Title Insurance - Posted by John OH

Posted by Bill Gatten on November 13, 1998 at 19:44:54:


In our 3rd party land trust conveyance system, whomever makes the payments takes the write-off [IRC Sec 163, but specifically (h)4(D)]. However, even though the Resident Beneficiary takes the active deductions, since the seller hasn’t disposed of the property (beyond his living trust), and since his interest is characterized as “income property,” he is entitled to the Passive Loss (depreciation). In other words, upon initiation of the [PACTrust] the property becomes a 1031 property until the trust’s termination and the final disposition of the property. Moreover, because of the reversionary benefits of a land trust, no tax may be due upon sale at all, even in the face of a large gain (although any depreciation taken will, of course, be added back to the Basis upon sale or exchange).

Interestingly: Even though the beneficiary interest in a land trust is characterized as personalty (not realty) it can, none-the-less be traded for realty in a 1031 like-kind exchange (see Rev. Rul 92-105).

Note too, that in the PACTrust (what we call the 3rd party land trust conveyance system), buyers and sellers can agree to share anything they want, in any proportion. They can share profits on sale; Power of Direction (“voting rights”); management costs; payments; taxes… whatever (if the non-resident beneficiary makes a portion of the payment, or spends any money on the property, he can write it off too). Note that when I’m the seller I always share 50:50; when I’m the buyer I always share 90:10 with a forfeiture of the seller’s 10% at termination, as consideration for my prompt payments and performance throughout the Agreement.

Best regards,


Title Insurance - Posted by John OH

Posted by John OH on November 12, 1998 at 01:38:33:

When I buy a property by having it put into a Land Trust and getting the Beneficial Interest assigned to me, do I need Title Insurance? What kind? How much?

Re: Title Insurance - Posted by Bill Gatten

Posted by Bill Gatten on November 12, 1998 at 15:11:20:


Good question!

The way we do it is this: the seller, who already has title insurance, places the property into the Land Trust in HIS OWN name (by law, the title insurance follows to the trust with exactly the same coverage). Then you acquire a co-beneficiary interest in the trust (the title insurance is then already in place for you as co-beneficiary in the insured trust). The seller then agrees that at the end of the trust term when the property is disposed of, he will forfeit his beneficiary interest to you. You then end up with 100% of all tax benefits, equity build-up, appreciation, etc., throughout the term, as well as 100% of the profit on termination and disposition of the property. In this scenario, you need only to run a Lot Book Report or a Pre-lim (preliminary title search) in the beginning to be (reasonably) assured that the title hasn’t been clouded or that things haven’t changed since the existing policy was issued. However, should you choose not to take even this degree of chance (there could be something the pre-lim or lot book report missed): you can merely have the owner (seller) Down-Date his existing policy. Alternatively, you can have the seller order an ?Endorsement (to include his trust), prior to the assignment of your beneficiary. If the existing title insurance carrier can’t, or won’t, provide the endorsement (they often won’t, if the policy is more than five years old), you simply have the seller take out brand new title insurance in his own name or in the name of the trust (either of you can pay for it, or you can split the costs). Only AFTER the policy is issued, do you assume your co-beneficiary position.

Contrary to what many well-meaning title reps will tell you: under these circumstances, when the trust terminates, and the property is ready for sale, title clarity is no problem. This is because the title has not been affected by the [secret, private, anonymous, unrecorded, nobody’s business, temporary] assignment of co-beneficiary interest.

Hope this helps.


Re: Title Insurance - Posted by Rob FL

Posted by Rob FL on November 12, 1998 at 06:13:12:

I don’t think you could get title insurance on the assignment of beneficial interest. But you can get it on the deed into the land trust. As long as the property is owned by the trust you will be protected. You would need owner’s title insurance.

Re: Title Insurance - Posted by John OH

Posted by John OH on November 13, 1998 at 01:44:22:

Doesn’t the co-beneficiary status of the seller give him a portion of the tax benefits, appreciation, etc. during the trust term? Or does he sign that away in the Assignment papers?