The Truth About Land Trusts
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The Truth About Land Trusts


What is the deal
with land trusts? Did I do a good job with my
Jerry Seinfeld impression? No. No. Anyway, that’s today’s episode. Let’s dive into it. Hey everyone, I’m
Clayton Morris. I’m Natali Morris. What is the deal
with passive income? That’s what we’re talking
about on today’s episode. Cash flow. Like a it’s like,
what’s up with that? What’s up? For of all, he doesn’t
even sound like that. Yeah he does. He doesn’t go,
what’s up with that? So what’s up, what’s the
deal with land trusts? That’s what we’re
going to talk about. If you’re new to the show,
or if you’re not new, this is the show where we
teach you financial education. The vehicle that we use to
create financial education is this show, our podcast. And the thing that we use to
get there is cash flow with buy and hold real estate. So we buy properties,
for walls and a roof, we create tax shelters. But there’s all these
different tentacles that are involved
in creating wealth. We just did a live show, and
we had so many questions. People are like, OK,
should I set it up as an LLC inside of this LLC? Should I set up a land
trust to buy my properties? How do I set up
my bank accounts? How do I do all of those things? So on today’s show,
we’re going to tackle one of those questions
specifically, what is the deal
with land trusts? What are they? Are they smart for
real estate investing? Should you even
consider doing it? So, is that a good way
to sort of set it up? What do you think? I think so, yeah. And I guess I didn’t
realize that there are kind of sharks out there
who will hold these seminars and talk you into
really expensive land trusts for a couple of reasons. One being that they offer
an amount of privacy, which maybe some people
want, and it’s cheaper than maintaining an LLC. But there are a lot of
reasons not to do this. And so I was reading up on
it over the last week or so, and I think that, I’m not going
to say you shouldn’t do it, although if you read
Garrett Sutton’s book, The Loopholes of Real. Estate, he’s a very experienced
real estate attorney, and he’s saying definitely
you shouldn’t do it. But if you do enough
homework, I think you will think that this
is a pretty crap idea. So now over the years, I’ve had
friends in real estate tell me, you know, I think
you should do it. I’m going to do it. I’m going to put this
property in a land trust. So because– Why do they say that? Well, I think they
want to keep, they want to protect themselves. They want to keep the
ownership private maybe, so that you don’t, for instance,
like maybe Donald Trump, right? He might not want
you to know that he owns this restaurant, right? Yes he does, he puts
his name on everything. Right. But I’m saying– That’s his thing. I’m saying, like what
if there is a backlash. He’s like, you know what? I want to make money
off this restaurant, but I don’t want
people not come here because they don’t like me. So I’m going to hide
the fact that I own it. Right? And I’ve heard people over the
years will buy bundles of land. You know, remember Lex
Luthor in Superman? The first Superman movie
where he was buying up all that land out
west because he was going to bomb California? You know? And so Lois Lane went
out there and she’s like, who’s this mysterious
person buying up all this land. Buying up all that
land and doing it, and frankly, I believe
that’s how Walt Disney did it in Florida when he
started buying up all these orange groves. He started buying up all
of these orange fields, and but he was buying it
under different names, and in land trusts so
people didn’t know that wow, all of these orange groves are
being bought up by some guy. But instead it was like being
bought up by multiple land trusts, I believe. And then, of course, Disney
World was the end result of it, right? So I think that’s why you
might consider doing it. Is that right? I can’t think of another
reason why you’d want to. Well I think the selling
point on a land trust has to do with protection
of your identity. But a land trust offers no
protection of your assets. So if I bought land
in a land trust, what that means is I hire
somebody else to hold title, like a trustee. But if something were
too, OK, let’s say I own an investment property
and I put it in a land trust. And then my tenant goes
out and trips on something that I failed to fix. I’m still liable for
that no matter what. Even though it’s owned in a land
trust, it’s still owned by me. They are eventually going
to find out who owns it and sue me for it. Also, I find it so odd,
because in most states, the law states that when
you rent out a property you have to by law
give your tenants your name, address, and
phone number of who owns it. Because you cannot
ditch out on them. So they need to be able to
reach you no matter, even if you have a property
manager, your name is supposed to be on the lease. That’s the law. Because you can’t
like leave your tenant in a roach infested
environmental hazard. You just can’t do that. So I’m not sure
why you would want to own investment
property in the land trust when you have to put your
name on the lease anyway. But think of it this way. If you hold the title– This brings up a good
question though, because, and maybe we need some more
clarification on that point, because you know you have
these large hedge funds that own like 1,000 units, right? And then these Wall Street
guys just kind of buy into it– you know, a purchase. Like all 1,000 of
those people are not listed on the ownership. But it’s one company,
as an LLC, that owns it. We saw all these big
companies buying up thousands of
properties in Tampa, making high rise condo
complexes that they turned into apartments. Donald Trump’s name is not
there, it’s, just an LLC name, I would think. Yes, and I suppose, I
guess if a hedge fund owned a property they would put
the hedge fund manager contact information. But you do have to have
contact information for the owner on the lease. In most states, that’s the law. But you know, your name
will be hidden from title when you buy something
