ISSUE: My lender will not let me close my deal using a Land Trust (LT)
TRUTH: This depends on if you are using borrowed funds from a lender that must qualify you in the secondary market. If you must meet secondary market guidelines it is true that you must close the deal in your name, but you can put the property into a land trust the day after closing. Once you have 10 secondary market loans (the maximum allowed) you must use a portfolio lender and they will let you close using your land trust.
ISSUE: Do I have to get a tax ID number for my LT?
TRUTH: The answer is no. Nor do you have to register your Trust Agreement with anyone.
ISSUE: You can't do a Short Sale using a LT
TRUTH: False. You can and I have and there are many advantages to using a LT for this type of transaction.
ISSUE: Is it true that I must record my Trust Agreement to make it valid?
TRUTH: No, and 99% of the time you would not want to record your trust agreement. However, there is that 1% reason that you might want to record.
ISSUE: My attorney says Land Trusts are illegal in my state
TRUTH: This is probably not true. Almost all states recognize the validity of a LT or a similar type entity (Title Holding Trust, Common Law Trust, etc.). My experience is that a vast majority of lawyers do not understand Land Trusts and therefore do not recommend them. Too bad for their clients...they are missing out on 49 Reasons to Use a LT.
ISSUE: If I use my LLC as the beneficiary of a LT I must register the LLC in the state where the property (held inside the LT) is located
TRUTH: Wrong! Many accountants will tell you this, but they are incorrect. The beneficiary of the LT is not "doing business" in the state where the property is located...the LT is...and the LT is not required to register.
ISSUE: Land Trusts are expensive to set up and maintain
TRUTH: Not true. If you follow my advice to put each of your properties into a separate LT and you hire an attorney to do this for you, it WILL get expensive. But you do not need to do this. You can learn how to set up and administer your own LT (as many as you need/want) for only the continuing cost of recording each deed.
ISSUE: Land Trusts must have incorporation papers and the State notified
TRUTH: Wrong again! Land Trusts are not registered like corporations and LLC's on a state-by-state basis (in fact, they are not registered at all...anywhere!). This is one of the many reasons to start your estate planning with a LT for each property you buy.
ISSUE: I was told that my LT must open an account at a local bank
TRUTH: Not true. Since LT's are "pass-thru" entities in the eyes of the IRS you do not need a separate bank account for each Land Trust you form. You can set up an account but you do not have to and you will not have a tax ID number to use so you will have to use your own social security number (or, if your LLC is the beneficiary you might use your tax ID # for your LLC).
ISSUE: It is illegal to hide the ownership of property
TRUTH: I love this one. WRONG! It is not illegal to hold title to your real estate in a LT to hide the ownership. The president of the United States, Barack Obama, owns his home in Chicago, IL in a LT with his attorney serving as the trustee. If Barack can do it, so can you!
ISSUE: Can I buy the Beneficial Interest in a LT without buying Title Insurance
TRUTH: Yes, you can, but I would not advise doing this. I would always get a title policy and have the proper "search" done prior to transferring any funds. You want to make sure that the Trustee has clear title and there are no unknown liens or judgments against the property. You should also obtain a copy of the trust agreement and make sure the Trustee acknowledges EVERYTHING!
This is certainly not a complete list of misconceptions about Land Trusts, but is enough to digest for now. I will write more on this subject in future articles.
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 by calling him direct at 866-696-7347.
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