Posted by David Krulac on July 12, 2005 at 17:07:38:
a land trust is an anonymous name, but NOT an asset protection shield, so your plan is of very little value for a lot of effort.
call the recorder of deeds office and ask them, they will likely tell you that you are liable for 2+% transfer tax at today’s FMV. but check with your county.
LLC to Land Trust -does this trigger Transfer Tax - Posted by Mike
Posted by Mike on July 12, 2005 at 17:02:39:
I own about 20 properties in Pennsylvania, all single-family homes. I own all of them in single LLC and I am getting nervous that one slip and fall suit could attach to all my holdings. I would like to transfer each property into its own land trust and make the LLC the beneficiary. I can not seem to get a good answer to the question of when I go to record the name of the trust does this trigger transfer tax? All help appreciated.
please check with a CPA… - Posted by Jim (MD)
Posted by Jim (MD) on July 13, 2005 at 19:37:06:
who practices in PA and works for a lot of real estate investors. I advise this because I have heard from a reliable source that trusts are taxed in PA differently than LLC’s and putting these or any other properties into a trust could trigger additional state taxes each year. I inquired about this when I was thinking of investing in PA. I have decided to put any properties I may purchase in PA into LLC’s.
As far as a transfer tax for properties shifted from one entity to another under the same owner, I have found that the answer varies from state to state, county to county, and even from person to person at the county courthouse. A couple of years ago, Maryland passed a law allowing an individual to transfer a rental property from their name to an LLC without incurring a transfer tax. Sounds like a good, investor friendly law, but the individuals at the county courthouses made it as hard as possible for an investor to take advantage of this because they did not want to lose out on the tax revenue. They demanded the investor’s tax returns from the past 3 years to show that the property was declared, depreciated, and that MD state tax was paid on the income from the property. A real estate attorney told me he could probably get around requirements such as this, but don’t count on it. I never pursued it because of the cost. Recently I was told at the Baltimore county courthouse that even if a corp is converted to an LLC, or vice-versa, and the property remains under the same ownership, transfer taxes are due.
Good luck.
Transfer Tax - Posted by Natalie-VA
Posted by Natalie-VA on July 13, 2005 at 13:10:19:
Mike,
Call your local records office to find out about the transfer costs. The cost in my area is based on the amount of money changing hands. So, if $0 is changing hands, the cost should be minimal.
–Natalie
Re: LLC to Land Trust - Posted by Don
Posted by Don on July 13, 2005 at 10:25:02:
Good question. Not sure of the answer; you might find it at www.landtrust.net. (That’s the site of one of the land trust gurus.) Or elsewhere on this site; Bill Bronchick is another land trust expert. Or consult a real estate lawyer in your state who is familiar with land trusts.
Working backwards, you can make the LLC a beneficiary of a land trust. And nearly everywhere an individual can transfer property into his/her own land trust without trigger transfer tax. (Ownership hasn’t been transferred.) However, I don’t know about whether the transfer from an LLC into a land trust would be considered a transfer of ownership; a competent (stress competent) lawyer should know.
In general, your approach is valid. The 20 properties definitely shouldn’t be held in a single LLC. Many investors, even those who don’t go the land trust route, either put each property in a separate LLC, or limit an LLC to holding 3-4 properties each. A land trust provides even better protection. So, definitely pursue that course of action; just check with a good attorney during the process.
LLC to Land Trust -does this trigger Transfer Tax - Posted by Margaret
Posted by Margaret on July 12, 2005 at 21:28:22:
See Iten 4 to answer your question:
The Facts About Land Trusts*
A land trust is a simple, inexpensive method for handling the ownership of real estate. It is an arrangement by which the recorded title to the real estate is held by a trustee, but all the rights and conveniences of ownership are exercised by the beneficial owner (beneficiary) whose interest is not disclosed. This method of owning real estate eliminates many of the difficulties that otherwise may be encountered in acquiring, owning, or selling real estate.
The beneficiary of a land trust changes his or her interest in the property from real estate (title to the property) to personal property (ownership of the beneficial interest). Even though the beneficiary retains complete management and control over the property itself, he or she is not burdened with the legal characteristics of real estate when he or she deals with the property.
Since the beneficial interest is considered to be personal property, it is treated in much the same manner as a car, a savings account, or other tangible property. Consequently, the beneficial interest can be sold, pledged, or assigned in a simpler fashion than a conveyance of realty.
How Does a Land Trust Operate?
