A big fat jacket
Last week, we made an analogy between how you protected yourself from the elements as a kid when you played in the snow and how you should use that same logic to protect your assets. Both should be done in layers.
We talked about layers commonly used to protect financial assets — things like corporations and how the corporate shield is a great line of defense from a lawsuit. We talked about how having the right insurance can protect you from catastrophe and theft and how even debt can be a form of asset protection.
Just as you wrapped your torso in layers before you went out into the snow as a kid, these three layers should be a part of your asset protection plan as an adult. But there’s a fourth layer that surrounds them all like a big fat jacket. It’s a called a land trust.
Land trusts operate much like other entities. The organizers of land trusts are called beneficiaries. Not only do they form the trust, but they appoint a trustee to act on their behalf and at their direction.
Think about it like this: the beneficiaries are like the executive board members of a corporation, and the trustee is the CEO. The CEO does what the board members decide to do. In the same way, the beneficiaries direct the trustee as to what should be done with assets held in the trust.
The perk of being the beneficiary is that you get to use the assets held in the trust. So, for a rental house held in trust, for instance, the beneficiary would get to enjoy the rental income from that property.
Now, what makes land trusts attractive is that they offer a tremendous amount of privacy. You see, other entities must have officers, registered agents and other such information on file and registered with the state in order to exist.
A land trust, on the other hand, is kept completely private. The beneficiaries are not public record, and the land trust agreement is kept confidential by the trustee. The only thing that goes on file is when a property is deeded into a trust. At that point, the name of the trustee and the name of the trust are recorded on that deed at the county courthouse. Other than that, no other information regarding the land trust is public record.
But here’s the thing: to search the public property records, you have to do so by name. And since each land trust has a different name, even if they have the same trustee, it makes it nearly impossible to link multiple properties. This gives you anonymity and makes it harder for someone to research other assets you have if there looking to attack you financially.
With that benefit in mind, I need to make you aware of something though. A trust does not have a corporate shield. It only really provides you with privacy and anonymity. I bring this up because I’ve had conversations with professionals who have said that since land trusts don’t have corporate shields, they don’t provide real asset protection.
I disagree wholeheartedly. And I feel that if most of your assets are in real estate, just having a corporate shield is not enough.
Let’s face it — the biggest threat to your assets is a bogus lawsuit. If you hold all your rentals under one LLC, even though you have a corporate shield, all your assets are at risk.
And since your rentals pay for your livelihood, any lawsuit that threatens them, threatens you personally.
Let’s look at how privacy can help stave off financial attacks.
Suppose you title one property in a single land trust. If a pro bono lawyer can find only that one house when searching public records, your other assets may be safe. But suppose they did sue you to open the land trust and expose the beneficiaries.
What if the beneficial interest of that land trust was held by a personal property trust whose beneficial interest was owned by a single member LLC whose managing member was a multi-member LLC? Then in order to get to an entity that owns anything other than that one house, the lawyer would have to sue four times. That’s a cost a pro bono lawyer would have to consider before taking the case. And more than likely, they would pass.
In this instance, the privacy of a land trust offers asset protection and makes for a great first line of defense.
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.