What's up guys.
It's Clint Coons here and in this video we're going to discuss whether or not
a land trust provides asset protection.
Okay, let's get started.
Okay, so what is it about a land
trust that attracts real estate investors to this particular tool?
Well, obviously, if you've gone out there, you've done any research or if you watch
several of my other videos on my channel regarding land trusts,
you know that it can be very effective when it comes to transferring
real estate from yourself to other business entities.
You don't alert lenders.
The fact that a property's been transferred,
it allows you to move assets out of LLC
without incurring any additional tax liability if there's transfer tax.
And so there's many tax and privacy reasons
why people use land trust, but there's also an assumption made,
and that is that by using the land trust, you're going to have asset protection.
And this is where we see a lot of real estate investors make a mistake.
They hear about this great tool
and there's a lot of people actually tout it is offering asset protection
and they just take that initial step, set up a land trust,
put their property into it, and they believe that they are protected.
Well, unfortunately, I'm going to pull back the curtain here
because land trusts themselves do not offer that is right.
Do not offer asset protection in the real sense.
And what do I mean by that?
What I mean is that if you set up a land trust right here, here's
my land trust and as you know, in a land trust, you're going to be the beneficiary
and you're going to have a trustee that's involved with this trust.
And if you put property into your land trust, and so you deed it into the trust
and something were to go wrong
with that, that a tenant slips and falls and they're going to sue.
Well, who do they sue?
They're going to sue the property owner.
And the property owner happens to be the land trust that you set up
and it's entitled to property.
Then they sue this trust and the trust itself.
It is a guarantor trust.
So what that means is that
in this particular type of grantor trust, there's zero asset protection.
So they will sue the trust.
And this actually happened to a client of mine.
They sued the trust.
And through the discovery process, they found out
that my client was the beneficiary, the trust.
And see, my client
set up this trust on their own and they transferred the real estate into it.
They remained the beneficiary on the trust.
So what happened was they turned around and they added,
My client in as a codefendant in the case.
So basically they were suing both the trust
and the beneficiary of the trust in that lawsuit. Why?
Because there's no asset protection with this self settled trust,
because that's essentially what a land trust is. It's a self settled trust.
You set the trust up, you put assets into it.
You're the beneficiary, the trust.
So if you want self settled trust, watch my videos on asset protection trust.
I'll explain how that works.
But in this particular case, you're not going to have asset protection here.
Now there is a limited exception to this and that has to do with Florida.
In Florida, they have a statute that provides asset protection
for beneficiaries.
If something were to happen here
where the trust gets sued, if you're a beneficiary of a Florida land
trust owning Florida real estate, well, you're protected.
Now, that's the only state that has this type of protection in Florida.
Now, the other thing about land trust that you should be aware of
is that let's assume the lawsuit doesn't originate on the inside or originates
on the outside.
You're driving your car
and you you run someone over with your car and they turn around, they sue you.
And no easy example to use.
I'll give you a better one.
Let's say that you default on a lease and then the lessor
comes after you for the deficiency that's remaining on that lease term.
They get a judgment against you for $300,000.
They bring you in the supplemental proceedings.
What do they get?
Well, they get whatever they can attach.
And if you have to disclose which you would your assets,
which would be a beneficial interest in the land trust,
well, they're going to move against that
and they're going to go after and they'll take your beneficial interest.
That's what I mean by it doesn't offer asset protection.
Now, this particular situation
that occurs nationwide, Florida doesn't give us any exemption there.
In Florida, there are laws only inside out, not outside in.
So land trust, by their very nature, or what we call title
holding vehicles, they are not asset protection vehicles.
However, sometimes we may use
the term asset protection when referring to a land trust
because there are certain ways to achieve different types of asset protection.
Mainly this with a land trust, you can set this thing up with anonymity,
meaning you can create a trust where your name won't appear on the filing.
But is the deed filing where you're transferring property in because you're
using a nominee trustee and that could be someone like myself.
So we had Clint up there on the trustee of Your Land Trust.
You transfer title into the name of this trust.
It's going to come into my name as trustee.
Now, before you freak out and say, Well, I wouldn't want to do that,
I've got other videos discussing this, check out my channel.
You'll see where I talk about who can be a land trust trustee and how it works out.
But the point is, is that when you do that title no longer is vested in your name.
It's vested in a trustee for this trust.
So your name doesn't appear on title.
The other thing
you do is use a limited liability company that you set up, say, in Wyoming.
So again, they would see the LLC name.
They don't see your name.
And that's the whole idea
here is by having an annuity, people don't see through to you
and by not seeing you, you decrease the likelihood that someone
wants to come after you because they think you're a deep pocket defendant.
Now, the other aspect about land trusts, if you want anonymity,
which I would assume you do,
and that's why you're watching this video and you subscribe to my channel.
Oh, by the way, if you haven't, make sure you are.
So you get other video or notifications of other videos like this
when they come out.
So here's the thing.
If I wanted asset protection for my land trust, I need to take an additional step.
And the way we accomplish that is through the use of limited liability companies
or other forms of entities that provide asset protection.
And the way that works
is that when you set up your trust, when you're the initial beneficiary,
you then turn around and you assign your interest to the LLC.
So we transfer our interest to the LLC, of which we are a member of this LLC,
possibly your manager of your limited liability company.
But, but it goes back to this that if somebody sues
now, they're going to sue the trust and in turn they'll come after the LLC.
Who's not involved in that case? It's you personally.
And that's what we're trying to accomplish, right?
We don't want your property to drag you into a lawsuit, put all your assets
at risk, personal assets, because of something that happened
with the tenant on a particular piece of real estate that you own.
Now, on the converse side that was inside out, what about that
outside in problem we talked about with the car accident or the lease?
Well, here you're going to rely on your limited
liability company charging order protections.
Again, search that across my channel.
If you want to learn more about charging order protections, it's a great asset
protection benefit of setting up an LLC, provided you set it up in the right state.
That is key when it comes to protecting your investment.
So then you're protected.
Here they can't get up through the LLC and into your land trust.
So land trusts, they do have a purpose.
They, they provide a, a certain aspect of asset protection.
It depends on how you look at it,
but not in the common context that most people think that, Hey,
I put my property in the trust, I have to do nothing more.
If somebody sues me unprotected, it doesn't work that way.
We're looking at as anonymity.
Maybe it's in Florida or the last one is make sure you're using a limited liability
company as your trust beneficiary because you like the video.
Make sure you hit the like button
and be sure to say too, because I got a lot more content
coming out that will help you with your real estate
investing from a tax and asset protection standpoint. Take care.