A land trust is a revocable Living trust that is specifically used to hold title to one piece of real estate. Meaning one trust per property.
If you own real estate in Texas, you can use a land trust for privacy, anonymity, and protection. Read further to learn how.
Revocable Living Trusts
Before we discuss land trusts any further, here are a few things you need to remember about revocable living trusts:
- There are three parties to a trust:
- The Grantor who creates the trust;
- The Trustee who manages the trust; and
- The Beneficiary who benefits from the trust.
- A trust is a contract between the Grantor and the Trustee to hold and manage assets on behalf of the trust Beneficiary(s).
- A living trust is one that is created while the Grantor is alive.
- A revocable living trust is one that is revocable, amendable, or terminable at the Grantor's direction.
- A revocable living trust allows the Grantor to transfer legal ownership of his or her property to the trust, while retaining full access to and control over that property.
A Land Trust vs. The Typical Revocable Living Trust
As mentioned above, a land trust is a revocable living trust. However, there are some important differences between a land trust and the typical revocable living trust created for estate planning purposes.
First of all, while the typical revocable living trust is created to hold many different types of assets, a land trust is specifically created to hold title to real estate. Ideally, one land trust per property.
Secondly, the typical revocable living trust is created for probate avoidance and to manage assets for the trust beneficiary, but land trusts are created for privacy of ownership and anonymity.
Also, while the grantor and the beneficiary of a typical living trust are typically different parties, the grantor and the beneficiary of a land trust are usually the same party. This is referred to as a self-settled trust.
Lastly, while the typical revocable living trust might be named after the Grantor, a land trust usually has a generic name, such as the address of the property it holds. For example, your family trust may be named "Bob Smith's Family Trust'', which provides no anonymity, but the name of your land trust might be "2345 Main Street Trust", which points to the property, not to you.
How a Land Trust is Created
A land trust is created by signing a trust agreement between you and a Trustee who will manage the trust property. After the trust agreement is signed, you then transfer your property, by deed, to the trust and record it at the county clerk and recorder's office.
This deed is the only document that is filed or recorded publicly. The trust document itself never has to be filed or recorded with a public office.
What's more, it is the Trustee's name that will appear on the deed, not yours. Thus, the beauty of a land trust is that only you and your Trustee need ever know who really owns the property.
What's more, you can choose to have yourself as the beneficiary of your land trust, or a corporate entity that you own, such as a limited liability company (LLC) or corporation, which will give you even further anonymity and privacy protection.
Similarly, you can choose an individual, LLC, series LLC, corporation, or limited partnership that you own to act as your Trustee. You can even use another trust to act as the trustee of your land trust.
To get the most privacy and anonymity from your land trust, the Trustee should be someone who is not obviously related to you. Ideally, you want your Trustee to be someone with a different last name than yours and who lives outside the jurisdiction of the court where the trust property is located, preferably in a different state. It's even better if your Trustee's address is listed as a P.O. Box.
Land Trust vs. Incorporation
Like most other trusts, a land trust is created by a trust agreement. This is different from LLCs and corporations, which are created by statute and by filing Articles of Formation or Incorporation with the state.
Since a land trust is not filed with the state, and there is no public place where land trusts are recorded, it provides a level of privacy and anonymity that is very hard to approximate with an LLC or corporation.
You may not want your tenants to know who you are, or who their real landlord is. But, if you hold your property in an LLC, for example, your tenants can visit the Secretary of State's website and find information that ties you to the property. With a land trust, however, there is no place to publicly find this information.
On the other hand, while the anonymity provided by a land trust will make it more difficult for those who wish to serve you with a lawsuit to find you, it won't provide you with asset protection like an LLC or corporation. Thus, land trusts are often used in conjunction with LLCs for even more protection. In this case, the LLC will provide you with a level of asset protection, while the land trust provides you with a level of privacy and anonymity.
Other Reasons to Use a Land Trust
In addition to shielding you from lawsuits arising out of ownership of your property, a land trust can protect you from claims against the property itself, such as unpaid property taxes, HOA liens, water and sewer bills, and things of that nature. Also, a land trust will protect you from contractual claims, such as the signing of a warranty deed that ends up having a claim against it due to an undisclosed lien.
Finally, one of the great things about a living trust is that it doesn't usually need a federal tax ID number (EIN) or need to file a separate tax return, as long as the Grantor is alive This makes a land trust extremely convenient and easy to use.
To learn more about land trusts and how they can work for you, and for helping setting one up in Texas, contact us to arrange a free, no-obligation consultation with an experienced Texas business attorney.