Illinois was the first state to create land trusts and is the reason other states sometimes refer to such trusts as "Illinois land trusts." Florida, Indiana, South Dakota, Virginia, and Hawaii are among the other states that recognize land trusts by statute. Many other states recognize the validity of a Land Trust but do not have specific statutes authorizing their use.
Ultimately the property itself can be reached in a lawsuit (even with an out-of-state trustee), but your plan should be to stay as far away from the eye of the storm as possible so they do not reach any of your other assets. A judgment lien levied against your individual 10 unit building is one problem. But, a judgment rendered against you--in your personal name, is a much worse situation.
The next important piece to the land trust puzzle is the DIRECTOR of the trust. When a deed is prepared conveying a property into a land trust, the deed must state that the trustee is merely holding title to the property without any rights to mortgage, lease, convey, exchange, option, barter, etc. Without written direction from the beneficiary or someone he has appointed, the trustee cannot act and nothing can happen. However, if the beneficiary designates a director to act on his/her behalf, then the fun begins.
The length of tenure and limits of authority can be restricted for the director in the land trust agreement, thus insuring no abuses would occur. After the term of the director has expired, the power of direction can automatically pass to the SUCCESSOR DIRECTOR or revert back to the original beneficiary. It is important to maintain a director for your trust if you want "control" of your trust out of your hands and in the hands of someone you can trust.
It is possible for one person to be all of these people: trustee, beneficiary, and director. Hopefully by now you can see the disadvantage in such a structure.
Oftentimes lawyers recommend that the trust be named after the owner such as, THE JOHN DOE LAND TRUST and that the owner fill all the positions mentioned above. If your lawyer suggests this, get a different lawyer (preferably one that has actually studied Land Trust law longer than one hour).
Your director should be chosen as carefully as your trustee. Again, if you have developed friends that understand "the program", you can all help each other and accomplish the privacy you are seeking. Once you begin to understand land trusts you will discover that you really do not even need to name a trustee when forming a trust. You can just give the trust a name (what's in a name?--see below) and "wing it" until such time as you need to deed the property back out of the trust. But, this is a whole other subject too lengthy for this report.
Again, your director should ideally be located in a different state (and use a P.O. Box address) than the rest of your "group." If this is not possible at least select your director from another city than yours. All of these positions that we are discussing should have successors listed in your trust agreement to insure the orderly passing of power, according to your desires.
It is extremely important to keep the trustee and the director legally separate. The trustee should never do anything with the trust assets unless directed to do so by the director through a Letter of Direction. If you don't have confidence in a single director, you can create a Board of Directors. Thus you can require a majority vote before any action is taken (direction given to the trustee).
You might select some relatives and some non-relatives to serve as co-directors. Or you might put some of your heirs on the board of directors to initiate them into the world of land trusts (so they will be familiar with the subject matter when it is their turn to "take over the reigns").
Whatever you do, be sure that you can trust your director(s) implicitly and select someone who is of a like mind as yours. If no such person is available to you, then you can be the director of your own trust. The appointment of a director is a private non-recorded act that need be publicized only when made necessary by an act of the beneficiary (you). So you can still retain control in a very indirect way.
States have different laws when it comes to the use (and abuse) of Land trusts, but Illinois is by far the Granddaddy of them all. Illinois actually developed the modern day "land" type trust from English common law; however, specific statutes in other states permit the existence of land trusts.
When properly drafted, land trusts can be used in most all states. However, some states are smarter than others so, check your own state laws. For example, in some states you can avoid the transfer tax levied on real estate transactions by placing your property into a land trust and then selling the beneficial interest in the trust. But, other states have passed laws requiring notification of the taxing bodies if even a part of a beneficial interest is transferred (i.e. Illinois).
This way they can not only charge you a transfer tax, but also increase your real estate property taxes as a result of the new sale price. Fortunately no state has yet been able to figure out a way to tax the sale of an OPTION on a beneficial interest. Options are extremely private transactions and will be addressed in future reports.
When financing property held in trust, a commercial lender will (if they are smart) require an assignment of the beneficial interest and an assignment of the power of direction. This effectively gives the lender control of the property and prevents any funny business by the beneficiary. Obviously, dealing with a commercial lender violates your confidentiality as the beneficiary.
Although by having your trustee sign the note and mortgage (and you just signing the assignment forms and guarantee), you at least will not have your name published in the local county recorder when all the documents are filed. In other words, no one will know that the property is yours and that you are placing financing on it.
One of the most important concepts to place in your land trust agreement is the restriction on your trustee to never reveal the name(s) of the beneficiaries nor their locations. You can also prevent the trustee from revealing the location of the beneficiaries or releasing a copy of the Trust Agreement without written permission of 100% of the beneficiaries, or a written court order that contains an indemnification clause protecting the trustee from a lawsuit for "breach of trust."
Now, if too much pressure is put on your trustee, his only alternative is to resign as your trustee--thus keeping your confidentiality. Furthermore, if your trustee is out of state and only has a P.O. Box for an address, it is going to be very difficult to find him to begin legal proceedings.
It is not illegal to operate under a "fictitious" name. Just fill out a simple form at your county court house and viola--you're someone else! Imagine that your trustee is operating under a fictitious name and your trust is operating likewise. This will drive the process servers crazy!!
Randy is a full time real estate investor who purchased his first rental house in 1969. He has purchased over 200 houses and teaches other investors how to put their properties into Land Trusts for privacy and asset protection. Randy is a national teacher, author and mentor. Randy writes the only Land Trust Newsletter in the county and is the founder of the Land Trust University (an institution that teaches real estate investors how to set up and administer their own Land Trusts). Residing in Illinois (the granddaddy state of Land Trust Law), Randy knows more about Land Trusts and how to link them to other entities than anyone else in the America today. You can reach Randy at: http://www.realestateforprofit.com
Or, follow Randy on Twitter.com at "landtrustexpert"
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