A Blog Series About Land Trusts: Part 1



Simply put, a land trust is a way to hold title to real estate whereby a Trustee holds legal and equitable title to the land, but the beneficiary directs the trustee, manages the property and draws income from the trust.



A Trustee can be any legal entity capable of holding title to real estate. In an earlier blog post about Common Investing Mistakes I wrote about a heated argument I had with a prominent title underwriter centered around the fact that an LLC may serve as trustee of a land trust. In the end, we all “agreed” an LLC, a Corp, your attorney, accountant, mother, whoever can serve as Trustee. Even though your trustee can be any legal entity, you should take the time to choose wisely. Choosing a trustee is like drafting a contract - You aren’t choosing a trustee for your situation now; rather, you are choosing a trustee for when the you-know-what hits the fan. 


Real Life Example:  During a normal day at the office reviewing and drafting contracts, our receptionist ran back to my office to  ask what I want her to do with the DEA and homeland security agent holding for me on Line 1. Ummmm, what?  I pick up the phone and am asked 1. Do I own the property located at 123 Main Street?, and 2. Am I aware there is a massive marijuana grow project at that property? I explain, in the nicest way, that I am the Trustee for the land trust that holds title to that property and that no, we don't know anything about the weed growing in the basement. Lastly, I also explain that I can not release the beneficiary information. I’m not going to get in to the rest of the story, but what do you think would have happened if those clients had just picked their brother or best buddy to be Trustee of the land trust? I’m pretty sure they would have spilled the beans in half a second.


The next player in a land trust is the beneficiary. Again, any legal entity capable of holding title to real property can be the beneficiary of a land trust: you personally, an LLC, your IRA, etc. You have 100 percentage points to play with at this position.  I don’t recommend have more than three beneficiaries in one land trust, and if you have more than 2,  or you are  doing a joint venture type of deal consult with an attorney who works with investors and land trusts in order to get the paperwork you need for smooth sailing.


The last big piece of the puzzle is the land itself.  You can create a separate land trust for each property, or you can group your properties placing multiple parcels into a single land trust. The ultimate decision is based upon your liability exposure (law suits, high crime rentals, etc.) and your investment strategy (buy and hold, flip, assign, bulk sale, etc.).


Get these three parts down and the rest will be just filling in the blanks. 

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