Land Trusts Part II: Changing The Players

Now that you know all the players as discussed in Part I, let’s talk about how we can sub them out.

The most common substitution in the land trust world is an assignment of beneficial interest. An assignment of beneficial interest is a very simple transaction whereby the current beneficiary assigns all or part of his or her beneficial interest to some other entity capable of holding title to real estate.  

Benefit 1: The transfer can be accomplished via a simple 1 page document.

Benefit 2: The transfer is not a matter of public record so there is, of course, the benefit of privacy; but also consider the fact that since there is no public record of the transfer you are essentially delaying the reassessment of your property value by the taxing authority thus keeping your property taxes lower.  

Benefit 3: Your “closing costs” are cheaper. If you are assigning the beneficial interest for value you will save money by avoiding closing fees and title insurance. WARNING 1: Do not forget to pay the doc stamps on this transfer. This is still an assignment for value and doc stamps must be paid. WARNING 2: The assignee (buyer) may still want to consider an additional title insurance policy if there is a substantial price difference between the value of the current policy with the trust as the insured verses what they are paying for the assignment.

The next common substitution is changing the trustee. I feel like there are two ways of going about this. There is the “legal way” and the “real world way”. The legal way is a simple one page form.  I call it a resignation and appointment of trustee. This form should detail the change, include everyone’s important contact information and have all required signatures. This one page document is legally sufficient to effectuate the change; however, it’s a logistical nightmare in the real world because it isn’t recorded. Even if you do record it the Clerk’s office likely won’t know what to do with; thus the recording won’t trigger the change at the property appraiser’s office, the comptroller or the clerk of court. Why waste the paper? This is why I suggest a deed to accomplish to substitution of a new trustee.

Now, soak this all in then let the wheels start turning. Soon, you will start to realize all the ways in which these little substitutions can help you when structuring deals by saving money, allowing equity partners to protect their investment, exit strategies in joint venture agreements, private money lenders protecting their interest, detailing option agreements…and the list goes on and on.