inside of a land trust. So it will be, the title will be
in the name of the land trust, and the trustee
is this dude who’s giving you a seminar on it. Let’s say he’s like a
greasy guy called Edward. Edward who does– Edward’s the greasy seminar guy. The Land Trust seminar guy. So he’s going around
trying to sell people on the idea of a land trust. He gives seminars and
he talks about how you want your privacy, right? But we talked about in
another episode, when there’s any kind of issue with title. Let’s say that so-and-so left
this building to their nephew. Their nephew never
knew about it, and then they actually did
have a claim to the property somehow down the road. There’s been a gap in
title and you own it, or someone else is
making claim to it. This kind of thing
happens all the time. It will go to
court, and the court will look at what’s
called muniments of title. It means like artifacts. No, its muniments. It’s M-U-N-I-M-E-N-T. Muniment. What’s a malument? I don’t know. It sounds like a salad dressing. I think I heard it
on some legal shows recently when we were talking
about all the FBI invest– maluments clause? What’s the maluments clause? Congress? Anyway, sorry to derail you. I have no idea. You know I don’t like
to interrupt you. Right. OK. So you know, muniments
are any kind of like data. Its artifacts, is like a
document, a death certificate, a marriage certificate,
a deed of trust. So they’re going to go
through the muniments if there’s any kind of quibble
over who owns this title. And if your name is nowhere
in any of the muniments, that’s bad news. You want to make a claim
to a property that you own, I would think. Right? Unless you’re buying it
for nefarious reasons. But for the most part, you
want your claim to that title and to that deed to
be crystal clear. But let’s say, that anyway,
you decided to sort of consider a land trust. Let’s say you take
title in a land trust. The beneficiary is you,
an individual, right? A sole proprietor. So I’m buying into a land trust. The land trust is buying
into some property. The beneficiary is
not an LLC, but just me, Natali Morris, the lady. The consequence is there’s
no asset protection at all. Somebody falls, they can
get ownership of that. That’s an attack number one
that happens on the property. Attack number one
is something that has to do with the investment. Attack number two,
something that has nothing to do with the investment. Someone. Sues me for something
completely different. Like I punched someone
at great America. I don’t know. Then they sue me. Like you can get sued
for attacking people. If you go to Great America,
you’d want to punch somebody. I actually have
seen that happen. That’s why it popped in my head. Is two ladies, their
strollers hit each other and they just started
like punching each other. So like if I got in a
fist fight with somebody, and then like I hurt
somebody really badly and now I’m liable
for their injuries, they can sue me for
everything I have, including what’s
in the land. trust. OK. So there’s no
protection there at all. It’s just protecting,
it would just be harder for them to
find out that I own it. But like you pull the
thread, you eventually can get to what’s
inside the land trust. Now, if you take title in a
land trust and the beneficiary is you as an LLC,
you’re LLC, then the consequences is that
there is asset protection inside of the LLC. So I can get in a fight with
someone at great America, it doesn’t protect my– I’m not liable for whatever
is held inside the LLC. Right? Right. I mean bottom line
is it’s the asset protection and the
personal liability that’s at risk with a land trust by
having the property in a land trust. And something happens. Right. Well it depends. I could become the
beneficiary of the land trust inside my LLC. OK Right. So I buy an LLC, I
open an LLC, rather, and I open a land trust. And I set the LLC as the
beneficiary of the land trust. Well then, I am
protected within the LLC. Right? But now I’m paying
for two services. The land trust, which is usually
a yearly fee, and the LLC, which also has the yearly
filing fee as well. So these are now two
different things. And so people who sell you
the land trusts will say, well this is cheaper. You can maintain the
land trust with me and not have to have
an LLC, but you’re not protected if you’re
the beneficiary as a sole proprietorship. Right? Right. Because as a sole
proprietor, as you know, and if you’ve listened to our
show for any length of time, that’s no bueno. Like you do not want to
be a sole proprietor. How does Tom Wheelwright
describe sole proprietors? He says, oh, we use
this sort of initialism, and that someday
you’ll lose everything. Someday you’ll lose everything. Sole proprietorship. Yes, so do not put
properties in your own name, there’s no reason to. I had that very question
on one of our live shows, people asking us that question. And there’s no reason to. There’s absolutely
no reason to do that. Right. OK. But let’s say you ditch this
whole idea of the land trust. Right. Right? And you just set up an LLC. Well then, the owner is
you as an individual, and your consequences
that you’re protected, your
assets are protected, only within what is in that LLC. So if I punch out someone at
Great America and hurt them– which I’m capable of doing– just so you know. These guns– You’re scrappy. Are like a weapon. Then that person cannot sue me
for what is inside of the LLC. That’s protected. Or protected from
attack number two. You’re not protected
from attack number one, something that happens
inside the building, or something that has to
do with that investment. That investment,
something happens there, that’s an attack number one. I’m liable for whatever
is inside that LLC. So an LLC protects
you from things that land trusts don’t,
but also, they give you this claim to title as well. And so there are
all these people that buy into land trusts
thinking like, oh, I’m good. I don’t need really
expensive insurance because no one would
ever be able to find me. And that’s absolutely not
true, they will find you. And then you’re liable to
everything that you’ve got. Even if you take an LLC as your
