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The Pros and Cons of Using Land Trusts for Real Estate Investments

11 Sep 2015

A land trust is a relatively inexpensive method for dealing with real estate ownership. In a land trust, the real estate title is held by a trustee while the rights of owning the property are controlled by a designated beneficiary, or a person who benefits from the condition of ownership. There are many reasons why a land trust can be used for real estate investments, but there are pitfalls as well. Before you undertake a land trust arrangement, keep these pros and cons in mind.

 

How a Land Trust Works

A land trust consists of an arrangement for managing and ownership of a piece of real estate by three entities. The Grantor sets up the land trust and transfers all necessary assets into it. The Trustee then manages the trust through specific duties, which define the means by which the property can be leased, sold, or otherwise encumbered, and how any income resulting from land ownership will be distributed. Finally, the beneficiary gets all the benefits of owning the trust. In many cases, the grantor and the beneficiary are the same person.
For example, if a home rehabber takes a credit hit, and needs help from a friend to buy a property, a trust could be set up so that the two parties could split interest on the property and still avoid the bank calling in the loan when the agreement comes to light. Perhaps the first $30,000 of a property could be allocated to the secondary investor, with the remaining profits split evenly between the two. Since only the transfer of the deed into the trust is recorded, the lender will not discover the transfer of ownership.

 

Benefits of Land Trusts

There are several major advantages to using a land trust. It creates a means by which property can be transferred, which is much easier and more private than an LLC. Privacy is all important in these situations, and it can be accomplished by using a third party as a trustee, omitting the name of the owner in the trust, and allows transferring property by simply assigning beneficiaries to the trust.
In this way, since there is no actual sale on the public record, you can avoid transfer taxes, much more easily transfer property to another person and maintain ownership privacy. In many cases, a trust is preferable to a will when it comes to assigning property after death. This can avoid probate courts while giving the beneficiary all the benefits of control.

 

Dangers of Land Trusts

There are also downsides and dangers to attempting a land trust. Florida, for example, has statutes regulating how such trusts must be handled. It is important in such cases to have a qualified trust specialist to understand how these laws work. These trusts also fail to offer much protection in cases of litigation or overall taxes. You should have an expert title insurance agent to protect your interests should problems arise after using land trusts for real estate investments.
For more information on title insurance and land trusts, feel free to email us at info@marinatitle.com or call us today at 1 (800) 610-4750.

 

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