When it comes to buying property, you’ve probably heard of mortgages and deeds. These are essential documents required for any property transaction, but they aren’t the only options you have for sharing ownership of a piece of property with other people.
A land trust is also an option, and it’s one that can be very appealing. Unfortunately, it’s one that many people don’t consider. Although it is popular among private, nonprofit organizations as a way to preserve a piece of land, it can also be a great option for other property owners as well.
Easy Transfer of a Property’s Title
Land trusts can be a very effective tool for investors with mortgaged property, especially if you are considering transferring the title into the hands of an LLC, either now or in the future.
With traditional mortgages and deeds, that may not be possible. “If you want to transfer that property’s title into an LLC, your lender could trigger the due-on-sale clause, meaning they immediately demand full payment of the loan’s balance before allowing that title transfer,” according to Anderson Advisors. “A land trust can help make that transfer without triggering the payment demand.”
A land trust can streamline the transfer process without you or your company worrying about the payments that would result with more traditional means of transferring property.
Avoid or Decrease Your Chances of Litigation
Traditionally, property has to be listed as an asset. It’s something that you make payments on regularly, make decisions about, and it can affect personal and business dealings, so it’s public record. That can cause all kinds of trouble during legal proceedings.
If a piece of property is in your name, it’s fair game for litigators. Not to mention, you become an appealing person to sue because you have so much property.
A land trust can help you prevent or decrease your chances of being litigated. The agreement you have with your trustee is private, and your land is legally in their name. Generally, people search public records before determining whether someone is worth suing, and without property in your name, they may decide against legal proceedings before they even begin.
Property Transfers Can Be Conducted Tax-Free
Transferring a property can be a lot of work, but it can also cost a lot of money. In many cases, when property changes hands, Uncle Sam wants a cut of the transaction.
That’s not so with a land trust. Transferring the property into a land trust can usually be accomplished without paying taxes.
In addition, the federal government treats the property as if it was owned by the beneficiary listed in the agreement. If the land trust were to dissolve and property were to be solely run by the beneficiary, no taxes would be incurred either.
Avoid Having Your Property Stuck in Probate
Probate is a lengthy process, and it’s one grieving relatives know well. It can last for months or even years. That’s because you have to consider things like:
- Where the probate attorney is located
- How many beneficiaries there are
- Where beneficiaries live
- Disagreements between beneficiaries
- Complexity of the assets
- Contest of a will or transfer of property
A land trust can greatly simplify this process. It allows those who will be in charge of the property to be listed in its documents ahead of time so the property can be transferred immediately.
It’s a Great Way to Facilitate Multiple Ownership
When it comes to a home, there are only one or two owners, but what about real estate with multiple owners? Getting everyone in a company or representatives from multiple companies to sign traditional paperwork is not only a hassle, it’s nearly impossible.
A land trust is really the only way to parcel out the legal divisions of a piece of land. Trustees can be added to the document or removed from the document relatively easily compared to traditional agreements.
However, it is important to note that a land trust is meant to be used as a privacy device and not a corporate entity. It does not have the protections that are allowed to corporations and LLCs, which means a beneficiary can be held liable if there’s an accident. That’s why it’s recommended that an LLC or another partnership is formed to stand in as the beneficiary in a land trust.
Land trusts, like most legally binding contracts, can be complex and a bit difficult to understand. Make sure you discuss your options with a legal advisor to ensure you make the best decision for your situation.