from title if the Grantor is not listed as the trustee. Make sure when you create the trust you do not use the grantor’s name. Example (Evergreen Property Trust vs John Smith Trust). Also list the grantor as the successor trustee when using a nominee trustee. Most grantors intend for the nominee to resign after the trust is funded.
Reason #2 Due on Sale Clause
Most Mortgages contain an acceleration clause. The typical acceleration clause gives the lender the right to call the note due and fully payable whenever legal title to the property is sold, transferred or assigned. This is a great tool if you are doing a Lease/Option.
Reason #3 Transfer Taxes
Some states impose a real estate transfer tax even if the owner stays the same after a transfer. Example (You buy real estate in your own personal name, then Quit Claim Deed it into your LLC). A Land Trust typically is a great tool to keep you exempt from that tax. Washington State doesn’t impose an excise tax if no more that 50% of the beneficial interest is transferred.
Benefits of Using a Land Trust
Anonymity, The property owner's name doesn’t appear on the title. Title will be held in the name of the Trustee.
Grantor controls the property as the undisclosed beneficiary
Land Trust is not required to register/file with the secretary of state.
It is a very inexpensive to establish and maintain
There is no separate tax return to file
I just set up one of my rental properties in a Land Trust. I wanted to use it for the Due on Sale Clause and the Anonymity protection. The Land Trust I have is a 70 page document. So be careful using some of the quick and easy online companies. They may be cheap and easy, however you need to make sure that you have it set up properly.
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