Illinois was the first state to create land trusts and is the reason other states sometimes refer to such trusts as “Illinois land trusts.” Florida, Indiana, South Dakota, Virginia, and Hawaii are among the other states that recognize land trusts by law. Many other states recognize the validity of a Land Trust but do not have specific statutes authorizing its use.
Ultimately, the property itself can be reached in a lawsuit (even with an out-of-state trustee), but your plan should be to stay as far out of the eye of the storm as possible so they don’t reach any of your other assets. . A leveraged judgment bond against your individual building of 10 units is a problem. But, a lawsuit against you, in your personal name, is a much worse situation.
The next important piece of the land trust puzzle is the DIRECTOR of the trust. When a deed is prepared to convey property to a land trust, the deed must state that the trustee simply has title to the property without any right of mortgage, lease, conveyance, exchange, option, barter, etc. Without a written address from the beneficiary or someone he has designated, the trustee cannot act and nothing can happen. However, if the beneficiary appoints a director to act on his behalf, the fun begins.
The length of tenure and limits of authority can be restricted for the director in the land trust agreement, thus ensuring that abuse does not occur. Upon expiration of the director’s term, the power of director may automatically pass to the SUCCESSOR DIRECTOR or revert to the original beneficiary. It is important to keep a director for your trust if he wants “control” of your trust to be out of his hands and into the hands of someone he can trust.
One person may be all of these people: trustee, beneficiary, and director. Hopefully now you can see the downside in such a structure.
Attorneys often recommend that the trust be named after the owner, such as THE JOHN DOE LAND TRUST, and that the owner hold all of the positions listed above. If your attorney suggests this, find a different attorney (preferably one who has studied Land Trust law for over an hour).
Its director must be chosen as carefully as its trustee. Again, if you’ve developed friends who understand “the show,” you can all help each other and achieve the privacy you’re looking for. Once you begin to understand land trusts, you’ll find that you actually don’t even need to name a trustee when forming a trust. You can simply give the trust a name (what’s in a name? see below) and “stick it up” until such time as you need to re-deed the trust property. But this is another topic too long for this report.
Again, ideally, your manager should be located in a different state (and use a PO Box address) than the rest of your “group.” If this is not possible, at least select your director from a city other than your own. All of these positions we are discussing must have successors listed in your trust agreement to ensure the orderly transfer of power, in accordance with your wishes.
It is extremely important to keep the trustee and the director legally separate. The trustee should never do anything with the trust assets unless directed by the director through a Letter of Instructions. If you don’t trust a single director, he can create a Board of Directors. Therefore, he can require a majority vote before taking any action (instruction given to the trustee).
You may select some relatives and some non-relatives to serve as co-directors. Or you can put some of your heirs on the board of directors to introduce them to the world of land trusts (so they’ll be familiar with the subject when it’s their turn to “take the reins”).
Whatever you do, make sure you can trust your director(s) implicitly and select someone who has a similar mindset as you. If that person is not available to you, then it can be the director of your own trust. The appointment of a director is an unregistered private act that needs to be published only when required by an act of the beneficiary (you). So you can still retain control in a very roundabout way.
States have different laws when it comes to the use (and abuse) of land trusts, but Illinois is by far the granddaddy of them all. Illinois actually developed the modern “land” type trust from English common law; however, specific statutes in other states allow land trusts to exist.
When properly drafted, land trusts can be used in most states. However, some states are smarter than others, so check your own state’s laws. For example, in some states you can avoid the transfer tax on real estate transactions by placing your property in a land trust and then selling the beneficial interest in the trust. However, other states have passed laws that require notification to taxing agencies if even a portion of a beneficial interest is transferred (ie, Illinois).
This way, they can not only charge you a transfer tax, but also increase your real estate taxes as a result of the new sales price. Fortunately, no state has yet been able to find a way to tax the sale of an OPTION on beneficial interest. Options are extremely private transactions and will be covered in future reports.
When financing property held in trust, a commercial lender will require (if wise) an assignment of beneficial interest and an assignment of power of director. This effectively gives the lender control of the property and prevents any fun business on the part of the beneficiary. Obviously, dealing with a commercial lender violates his confidentiality as a beneficiary.
Though by having your trustee sign the note and mortgage (and you only sign the assignment and collateral forms), at least your name won’t be published in the local county record when all the papers are filed. In other words, nobody will know that the property is yours and that you are financing it.
One of the most important concepts to include in your land trust agreement is the restriction that your trustee never reveal the names of beneficiaries or their locations. You can also prevent the trustee from disclosing the location of the beneficiaries or releasing a copy of the Trust Agreement without the written permission of 100% of the beneficiaries, or a written court order containing an indemnity clause protecting the trustee from a lawsuit for “breach”. trustworthy.”
Now, if your trustee is pushed too hard, your only alternative is to step down as your trustee, thereby keeping your trustee confidential. Also, if your trustee is out of state and only has a PO Box as an address, it will be very difficult to find them to start legal proceedings.
It is not illegal to operate under a “fictitious” name. Just fill out a simple form at your county courthouse and violate – you are someone else! Imagine that your trustee operates under a fictitious name and your trust operates in the same way. This will drive process servers crazy!