Who's Liable ? Trust On Title
If a property is held in Trust and a suit is brought against the owner who is held liable ?
The Trustee or the Beneficary ?
If a property is held in Trust and a suit is brought against the owner who is held liable ?
The Trustee or the Beneficary ?
As long as both the Trustee and the Beneficiary have not done anything unbecoming as to their powers under the Trust Deed, it is the Trust that is held liable.
Having said that, I hasten to add that you'd better check your specific case with a competent RE Attorney.
If the stakes are high enough a lawyer may request the Court to "pierce the shield" of the Trust. Their aim then would be to get to the beneficiary.
[addsig]
Good point Hawthorn. It sounds like an interesting case. Keep us posted, would you?
Well what I am trying to identify if placing my LLC as the beneficiary of the Trust will be the safest approach....
I planned on placing a family member as a trustee and I dont want them open to litigation....
Can I/Should place the LLC as a Trustee
Why not make a Trust the Trustee and a trust or two the beneficiary?
The more liability fences put up, the better. If you can do one trust you can do many. It will add up possible legal fees for the suing party and discourage possible trouble makers away.
Quote:If a property is held in Trust and a suit is brought against the owner who is held liable ?
The Trustee or the Beneficary ? The trustee is the titled owner. Most often, the language of the trust agreement will hold the trustee harmless provided the trustee has acted within the powers granted to the trustee.
A trust does not provide any liability protection. It does provide some measure of anonymity, making it harder for someone to define how deep your pockets are and may in itself deter litigation. But once a suit has been filed, the trust does not shield anyone from liability.
To limit your liability exposure in the event of a lawsuit, consider using a properly structured business entity, combined with the anonymity features of a trust.
For example, place each of your rental properties into separate trusts. Make an LLC the beneficiary of each of your trusts. Once your LLC's equity reaches $250K, form another LLC to take beneficial interest in the next trust you create. The trusts shield your assets from scrutiny; but once discovered, the LLCs limit your liability exposure to the extent of the assets held by the LLC -- a maximum of $250K.
Dave,
Thank you for correcting me.
All the Trust does is provide an initial shield of anonymity for the ultimate beneficiary.
If your property is "properly" highly leveraged, a nosy attorney will not see any benefit in pursuing the case, and may very well recommend to his client to leave it at that.
You may therefor also want to take this to the next level by making your LLC the beneficiary, as Dave indicated.
Dave, I'm very glad you intervened.
Keep well.
[addsig]
Quote:
On 2004-02-05 06:53, DaveT wrote:
For example, place each of your rental properties into separate trusts. Make an LLC the beneficiary of each of your trusts. Once your LLC's equity reaches $250K, form another LLC to take beneficial interest in the next trust you create. The trusts shield your assets from scrutiny; but once discovered, the LLCs limit your liability exposure to the extent of the assets held by the LLC -- a maximum of $250K.
Dave T Can you clarify that each LLC can protect a maximum of $250K in value or equity ?
No. Your liability exposure under the structure I described is limited to the assets "owned" by the LLC. A $100K property with 80% financing has $20K in equity. This equity is the net worth of the LLC, if this is the only property owned by the LLC.
As you add more properties to your LLC, the equity in each property increases the net worth of the LLC. I am suggesting that you actively manage your assets to limit the exposure in any one LLC to a maximum of $250K (of total equity in the assets owned by the LLC).
If you put more equity into the LLC, then your liability exposure will be higher.
The answer depends on state law and the facts. For example, liability often arises based on negligence, which it turn imposes a duty of care (to keep the property in good repair, for example). Who had the duty under the trustee agreement to make repairs? Does the state in question hold owners to supervise the trustee? Does the state in question go easy on trustee who are just holding title? The answer invariably "depends". Here's one constant - people won't just "sue the trust". They will sue the trustee and or the beneficial owners. A land trust won't protect the beneficial owners. Depending on state law and the terms of the trust agreement, it may not protect the trustee either. An irrevocable trust (much more complex than a land trust) may protect the beneficiaries, but the trustee will very likely be on the hook unless their responsibilities were properly delegated to a management company, in which case it will be on the hook. Trust law is not nearly as cut and dried as many people would have you believe. It varies substantially from state to state.
John Hyre
Interesting you reply since I am concerned about properties in or around the Columbus Area....
I know that the trust doesnt offer protection... But since the LLC is the beneficiary it ultimately should...
To be safe all the way around should I make the LLC the trustee as well as the beneficiary