Land Trust Trustee - Posted by Abe

Real Estate Investing Real Estate Law
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Posted by David(Ca) on December 15, 1998 at 24:14:13:

Brad,

I don’t have a corp, I’m saying what if.

I’m really trying to figure a way to avoid a failed trust and still have 100% control.

I’m not so sure about this 3 people/2 people to start and run a CA Corp. I’m looking in the appendix of “How to Create a Bulletproof Corporation, Even if You Are a One-Man Show!” and for CA it says “Required Officers: president, secretary & treasurer” which tells me one person can be all three; because for a other states, like Arizona, it says “Required Officers: president, vice-president, secretary & treasurer (president & secretary cannot be held by same person)”. How’s that for a brilliant deduction?

Dave

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Land Trust Trustee - Posted by Abe

Posted by Abe on December 11, 1998 at 09:26:34:

Concept is interesting, but I have had the joy of
divorcing a wife and a business partner.
How might I set up L.T. with business entity as
trustee? Would title co inc work? “Bank & Trust”?
Suggestions?

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Re: Land Trust Trustee - Posted by Bill Gatten

Posted by Bill Gatten on December 12, 1998 at 18:29:13:

Abe, your plight is a common one in my business.

First of all, to grant title to a land trust, you need anyone on title with you to sign off (e.g., with a deed to you in severalty, or with a Quit Claim Deed); or to sign the conveyance document which transfers title (legal and equitable)to whomever the trustee is.

However, once the property is in the land trust, now you would be well advised to assign a portion of your beneficiary interest (10% or more) to another (an unrelated party, preferably). In so doing your beneficiary interest, because it is now “personalty,” and no longer “realty,” becomes non-partitionable for judgement lien purposes. It’s not partitionable by the courts or by any judgement creditor, including your ex-wife, ex-business partner, or even the state or the IRS.

On the subject of whether you should be the trustee or not, its not a minor issue… the Bible on Land Trust (Kenoe on Land Trusts, out of the Univ. of Illinois) citing numerous historys, clearly indicates that a so-called “land trust,” wherein the grantor is the beneficiary and is also the trustee, is essentially a simple grantor’s trust, and would likely be found “Dry” or “Failed” if scrutinized, without any real benefit to you.

Further, to pass all tests, the trustee should be a party whose services are remunterated by the beneficiaries, with the Power of Sale, and who is either a trust company (.e.g. bank and trust, tile and trust, etc.) or a bona fide corporate entity whose sole function and purpose is to hold real estate titles in trust.

That was good advice you got from Brad Crouch on this one.

let me know if I can help further.

Good luck,

Bill

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Re: Land Trust Trustee - Posted by John Katitus

Posted by John Katitus on December 12, 1998 at 02:05:47:

I have made myself Trustee and suffered no ill effects and expect none. For some reason, there’s a lot of talk about who the “secret” beneficial interest is. So what if it’s me? Duh???

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Re: Land Trust Trustee - Posted by PBoone

Posted by PBoone on December 11, 1998 at 10:51:42:

I would highly recommend Bill Bronchicks course on Land Trust to begin, as an “Insiders Club” member we receive an additional 10% discount until Dec 21st I think
Pat

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Re: Land Trust Trustee - Posted by Bud branstetter

Posted by Bud branstetter on December 12, 1998 at 21:12:24:

Bill,

I am going to differ with you on several points. Your sentence " or to sign the conveyance document which transfers title (legal and equitable)to whomever the trustee is" implies that the trustee is receiving title. While this may be semantics, as I don’t think you meant to infer, the trust entity is what receives title not the trustee. Since the trust can not act for itself, the trustee acts on its behalf.

You also state about the trustee "who is either a trust company … or a bona fide corporate entity whose sole function and purpose is to hold real estate titles in trust. " You may well have your attorney’s opinion that this is the only way. But not to let it go unquestioned I believe there are numerous attorneys that do not feel it is required. Remember every time you advertise your Pactrust for sale by posting, you become suspect as the recipient of thousands of dollars in fees for your company’s services.

