What is a Land Trust?

Jan 31 11:32 2009 Serena Brown Print This Article

The land trust may be the best ownership option for the investor right now.

Recent changes to Fannie Mae’s financing criteria have created a need for investors to reconsider how they take ownership of their new investor property.   Those changes are affecting investors who finance the property in their portfolio and have those properties under the entity,Guest Posting limited liability corporation (LLC). 

Freddie Mac backs many of the conforming loans on the secondary market, so any changes in the rules is very important and should be headline news; hence, this news release. 

The changes are as follows:

  • Freddie Mac will no longer approve refinance for any property that has been under a limited liability corporation entity for the previous six months. 
  • Freddie Mac is limiting the number of properties the investor can have financed to four not ten as in years passed.

The ownership option that will combat the change to the financing institutions’ criteria changes is taking ownership of the new investment property under a land trust.  What is a land trust?

A land trust is a method of real estate ownership in which the trustee has legal title to the property.   The beneficiary, though, has full power to control the property to include disposing of the property and management of the property. 

The trustee for the land trust can be an attorney, law firm, or a bank.  Remember, the trustee holds the legal title.  However, whether the trustee is an attorney, law firm, or a bank, those entities can not act without the written consent of the beneficiary who has full power to control the land trust.

The land trust is not only the solution to the changes for financing, but the land trust also has great benefits such as:

  • Privacy
  • Succession
  • Litigation
  • Probate
  • Flexibility
  • Financing
  • Asset protection

A land trust is considered to be superior to most business entities such as corporations, limited liability corporation, etc because the land trust has the added benefit of privacy.  The land trust does not have to be registered that means there is no public record of the officers, directors, shareholders, or beneficiary.  The trustee must keep the beneficiary and trust records in a secure location, and the trustee can not reveal the information unless subpoena.

Along those same lines, it is recommend that at time of purchase that of the new investment purchase for it to be conveyed directly to the trustee to avoid the owner’s name ever being part of public record.   There is other reasons anonymity or privacy is beneficial.  It can prevent unfair price increases on purchasing of property.  For example, when the land was accrued for the Disney World, Walt Disney used a land trust to disguise his intentions for the usage of the land to prevent increases in the price of the land. 

Still yet, another advantage to a land trust is asset protection.  The beneficiary is protected from judgments and liens.  The land trust prevents the judgment to automatic be attached to the real estate owned by the investor since the title is not in beneficiary's name.

However, it is important to note that because the investor maintains control of the trust, the control or interest can be subject to creditor's claim.  To avoid creditor's claims, the trust needs to be irrevocable not revocable.   

The land trust is flexible because it allows for ease of multiple ownership.   Even though there are multiple owners all owner do not have to sign for the acquisition of a new property just the trustee who has written instruction from the owners sign the documents for acquisition of the new investment property. 

The land trust does can not be partition when one of the owners’ part, but the parting owner can transfer part of his or her interest in the trust.

The best is advantage of the land trust is ease of succession.  If the beneficiary of the land trust passes away, the interest in the trust is simply transfer via the previous written instructions to the trustee.  This eliminates the need for probate and the lengthy and costly process involve with the probate proceeding. 

The beneficiary of the land trust can be an individual or an entity, so if you have a limited liability corporation the LLC can be the beneficiary. 

The cost of the land trust may vary, but the investor may be charged as little as $100 to open a trust and $75 a year to maintain the trust for an investment property valued at $250,000.

Remember, the land trust is a legal document that must be review by an attorney to ensure that all of your interest is address.  If you have a LLC make sure your LLC has instructions in it as well for your beneficiary interest in the land trust. 

Written by Serena N. Brown

http://www.taylorbrownrealestatetalks.com

Source: Free Guest Posting Articles from ArticlesFactory.com

About Article Author

Serena Brown
Serena Brown

www.taylorbrownrealestatetalks.com content is produced by Serena N. Brown, a broker and owner of Taylor-Brown Real Estate.   Serena has created and managed Taylor-Brown Real Estate since 2006, but has over seven years of experience as a real estate agent.  Throughout her career, she felt that it was important that her clients become educated about real estate.

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