Asset Protection -LLC or Landtrust??? - Posted by Erskine

Posted by Scott (FL) on November 08, 2005 at 20:56:06:

Please someone correct me if I am wrong since I am not an expert but…

Land trusts do not have any liability protection except for keeping your name out of public view. The trust is not recorded so the beneficiary is unknown to the public. One way may be to use a trustee,(someone you trust) and an LLC be the beneficiary. This way you should have your liability protection if the courts demand from your trustee who the beneficiary is.

You can hold title to your properties directly into a LLC, but make sure your lender will approve. This will not help with any privacy since the members of the LLC is available through public record. You can place a few like-kind properties in one LLC, but beware, if something happens at one of those properties that put you into a court situation, all properties in that LLC may be vulnerable.

Get yourself a million of liability insurance per property(State Farm) with an additional 1,2,3 million umbrella policy over the top of all which should be sufficient for most claims.

Hope this helps.

Asset Protection -LLC or Landtrust??? - Posted by Erskine

Posted by Erskine on November 08, 2005 at 06:03:48:

I need help in determining the best way to hold rental property. I am in Illinois and it cost $600 to establish each and every LLC, therefore it would not be cost effective to establish a separate LLC for several properties.

What protection if any would a landtrust provide should properties be placed in separate landtrusts for protection againt lawsuits, unsavry creditors and so on?

Thanks for any help on these question in advance…

Re: Asset Protection -LLC or Landtrust??? - Posted by John Corey

Posted by John Corey on November 11, 2005 at 23:44:08:

Erskine,

You should either post the question to the legal forum or you should ask an actual lawyer who is competent in this area. You will find that one of the legal forum hosts has addresses this specific question in one of his books. Not sure if there is an existing discussion in the archives.

From what I have researched.

I have consulted with 2 RE attorneys (different practices). I believe the correct answer is the trust provides you with no liability protection.

The reason many people suggest a trust is to reduce the visibility. That is not the same as the liability protection afforded by a correctly formed and managed company.

BTW - You do not need a new LLC each and every time you buy a property. The real purpose is to reduce the assets any one lawsuit can reach. In some states 1 house is worth $1 million. In other states you would need 10 houses before you reach that level. So, the key it so limit the amount of the assets in any one entity to something ‘reasonable’. Reasonable is a function of the costs involved to set up and run the entity, the types of risk an asset class produces (do not mix high liability things with low), and the total that could be lost vs. the cost of insurance, etc.

Liability protection is not about eliminating all risk as that is best done by not investing. It is about controlling the risks and being able to mitigate the damage if something should happen.

John Corey
Chelsea Private Equity, LLC

Re: Asset Protection -LLC or Landtrust??? - Posted by Innovator

Posted by Innovator on November 11, 2005 at 02:51:07:

A properly done simple beneficiary directed land trust is pretty good asset protection. The real title and ownership is transfered to the trustee who is directed by the beneficiaries. The property is now controlled by you but the ownership (real and equitable interest) lies with the trustee. If there are at least two beneficiaries the sharks can not petition the personal property (which is what you now have, equal to your contribution to the trust). The best thing they (the sharks)can do is get a charging order and they can only exercise that on sale of property, however, with the charging order they now have the privledge of paying all the taxes. Most sharks know this and so if rarely even happens.

I advise everyone that owns property that if you don’t have it in a simple trust you are walking around with a target on your back. If you should get in any kind (like an auto accident) of trouble what is the first thing the shark attorney checks? (If you own any property.)