Also, “would likely be found “Dry” or “Failed” if scrutinized” I believe is only partially true. A typical inter-vivos trust has the same trustee as beneficiary. For its purpose it does not need to be scrutinized. A land trust and probably your Pactust would need the tests that you mention. All trusts are not the same and each has its purpose. The best advise that should be given here is that any course with legal forms be reviewed by the users own counsel that is competent on that subject. Hopefully the user is knowledgeable enough not to be confused by verbose rhetoric.

Finally, “…you would be well advised to assign a portion of your beneficiary interest…” is misleading. Without the contractual language to have that interest revert, more trouble would be caused than not having it in the trust. The purpose of the land trusts generally discussed here do not go to level of needing to be non-partitionable.

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Re: Land Trust Trustee - Posted by Rob FL

Posted by Rob FL on December 12, 1998 at 20:02:25:

Personally, I would rather have an friend or a realative with a different last name as mine be the trustee. It would be much cheaper and more efficient than having a professional trust company or bank be the trustee. Another alternative would be to have my attorney be the trustee.

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Follow-up History - Posted by John Katitus

Posted by John Katitus on December 14, 1998 at 01:25:42:

After buying a few properties subject to existing mortgages by Land Contract, it was apparent to me that owning a property in Land Trust provided the best protection. Like Abe, my question was who to make Trustee? My wife and my brothers have the same last name. I don’t have anyone else close, dependable, trustworthy, and available to impose upon. After months of thought and debate about whether to pay a third party to fullfill the role, a question occurred to me. What if I’m both Trustee and Beneficial Interest?

I researched it as best I could. Everybody knew it wasn’t a good idea, but nobody had a practical reason why not. I asked Bronchick, and he cited the loss of privacy as the detriment. I don’t care much about anyone knowing I am a Trustee, so that’s ok. And I’m not going to disclose who has beneficial interest.

I have read the comments posted in response, and they are greatly appreciated. I think I understand the legal ramifications if I lay out the entire situation before a court for discussion and decision. But I don’t intend to do that. Therefore, I’m still not sure what bad things actually will happen to me by filling both roles.

Please don’t think I’m being argumentative or disrespectful of your opinions by pursuing this. I’m just trying to see how much trouble I might be getting myself into by not naming a new Trustee. Thanks.

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Re: Land Trust Trustee - Posted by Rob FL

Posted by Rob FL on December 12, 1998 at 12:02:49:

2 comments.

If you have 10 properties and all of them say “John Doe, as trustee” don’t you think when someone searches the records they are going to say, look John Doe owns 10 properties (even if they are all in 10 different trusts) However if they want to sue you and all your properties are held by your attorney or several other trustees it would be very difficult to trace all the properties back to you. Trusts are for privacy, if all you want is personal liability protection then own them all in a corporation and have good insurance policies.

Secondly, when the trustee is the same person as the beneficiary you have what we call in the title insurance industry “Merger of title” in other words, a judgment or tax lien against you would be a lien against the trust property. It is called merger because you cannot be trustee for yourself. According to English common law, trusts are set up so that one person oversees certain assets for another. If you oversee your own assets, then legally there is no trust.

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Re: Land Trust Trustee - Posted by Brad Crouch

Posted by Brad Crouch on December 12, 1998 at 03:46:45:

John,

I really had to wrestle with the idea of whether or not to respond to your "Duh? post. Decided to say something rather than allow you to leave the impression to folks who have not yet learned about trusts, that’s it’s “a fine idea” to make yourself trustee and beneficiary at the same time.

In the first place a trust is normally created to insure privacy of the investor. That means not allowing the investor’s name appear ANYWHERE in the public records. This protects the investor and all the other properties that investor might own (assuming a separate trust is used for each property).

Now, if you have no assets or plan to have no assets in the future, by all means . . . make yourself trustee and let your name be in the public records.

It’ll only take one lawsuit from an injured or disgruntled tenant for you to realize that, “Duh”, maybe you should have thought things through a little more thoroughly. Course by then it’ll be too late.

the second thing: If you ever get in front of a judge with your trust, he will most likely declare it a “sham” and invalid.

Why do you think some investors pay an annual fee to an attorney or some other third party, for them to be named as “trustee”? Are they just too dumb to figure out what you have already learned? Right!

