A land trust represents a straightforward and cost-effective technique for managing real estate properties. In this case, the registered title of the asset is assigned to a designated trustee. However, only the beneficiary, whose interest remains concealed, has a right to exercise ownership. This strategy of owning properties gets rid of the numerous difficulties, often encountered in the acquisition, ownership and sale of real estate.
Typically, the beneficial owner of the contract has to change property interests from real estate to personal property. Although the beneficiary still possesses complete control and management of the property, they are not tasked with any legal responsibilities. Given that a beneficial interest is regarded a personal asset, it is accounted for, in an exact way as an automobile or other types of property. This concept is similar to real estate wholesaling; in that the wholesaler assigns his property to another entity.
How Does Land Trust Work?
Also known as a title holding trust, the land trust is formed by any entity, who wants to enter into a contract. It may be an individual or a group of people as in the case of a partnership. Under the land trust contract, a beneficiary has complete control in the same way as when the recorded title was in his name. This real estate owner can dissolve the agreement when he deems it right. He can also add other properties to the contract at any time. The role of the trustee is to execute deeds and deal with the real estate only when instructed by the beneficiary.
With wholesaling real estate, an individual puts the property on a contractual basis, and later assigns or resells it to a different investor. In this case, the wholesaler has no exclusive ownership of the property. This expert acts as a middle man between property buyers and sellers. As such, his goal is to sell properties quickly to the highest bidder; thus, facilitate a quick closing.
Reasons to Use Land Trust Agreements in Real Estate
Privacy of Ownership
Undoubtedly, the confidentiality of property possession is the greatest boon of the Title Holding Trust or Land Trust. Real estate owners are entitled to as much privacy as other investors such as stocks' and bonds' owners. Put simply, the act of ownership needs not be a matter of public record. With a land trust, it becomes easy to acquire, hold or dispose of property without disclosing the actual owner's identity. The land trust agreement is particularly handy with regards to landlord-tenant relationships. This way, the landlord ensures that all the tenants' contact information is with the property managing entity, although his identity remains unknown to these tenants. Anonymity may also be sought-after during real estate negotiations, where the disclosure of true identities, can intricate or hinder successful transactions.
Virtually all real estate is subject to probates upon the demise of the owner unless the property was held in joint tenancy. Put simply; probate refers to a legal procedure of transferring ownership of a particular property or asset from a deceased to the rightful beneficiaries. Thankfully, if the property was operated under a title holding trust, the probate is unnecessary. The reason for this is that the title holding agreement already has provisions for the successor party upon the death of a beneficiary.
Real estate owners, who reside outside of the state where their properties are situated, can be subjected to ancillary probate. Often, if the decedent owned real estate in different states at the time of death, it results in long and pricey court proceedings to determine successful ownership. Fortunately, you can avoid ancillary probate by holding your assets in a title holding trust. It means that your real estate will be treated as personal property rather than real property. What's more, real property can be managed in a title holding trust on behalf of another trust domiciled in an entirely different state. Title holding trusts work in tandem with the current trust and estate plans. This also benefits out-of-state trustees, who are not allowed to have properties a different region.
Avoiding Clouds on Titles
This remains a concern, especially in situations where properties are owned by multiple investors. They may involuntarily expose the real estate to certain threats, liability, and litigation if they possess titles to the properties in their actual names. The individual investor is susceptible to untimely deaths, divorces, bankruptcies, settlements, judgments, tax obligations among others. These incidences can result in adverse effects on the owned property. Fortunately, if many investors own real estate, they can protect it by designating a land trust entity to run it. In such a situation, the individual investors no longer possess ownership of the property. Instead, they are entitled to a beneficial interest in the land trust, which is regarded as personal property. This way, any personal legal problems that crop up cannot affect fellow investors. Investors can also use limited partnership, corporation or limited liability company, to shield themselves from clouds on titles.
The chances of disputes erupting regarding the management of real estate property, when multiple investors are investors are involved, are high. An investor is entitled to sue the other party under partition action when an amicable solution cannot be established. The purpose of a partition action is to facilitate the sale of the property and then divide proceeds between the owners. However, any property held in land trust cannot be subjected to partitions since the beneficiaries do not possess the property. Instead, each recipient holds a beneficial interest in the title holding trust, which is treated as personal property.
Collateral for Financing
If you want to apply for a bank loan, you can utilize your beneficiary in the land trust as collateral. It is achieved without having to incur more cost in obtaining a mortgage. In fact, one can use his beneficial interest as collateral even when there is an existing mortgage against the property.
Protection against Liens
Any charges filed against a beneficiary result in no effects on properties operated under land trusts. It is because the beneficiary is no longer recognized as the property owner. This feature is useful when either beneficiary is faced with litigation, liens or judgments. The title holding trust shields all other beneficiaries in the same agreement from such attachments. The charges can, however, affect the beneficial interest in the trust owned by the beneficiary, against whom the legal claims were filed.
Ease of Conveyance
When property is run under title holding the contract, it eliminates the need for signing and recording deeds to convey properties to other parties. The beneficiary has a right to transfer part or all of his beneficial interest, by assigning it to whomever he designates.
Conclusion - Land Trust
A land trust can be defined as a tool through which an individual acquires, holds, manages and even sells real estate. It is preferred to other forms of property ownership such as Limited Liability Company. The reason for this is that land trusts offer numerous benefits including protection against legal claims, avoidance of probates and the ease of conveyance. Perhaps the greatest merit that a title holding trust offers, is the privacy of ownership. Typically, it provides a means of owning property without disclosing your true identity. This way, you can even apply for bank loans by pledging your property as collateral.