beneficiary inside the land trust, well, then
you’re just paying for two different products
that kind of conflict. So even having like
umbrella insurance over top of a land trust, would
that protect you in this way? Or still that would be an
idiot move, like you should, yeah, umbrella
insurance is great, but just get the LLC
because then you’re limiting your liability. Right. Exactly. Yeah. I would say the other thing. Because yes, I guess you
could get an umbrella policy, but there’s always gaps
in an umbrella policy. Like they could say,
for bodily injury, they’ll pay for over and above
this much on an attack number two. But you can do some real
damage with your fists, and you go above that
amount of bodily injury. Then again, if that
happened, I would be liable as a
sole proprietorship all the way through what’s
owned in my land trust. Right? Right. Does that make sense? It makes total sense. So I guess I hadn’t really
thought of it that way. It seems like it’s
an antiquated idea, I don’t know why
you would want it. I mean I guess,
like I said before, trying to hide something
if you’re Walt Disney and you’re trying to buy
an orange grove so everyone doesn’t panic and
try to charge you through the nose for these
dilapidated orange groves suddenly. Because we’re like,
oh, Walt Disney’s buying up orange groves? Guess what? I’m not going to sell
them for $10,000. Let’s sell them for 100,000. It’s Walt Disney. He’s got deep pockets. I can’t think of a– I mean is there– does he talk about– Right, because Walt
Disney could have– not really. I mean, I guess if you are in
a state where your LLC filing fees are high, then you
could find a land trust to maintain your
ownership for cheaper. So you know, Edward, the sort of
greasy real estate seminar land trustee, is telling
you, oh, I’ll hold your property
for only $500 a year and you can put
several pieces of land in here, these
pieces of property. It’s not necessarily
for land, the name is kind of confusing,
because you can own buildings in the land trust. And so, the way it’s set up, is
that one person, as a trustee, agrees to hold the title of
the property of another person for their benefit. Right? So it’s just like
I’ve designated Edward to hold title for
me, but I’m the beneficiary. So you’re hiding yourself,
basically, you’re really only hiding from title. Because then, when
something happens, then Edward’s going to come
find you, and be like I don’t, I didn’t do it, like sue him. He owns it. I’m just holding
the title for him. Right. They’re going to be able
to go after it anyway. And it doesn’t really matter. So you have seventy attorneys
that are going to go after it. That’s fascinating. So that answered that question. I’ve long wondered if that’s
a smart play, if that’s a smart move, and
there are people who sort of think they
believe that that’s the case. But you’re just biding your
time until you lose everything. You really increase
your exposure over a whole wide array of areas
that people can come after you, so it’s not worth it. Right. And they may also
convince you, well, it’s cheaper, because it’s
cheaper than the filing fees of the LLC. And then you don’t need
that much insurance. But in fact, the
opposite is true. How much is a filing
fee for an LLC? It depends on the state. In California it can be
a minimum of $800 a year, and more if you make
over $250,000 a year, then it’s going to
be more expensive. So California is a
really expensive place, so I can see why
Californians might think, well, I’d rather pay $500 a
month for someone to maintain the land trust, and then I can
put several properties inside of that land trust. And then I can not have
very expensive insurance, because I’m protected. But you’re not at all protected,
you’re just invisible. And so you’re unprotected
in terms of insurance, but you’re also unprotected
in terms of any kind of claim to title. Because there’s no muniments
with your name now. Right. So I would love to hear
some people tell us why they do do this. Because in all of my research,
I cannot find a reason to do it. But yeah, we’re open
to your comments. Yeah. So in the comments
thread, please just leave us some
nice detailed comments on why you chose
to do a land trust, why you think it is
beneficial, why you like it. But from what I can
tell from the attorneys that we’ve talked to, and who
are real estate attorneys, this is a bad move. So please explain why you
think this is a good move. I’d love to hear it,
and we’ll do a follow up episode on this very topic. I’m fascinated by it. You can you fix it, right? You can deed the title out of
the land trust to your LLC. You can do that. It’s not like if
you’ve done it so far, then it’s not a forever mistake. You can fix it. But I would definitely talk
to an attorney about it. And that’s the bottom line. You know, we are not
attorneys, we’re just real estate investors who
seek the advice and counsel of really smart people
like Garrett Sutton, and other people
who handle our taxes and setting up all
of this stuff for us. But you know Robert
Kiyosaki uses Garrett Sutton, one of the
smartest real estate attorneys in the country. So he’s written a book on
it, and you can check it out. The Loopholes of Real
Estate, he dives deep into that, as well as some
other great books as well. So again, please leave your
comments in the thread below. We published this show
multiple times per week. Please share it, subscribe,
leave us a kind review. Any final thoughts? If you already have
Loopholes of Real Estate and you want to read up more
about this, read chapter 22. I think it goes into that. Read chapter 22 of Loopholes of
Real Estate by Garrett Sutton. We’ll have a link to
that in the show notes as well in the
description below. You can check that out as well. All right, thank
you so much my love. You’re a genius as always. You’re welcome. I learned a lot, and I hope
you did as well, at home. I hope you guys learned a lot. We’ll be back here with another
episode of the investing in real estate show. Now go out there, take action,
become a real estate investor. Just don’t buy it
in a land trust. Buy it in an LLC. We’ll see you next
time everyone.