John, do you actually know anything about trusts, or have you put a few ideas together and come up with your own conclusions?

I really don’t care whether or not you get your butt in a jam. That’s your business. But I wish you would stop giving advice that could get some folks in trouble, if they believed you.

Brad

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Re: Land Trust Trustee - Posted by Bill Gatten

Posted by Bill Gatten on December 13, 1998 at 17:31:44:

Bud,

Thanks for your post.

Let me clarify a few of the points you raise, if I may.

  1. Yes. It is indeed the Trustee (him/her/its self) who is the owner of the corpus of a land trust; and it is the trustee, as the true owner, who acts on behalf of and at the direction of the beneficiaries. In other words: Bud Branstetter would grant the title of his property to himself, a 3rd party corporation or Fred Jones, as the trustee for the Bud Branstetter trust. It is then Fred Jones (if you’ve chosen ol’ Fred) who holds both legal and equitable title to the property on behalf of the Bud Branstetter trust. Though his actions are contractually limited to owning the property (holding all legal and equitable interest) and selling it at the direction of whomever you have chosen to be the beneficiary of the trust (presumably yourself).

  2. Next (tough punch), I honestly do not attempt to sell anything on this site… ('learned early on, that its not done). Its just that the term “PACTrust™” is the only generic term currently in use for the specialized 3rd Party Trustee co-beneficiary land trust system that we espouse. As Brad Crouch mentioned in one of his posts, he thought as you do in the beginning; but now understands that I am only sharing information with, and for, the benefit those who might wish to do exactly what I do (that is, charge for the service of helping others with doing that with which they are possibly not as adroit or comfortable as I may be).

Please think about this: “Doing for a while what others are unwilling to do, means being able to charge for a lifetime what others can’t do.”

Moreover, virtually any reasonable fee you would charge a client for a service like this is far more than made up for in the myriad benefits that they would receive with this arrangement. In all candor, anyone who has followed my posts on CREOL probably has more information on the subject for free that my book could provide.
Bud, I learned a long time ago that freely SHARING what you honestly know yields much more reward (personally and financially) than DEMANDING A PRICE FOR IT.

  1. Regarding the issue of who a land trust trustee may, or may not be: I’m not saying that being all three entities nullifies the trust. What I’m saying is that a trust being “dry” or “failed” is determined by various tests used by the courts (or IRS) relative to the purpose for which the trust is intended. You alluded, for example, to a “living trust (inter-vivos family trust)” affording tax benefits, although the same person occupies all three positions. Note that the reason for this is that the beneficiary, even though being all three entities (or even when granting legal title to another), is still on the loan and holding equitable title (i.e., “equitable interest”)… irrespective of who is named as the trustee. In a land trust, however, the equitable interest along with legal interest, are BOTH solely in the trust’s trustee. The purpose of the trust being to create anonymity and reduced liability, while also converting realty clearly to personalty without the loss of Real Property tax benefits (and obtaining personal property benefits in the process). Creating a “failed” or “dry” trust doesn’t mean the trust is not legal. “Failed” is merely a term applied to a trust which fails to qualify for its intended objective; “dry” is a term applied to a trust wherein the trustee is deemed to have no necessary function.? A trust deemed failed may remain wholly valid for a number other purposes (estate planning, probate avoidance, etc.), but not meet the test for ancillary administration, conversion penalties, etc.

In the case of a failed land trust, such trust may simply “fail” to convert realty to personalty; or perhaps “fail” to provide tax benefits to a resident co-beneficiary who is not the grantor or on the mortgage. When a land trust becomes a simple “Grantor’s Trust,” the tax benefits may only accrue to the grantor (see Blacks Law, 6th Ed.). Therefore, if you were a co-beneficiary of a failed trust and in a triple net lease, but not the grantor, you would likely lose all tax benefits (if the arrangement were scrutinized).

