Who Should You Trust? Advantages & Disadvantages to Engaging in Land Trust Agreements
By jeff adams
If you have done any research in reference to real estate lately, chances are that you have probably come across the information on land trust agreements. An agreement of this type is relatively new and often underestimated. Opting to close a deal through the incorporation of a land trust agreement is a simple and inexpensive way of handing the ownership of real estate, especially if who holds the actual title of the property is an issue for the buyer.
A land trust agreement is basically an arrangement between two parties where the recorded title of the real estate property is held by a trustee instead of the actual buyer. Creating a land trust agreement involves signing a short term trust agreement at the time real estate is purchased that is made between the beneficiary/owner and the trustee/title holder. The beneficiary directs any actions taken in relation to the property and the trustee abides. The beneficiary, which is the buyer, retains the use and operation of the property, and any income that it generates. The trustee, on the other hand, which can be an attorney, law firm, bank, trust company, or other investor holds title and acts according to the direction of the new owner.
As to who can take part in such an agreement, there really are not any set limitations. Anyone who is willing and able to enter into a contract with an investor, whether as a trustee or a beneficiary, can do so. Also, the agreement does not have to be specifically between two individuals. An agreement can be with business associates, syndicates, as a joint venture or partnership, or with other groups that have a general interest in getting involved in a potential deal.
So you may be wondering, just what is in it for the buyer and what does he/she have to gain if the title of the property is not under his/her name, upon sealing the deal. This is where this type of an agreement gets creative. Even though, the title of the home or property if officially under the name of the trustee, the buyer as the beneficiary is the actual owner of the physical property. As its owner, all rights, conveniences, responsibilities, and duties that are attached to claiming ownership of the property are subject to the beneficiary or beneficial owner. Even though his/her interest in the property is typically not disclosed, assumption of all liabilities and accountability for all occurrences that may ensue are stated and confirmed within the agreement.
So, in a nutshell, the beneficiary owns the property and acts as the record title owner but it is the trustee who officially holds the title. The beneficiary buys and claims ownership of personal property and maintains the complete management and control of it. Being the beneficiary also offers the advantage of not having to deal with any legal responsibilities, characteristics, and proceeds involved with the property.
The responsibilities of the trustee, in addition to lending their name to the title of the property, include dealing with all legal obligations, such as the execution of deeds and mortgages. But even in this area, the trustee is not left to his/her own devices. He/she usually must act under the direction and authority of the beneficiary, who is ultimately in control of the real estate.
Advantages to becoming the beneficiary of a piece of real estate are many. For example, because, they control the ownership of the property, beneficiaries have the right to the selling, assigning, or pledging of their interest in the property at their discretion. Also, if this is what they decide to do, these processes tend to be much easier to do than the more traditional and conventional methods, chiefly because they officially control the ownership of the property. Deeds are typically not needed to transfer interest in the property and it is often done by assignment.
Another advantage is anonymity. A land trust agreement can be viewed as kind of a like a vehicle that allows someone to hold title to real estate that is exempt from probate. As the ownership is not officially disclosed to the public, the owner is protected. At times the beneficial ownership may fall under legal scrutiny, but in general, basic identification information of the beneficiary is not typically questioned.
This type of an agreement is very attractive to those who wish to protect their privacy and identity in relation to the real estate in question. Since actual ownership of property is disguised, it is an optimal agreement for real estate investors that may be targets of litigation may have been sued in the past and wish to avoid a similar scenario from occurring in the future.
Succession of ownership is yet another advantage. On behalf of the beneficiary, who receives ownership of the property, financial status is not compromised if any negative circumstances were to arise. There is also a greater sense of security for benefactors involved. Partners or co-benefactors also do not have the ability to opt out of the agreement, but ownership of the property can be transferred. Another positive aspect is that there are no adverse tax consequences involved if the property ownership is transferred into a revocable trust because the owner, or grantor, controls the property where tax purposes are concerned.
The owner is also protected on another level, especially if there is more than one beneficiary that can claim and control ownership. The ease of multiple ownership is even more magnified, considering that all necessary documents must be signed, notarized, and recorded by the trustee and not the beneficiaries involved, however many of them there are.
Also, in such cases where death, divorce, disability, or other legal judgments and litigations may become an issue that involve one of the owners and not the other, a land trust agreement protects all owners individually. For example, a possible judgment or lien that could be placed on the financial holdings of one owner of a specific property, the financial situations of other owner(s) involved would not consequently be affected.
In addition, because the title is still in the name of the trustee, the title of the property is not affected even if beneficiaries are negatively dealing with claims and creditors.
On the other hand, even though claims against benefactors do not directly affect the ownership of the property, the income generated from the property that belong to the benefactor does have the potential to be affected by any legal proceedings that may occur.
Another possible negative situation that may occur is the possibility that a creditor may force a beneficiary into signing over his/her beneficial interest as a resolution to a legal matter. For such reasons as the afore mentioned, it is very important to make sure that both irrevocable domestic trusts and foreign asset protection trusts that are prepared include sections that ensure that the rights of all beneficiaries involved are not compromised and a creditor can not attain the power of ownership for the real estate property in question.
As with any other agreement, it is imperative to investigate the rules and regulations that are applicable within each state. Although land trust agreements are legal and commonly used in states such as Illinois and Florida, they are illegal in others. There may also be laws that could be associated that may require the administration of the land trust agreements are executed by commercial trustees, such as banks or trust companies. Seeking the legal counsel of an attorney regarding all necessary documents and proceedings is also highly advisable.
About The Author
Jeff Adams is a full time investor who has done over 350 deals and is a leading expert in the buying and selling of real estate. For more information visit http://www.FreeForeclosureCourse.com or sign up for a free seven day e-course at http://www.RealEstateWebProfits.com.