20 Comments

  • Blaise Nagy

    Clayton / Natali, investors use Land Trusts for anonymity and when a mortgage is used. Banks won't lend to LLC's and usually have a due on sale clause so the school of thought is not to transfer property to an LLC after purchase, but rather deed the property into a land trust with the investor as the beneficiary and then after closing, you can switch the beneficiary to the LLC without a public record. Question is- would a bank really call a note due if it's performing?

  • james isaacs

    I spoke with someone on your team last week. They told me I would get an email to access the list of properties but I never received the email

  • My Travels

    What about the Series LLC discussed in your podcast with Scott Smith? Have you found that to be a valid structure? Or is plain old LLC still the best way to go?

  • Planetgreenzen

    I do appreciate the service you both are providing. I have a consultation set up in a week or so, with you guys, wish me luck 🙂

  • Daniel Storie

    Your wife is wrong on a big part of her information, I think you guys should research this topic a little further and produce a follow up video.

  • TopTenTuesday

    There are a lot of false information in this video about land trust. 1.) you never put mutiple property in a land trust, because one property got a lawsuit, all property goes down with it. 2.) there are no annual fee for land trust 3.) personal liens/judgement against the beneficiary do not get attach to the land trust 4.) attorneys don’t learn about land trust in school, so the attorney you talk to probably cannot tell you more than some basics about land trust. 5.) yes poeople can file a lawsuit against the trust, but it will be A LOT harder to sue the trust because beneficiary of the trust is not a public record.

  • Angelo Lozano

    Natali asks the quesiton "I don't know why someone would pay for both an LLC and Trust?" I asked my team of experts and it would be appropriate in my circumstance. It reiterates what Blaise said (with a little extra detail): I bought the rental unit under my own name. In order to avoid the "Due on Sale Clause" (which my team has seen in the past, though rarely), placing it in a trust will mitigate that. This goes back to the Garn-St. Germain Depository Institutions Regulation Act which states:

    "a lender may not exercise its option pursuant to a due-on-sale clause upon… a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property".

    To add the legal protection, I would add the LLC as the beneficiary.

    Clayton, Natali, does your research say something to the contrary?

  • Adrian P.

    Hey Clayton: If one buys or sells a property under the name of the LT, it is highly likely that the closing agent will mail you an overpay refund made payable to the LT. At that point, how would one intend to deposit that check that is made out to the name of the LT? Do you open a bank account for the LT?

  • Tony Nelson

    Don't listen to this chic she's dumber than a box of rocks she don't make a lick of sense and she will always be a property manager. This video is like drive your car without a seat belt because they don't really protect you until you have an accident and die!

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