Concerning your comments about one’s being perhaps NOT well advised to leave a portion of the beneficiary interest with the mortgagor… I must say, Bud, that doing so certainly does alleviate virtually any possibly of a D.O.S. violation (whether they EVER occur or not, seller’s do worry about it and become reluctant because of it). Also, the possibility of the property’s being the subject of the seller’s continuing financial, domestic or tax problems can be eliminated. I honestly feel that if you would have the chance for such legal shielding, you might be indeed well advised to take it.
Bear in mind that if you are taking the property in a land trust to flip in a few months, you probably don’t need what I talk about so much. Nevertheless, if you want an alternative to flipping and would like to have as few snags and potential litigious time bombs as possible, well, that could be another story…

I don’t buy RE for cash flow… I buy it solely for my retirement; and I buy for nothing down and nothing per month. Consequently, I’m not concerned about many of the standard (and highly logical) criterion for real estate investing as someone else might be. I don’t care if the property is at market when I acquire it; I don’t care if there is no positive cash-flow; I don’t care if I start out with equity. What I do is a whole different bushel of buckwheat (as it were).

Bill

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Re: Land Trust Trustee - Posted by Bill Gatten

Posted by Bill Gatten on December 14, 1998 at 15:06:46:

Rob,

Doing either one would work, I’m sure; however, remember that friends, relatives and attorneys die(not you, Bill Bron… I mean “some” attorneys die: others just misplace their briefs). This means that your property would (could) end up in the decedent’s probate and estate problems (I have one right now on a $500+K house in Hollywood, Ca. that’s been going on for five years, and our best estimate to date is “maybe” another six months).

Also… please… remember that what we do is a little different since we use the land trust as the basis for a system of conveyance involing Assignment, Agreement and Occupany Agreement. In our program we always want the trustee to be a fully detached, third party, unbiased professional intermediary who can’t die. And above all we always want it to be someone who the courts or the IRS couldn’t bounce because of some “dry” or “failed” trust issue.

We find that its easier to buy when the seller is content and perfectly shielded from problems; and we find that it’s easier to sell when the buyer knows that he doesn’t ever have to worry about litigation and’or the imprudent acts of the seller, due-on-sale isues, tax issues, etc.

Here’s our philophy in a nutshell:

When you have two kids and you want to fairly divide a cookie between them, you don’t need a micrometer and a dremel saw: simply appoint one of them to cut the cookie in half, and the other one to chooose which half he wants (works with kids OR with buyers and sellers). This philosophy (and plan) has kept us around, and in biscuits since l984, without a single law suit, threat of a law suit, IRS disallowance, lender complaint; or even a serious dispute between resident and non-resident beneficiares (i.e., “buyers and sellers”).

Thanks for the post.

Bill

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Re: Follow-up History - Posted by Rob FL

Posted by Rob FL on December 14, 1998 at 18:11:55:

The biggest problem I can see is again what is known as a “dry”, “passive”, or “failed” trust a/k/a “merger” of the legal and beneficial interests. If you get a judgment or tax lien against you, a title company may ask to see the trust agreement. If you are the trustee and the beneficiary they will require you to pay off the lien in order to get clear title. I know this because I examine titles all day long. I remember one case, it was a hotel and the owner had it in a trust just like you describe. He was the trustee and the beneficiary. We required him to pay off a $50,000 judgment before he could refinance. If he was not the trustee he wouldn’t have had to pay it.

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Re: Land Trust Trustee - Posted by John Katitus

Posted by John Katitus on December 14, 1998 at 24:38:49:

Excellent points. Those are things I didn’t know.

2 questions:

  1. As I understand it, all they would see is that I’m Trustee for those ten properties. You’re right, of course, that if my attorney is Trustee for those properties, I would be one more step removed. What if my attorney got sued? Would they see that he is Trustee for those same properties and infer, wrongly, that he also held the beneficial interests? Practically, how far would they go (and how much would they spend) with a civil suit before a judge mandated that the beneficial interests be exposed? My understanding is that only a judge can cause the Trustee to violate his Trust Agreement pledge to not expose the owner of the interest.

  2. A judgement or lien against me would become a lien against the trust property, but if nobody knew I owned the beneficial interest, how could they enforce it?
    Thanks, John

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Re: Land Trust Trustee - Posted by John Katitus

Posted by John Katitus on December 13, 1998 at 23:29:08:

Brad, it looks like we disagree again.

The Trustee’s personal assets are not at risk in a Land Trust.

