How
to Own Land Anonymously Through the Little Known “Land Trust”
By Mark Nestmann
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| This article first
appeared in the Sovereign Society Newsletter. For information on the Sovereign
Society see sidebar.
Could you benefit from a structure
that disguises your ownership of real estate?
If you own rental properties and
have been sued by your tenants, or you are otherwise a target for litigation,
this structure should be of particular interest. And in this age of the
Internet, potential litigants no longer need to go down to the county courthouse
or recorder’s office to find out who owns a particular property. They just
need to conduct an instantaneous computer search to locate all property
you own in the United States.
Fortunately, there’s a better way
to own real estate. It’s called the land trust. The concept is particularly
popular in American states that have specific statutes enabling such trusts,
e.g., Illinois and Florida. Most other states recognize the land trust
under common law4 as a revocable or living trust.
As with any trust, in a land trust,
the trustee — generally an attorney, law firm or bank — holds legal title
to all trust property. However, in a land trust, the named beneficiaries
retain use of the property and any income it generates. In addition, the
trustee can act only when it receives written instructions from the beneficiaries,
who maintain complete control at all times.
From a privacy standpoint, a trust
is superior to business entities such as corporations or limited liability
companies. There is generally no requirement to register the trust. Nor
are there public records of officers, directors and shareholders. The trustee
keeps control of the trust records and the identity of the beneficiaries
in a secure location and will not reveal this information without a subpoena.
No one knows about your beneficial ownership except you, your attorney
and the trustee.
You can convey property you own in
your name into the trust, but it is better to have the seller convey it
directly to the trustee. This avoids having real estate records ever showing
that you owned the property.
Anonymity may also be desirable in
situations where the seller is reluctant to accept your offer. When Walt
Disney was purchasing land in central Florida to build Disney World, he
used land trusts to disguise his intentions so as not to drive up the price.
Other advantages of the land trust
include:
Asset protection — to a point. Real
estate in a trust is protected from judgments and liens against the beneficiary.
If a judgment is entered against you, the lien will not automatically attach
to the property, since the title is not in your name. If the trustee resides
in a different state than the property is located, it will be difficult
and expensive for creditors to discover your interest in the property. |
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Sovereign Society, headquartered in Waterford, Ireland, was founded in
1998 to provide proven legal strategies for individuals to protect their
wealth and privacy, lower their taxes and to help improve their personal
freedom and liberty. |
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Society's highly qualified contacts recommend only carefully chosen banks
and investment advisors as well as financial and legal professionals located
in select tax and asset haven jurisdictions around the world. The Society
provides advice concerning the establishement and operation of offshore
bank accounts, asset protection trusts, international business corporations
(IBCs), private foundations, second citizenships and foreign residency,
as well as practical safeguards for financial, Internet and personal privacy. |
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However, because you maintain control
of the assets in a revocable trust, your beneficial interest in it is subject
to creditor claims. If you are sued and a judgment is entered against you,
a creditor can force you to list all assets you own and (if he’s smart)
any beneficial interests you hold in trust. The creditor can then force
you to sign over your beneficial interest to him. (In contrast, in properly
prepared domestic irrevocable trusts or foreign asset protection trusts
(TSI 10/02),5 creditors do not have this power.)
Ease of multiple ownership. When
two or more people own a parcel of real estate, each one must sign every
legal document (deeds, mortgages, etc.) related to that parcel, then have
those documents notarized and placed in public real estate records. This
can lead to unwanted disclosure, not to mention difficulties to investors
who don’t live in the area where the parcel is located. But with a land
trust, since the trustee holds title, only the trustee needs to sign, notarize
and record documents (in his name, not the name of the investor).
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No right of partition. Whenever
two or more persons or entities share ownership of real estate, any owner
can at any time demand partition; i.e., to sell the real estate and divide
the proceeds. In contrast, real estate held in trust cannot be partitioned.
However, any beneficiary can transfer part or all of his beneficial interest
in the trust to another party.
Probate avoidance. Real estate holdings
are generally subject to probate — that costly and privacy-invading legal
procedure by which your estate passes to your heirs. However, a trust agreement
can provide for succession of beneficial ownership upon the death of named
beneficiaries — your children and grandchildren, for instance — without
going through probate.6
No adverse tax consequences. There
are no tax consequences of transferring property into a revocable trust
such as the Illinois land trust. Since you as the grantor maintain control
over the property in trust, you are considered the owner for tax purposes.7
In contrast, owning property through a corporation may subject you to two
separate layers of taxation and in any event will require the submission
of a tax return for each year of its existence.
Important: Form a land trust
only after seeking legal advice to insure that it can be used in the state
where you intend to purchase property and that the trust will not be required
to register as “doing business” in that state. Registration greatly reduces
the privacy advantages of the trust.
For More Information
If this brief introduction to land
trusts whets your appetite, check out the following links for banks in
Illinois that offer trustee services: www.albanybank.com/land_
trust_svcs.htm;
www.bankfinancial.com/PerLandTrust.htm;
www.lasallebank.com/other_personal/advantages.html.
Also see Denis A. Kleinfeld, “Using
Florida Land Trusts to Protect Real Estate.” Offshore Investment, April
1999. Link: www.offshoreinvestment.com
(subscribers only).
Michael Potter is an attorney
in California familiar with the land trust concept. Tel.: +1 (858) 755-7128.
E-mail: wealthpresrv@aol.com.
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