Client Portal

Land Trusts Are a Powerful Tool to Shield Real Property from Lawsuits

Posted on: March 16th, 2016 by Ken Smith


land trust pic


Land Trusts Are a Powerful Tool to Shield Real Property from Lawsuits   

The biggest advantage of a land trust is that provides privacy for real estate investors. The biggest disadvantage is more taxable income from the Real Estate because a land trust is not a pass through entity taking advantage of more deductions.
Land Trust avoids the due-on-sale clause of a mortgage. You can make someone else the beneficial owner and the mortgage will remain as is.
The biggest benefit of a Land Trust is it hides the ownership of real estate. Title to the property is held in the name of a trustee, who is forbidden to reveal the beneficial owner. The beneficial owner or “beneficiary” can be an individual or the LLC you already have for further protection.
The first thing a lawyer does before suing is check the public records for possible equity to be awarded in a lawsuit.
An LLC’s holdings and loans are public record. A Land trust’s holdings are not. If a lawyer thinks your poor, (because all your property is invisible in a land trust) he moves on to other easier targets.

Land Trust versus LLC:

A land trust affords the same type of asset protection as an LLC with one or two advantages: 1. no state registration fees and 2. no annual maintenance fee or forms.
The disadvantage of a land trust over an LLC is a higher income taxes for income earned by the property in the trust.
The higher taxable income is because a land trust files its own tax return in contrast to an LLC which has pass-through tax advantages, pays no taxes, files only an information return with K-1(s) going to the member(s) and is taxed exactly like a general partnership or for single member LLCs, the taxation is exactly like a sole proprietorship.
The LLC and the Land Trust can buy, sell, lease, mortgage and gift properties.
It’s harder to “protect” ownership information about an LLC, because anyone with Internet access can find the public records on your LLC just by going into the state web site.
Land Trusts should have an independent trustee that shows as owner. This way the true ownership, (and the owner’s true wealth), is invisible to lawsuit.

To schedule an appointment to implement this strategy and others within the context of your unique tax situation, Contact Brown CPA Group, Ltd., at (847) 509-4100.
About the author: Ken Smith is an Enrolled Agent and Senior Staff Accountant with Brown CPA Group, Ltd. We know that success means different things to different people. While a business owner strives to maximize profits, increase efficiency and plan for succession; an individual client is more concerned with tax planning, wealth management, retirement and estate planning. At Brown CPA, we work with you on the total picture. Together, we succeed.

Contact your BCPA Tax Professional for help. We’d love to hear from you.
For your convenience, here are some of our extensions:
Brown CPA Group, Ltd.
Main Number 847-509-4100
X205 – David Thibault
X214 – Bob Ritzwoller
X209 – Steve Lacy
X213 – Kyle Konczyk
X203 – John Jordan
X219 – Vineeth Nalla
X210 – Ken Smith (please send me your comments, concerns, or questions, related to this or other “Tax Tip Tuesday” I’d love to hear your suggestions for future topics!