The Assignment of Beneficial Interest in a Land Trust is not a public document. It’s private. Nobody knows who owns the beneficial interest.

Therefore: If you are both Trustee and Beneficial Interest, the only one that will know is YOU.

Since Assignments are not public records, a beneficial interest can be assigned and notarized and disclosed only if and when suit is brought and a judge requires it. How is your attorney looking through the county records and finding that I am the Trustee of a property going to infer that I own the beneficial interest? What is he going to do even if he does take such a leap in logic? If he brings suit (and spends money to do it) and the judge orders me to disclose the owner of the beneficial interest, you can be sure that I will produce an assignment form showing it belongs to somebody else. How many times is your attorney going to bring suit against the properties for which I’m Trustee? The only stupid thing someone could do would be to tell the world that they are both Trustee and Beneficial Interest.

I asked Bill Bronchick about the hazards of being both Trustee and Beneficial Interest. You can read his response on the Legal page under “Privacy of a Land Trust”, I think. He wasn’t quite as sure as you are about how terrible an idea it was.

If you are so concerned with your name appearing in the records, you obviously would never consider being a Trustee for anyone else. What if you were? What terrible things might happen to you?

Why do people pay a third party? I don’t know. Maybe because you tell them the sky is falling.

Finally, you are concerned that a reader will see my comments and get in trouble. I hope nobody ever does anything because of what I say. The only reason I comment is to add to the discussion. This board taps a great amount of experience and knowledge. If I am wrong, and I readily admit the possibility, someone will tell me. And they’ll tell me why. And the reason I’m wrong won’t be “Why do you think some investors pay…”

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Re: Land Trust Trustee - Posted by johnman

Posted by johnman on December 12, 1998 at 11:12:34:

Each time I log on to this site I learn another tip on land trust. Thanks for the input.

Johnman

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Re: Land Trust Trustee - Posted by Rob FL

Posted by Rob FL on December 14, 1998 at 18:06:25:

If you have a record like that, then you must be doing something very right. In FL we don’t have to worry too much about the probate and lost file issue because there is a specific “Illinois land trust” statute designed specifically for RE to allow privacy. As long as everything is done according to statute it is very simple to have a new trustee appointed. I know other states don’t have the benefit of these trust friendly laws. Oh well, just fortunate here I guess.

Best wishes.

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What if his one man corp was the trustee? - Posted by David(Ca)

Posted by David(Ca) on December 14, 1998 at 20:35:07:

Rob,

Would it still be considered a failed trust if I had my one man corporation as trustee and me as an individual with the beneficial interest?

Dave

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Re: Land Trust Trustee - Posted by Rob FL

Posted by Rob FL on December 14, 1998 at 18:20:42:

I am not a lawyer (but I play one on TV). I examine titles all day long (it’s a living, for now anyway).

Here is what I understand about your situation:

  1. In the worst case scenario that your lawyer had judgments against him, all that would have to be done is prove to the creditor that he has no beneficial interest. End of story, he doesn’t own the property, so creditor can get nothing out of it either.

  2. Once they get the judgment, they could force you to reveal your assets and if you lied about it you would be commiting perjury (along with Bill Clint*n). That is why you don’t want to be the trustee. If a creditor doesn’t think you own anything, it would probably discourage them from pursuing the lawsuit.

Again that is the way I understand it and the way I deal with my affairs. I will state that in FL we have more favorable land trust laws than in many other states.

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Re: Land Trust Trustee - Posted by Tim Pannabecker

Posted by Tim Pannabecker on December 14, 1998 at 10:55:31:

John,

I do not mean to butt-in nor take sides but consider this. You and I get into a conflict. When I consider a suit against you I may do a simple search (that takes me 2 min., at no cost to me) and notice you as trustee on your properties. I could infer that you may own them since you are not “in the business” of being a trustee. In a deposition or separate court proceeding I can SPECIFICALLY ask you about your interest in those SPECIFIC properties. Under penelty of purgery (not sure if this is still a crime?), you MUST answer truthfully. If you ARE NOT the trustee the search produces nothing. If asked about your equitable interests and holdings you could have made arrangements “off the record” that may protect you. Of course this should not be constrewed as legal advice.

Tim