A land trust may be created by anyone capable of entering into a contract–an individual; a group of persons such as a partnership, syndicate, or business association; or two or more private individuals who desire to purchase and own the real estate as a joint venture.
Under a land trust agreement, the beneficiary retains complete control of the real estate in the same manner as if the recorded title were in his or her name. He or she may end the trust whenever desired and may add additional property to the trust at any time. At all times the beneficiary deals with the property as though he or she were the record title owner, for, as a matter of fact, he or she is the owner. The trustee executes deeds and mortgages and deals with the property only if directed in writing by the beneficiary.
When title to real estate is held in a land trust, the interest of the beneficiary, under terms of the trust agreement, is personal property. Since the beneficiary’s interest is personal property, he or she may transfer it by assigning that interest without the formality of executing and acknowledging a deed; the wife or husband need not join in such assignment for the purpose of releasing the spouse’s homestead rights.
What Are The Benefits of a Land Trust?
There are many benefits derived from the use of a land trust.
Under a land trust, the identity of the real owner is never disclosed to the public. This feature can be important for many reasons. For example, a number of persons may be purchasing several parcels of real estate for some special purpose, and it may be that the desired result can be best accomplished if the objective is not made public; co-owners may desire that the interest of each member must be kept confidential; or an individual owner may not want to be burdened with inquiries.
Whatever the reason may be for not disclosing the identity of the real owner, a land trust provides the answer. Of course, certain governmental agencies and others, following valid and authorized legal processes, can ask about the beneficial ownership.
2. Protection for the Owner.
A land trust offers particular benefits in those cases where the real estate is held by two or more persons. If the property is owned by two or more persons, the title to the property might become faulty and unmerchantable because of death, legal disability, divorce, judgements, and many other types of litigation affecting one of the co-owners. When the property is held in a land trust, a judgment against one of the beneficiaries does not constitute a lien upon the real estate held in trust; neither do the ordinary legal proceedings against any of the beneficiaries muddle the title.
Although the real estate itself is not encumbered by a judgment lien, the interest of the beneficiary in a land trust can be subject to the claims of creditors. If the title to the real estate is in the name of a trustee, the creditors must take additional steps to assert claims against the property.
3. Succession and Ownership.
It has been a common practice to create joint tenancy in real estate holdings solely for the purpose of providing a succession of ownership upon death without the expense and delay of probate proceedings. Under joint ownership, however, either of the joint tenants is given an immediate interest in the ownership and management of that property, and in many cases, it handicaps the real owner as he or she cannot deal with the property without the written consent of the joint owner and the other spouse.
Under a land trust agreement, the party creating the trust can retain sole control over the property during his or her lifetime, with the desired succession in ownership becoming effective upon death without, under certain conditions, the expense of going through probate proceedings. This can be especially helpful to those who live out of state but own real estate in this state. They will not need to institute separate probate proceedings here but can have the land trust property administered in their home states.
4. Ease of Conveyance.
A land trust affords a convenient means of mortgaging and selling a trust property without having to obtain deeds from all the beneficiaries and their spouses. It dispenses with the necessity of obtaining the release and waiver of homestead from the spouses of the parties interested in the trust real estate. These are noteworthy features if many individuals are interested in the property and are scattered throughout the United States.
Also since the beneficial interest is considered to have the legal characteristics of personal property, it can be pledged for a loan according to the same standards as stocks, bonds, automobiles, or other personal property without the restrictions and formalities of mortgages, title reports, and policies. Such assignments, although substantially easier than conveyances of realty, can produce a gift and transfer tax consequences.
5. Disposing of Part Interest.
A land trust simplifies the practical problem of disposing of a part interest in a property since the beneficial interest under a land trust can be transferred by assignment; no deed is needed. This avoids a deed’s formal requirements concerning acknowledgment, recording, and joinder by the grantor’s spouse, although it may trigger a transfer tax. This aspect of the adaptability of a land trust becomes important when real estate is held by a number of persons, such as a group of heirs, or if the owners have disproportionate shares of the property.
How Do You Create a Land Trust?
You create a land trust by signing a short trust agreement at the time the real estate is purchased or after it has been acquired. Under the agreement, you, the owner (called the beneficiary), direct a corporate fiduciary to hold title to the real estate for you, and you direct and instruct the corporate fiduciary as to the persons who will have the authority to manage and control, whether and when it should be sold and to whom, and who will become the owner upon your death.
You, too, can protect your real property by creating a land trust and thereby assure an orderly distribution to your beneficiaries and heirs.