Land Trust Same As LLC?
I've been trying to read through some of that past discussions but can't get a grasp on why people would put properties in a land trust over a LLC.
This may not be a huge deal since apparently Tennessee doesn't recognize Land Trusts but I would appreciate any advice or direction on the differences of both, along with positives and negatives. Thanks in advance.....
A trust provides some measure of anonymity. A LLC provides some measure of asset protection by limiting your liability to only the assets held by the LLC.
The two are not mutually exclusive. In fact, they should probably be used in combination. For example, let's put your rental property in a trust with your LLC as the beneficiary. The trust is your cloak of invisibility, making it more difficult to link you to your assets. Once the cloak of invisibility has been infiltrated, the LLC is your suit of armor against the slings and arrows of the lawsuit.
Thanks for explaining that Dave, I was confused on that myself.
Kelly
Dave, thanks alot for you answer. I feel I understand that better now. One more point of confusion though.......If the trust is supposed to keep you from being as visable, but then people can still get through why are they even needed? Do people give up when they can't find the information they need? It might be good if you could provide an example of when it would be helpful. Thanks
It is possible that the people that will be trying to find the information, Your information are in the process of finding reasons to sue, or for some other reason trying to ascertain your net worth.
In the lawsuit business in particular, it is easier to get an attorney to represent you on a contingency basis if your target has very deep pockets. Most contingency attorneys will perform a basic search to see what the potential target of the lawsuit is worth before they make a decision to represent someone. This search is generally not very comprehensive, as better searches start to cost money. This process weeds out most of the potential litigants and leaves only those that are serious about wanting to sue someone, because now the attorneys want retainers etc. to start the process.
While Land trusts don't provide any real asset protection, it is a good asset protection planning strategy to do what you can to avoid looking like you have money or assets.
A land trust takes 3 minutes and $10 to set up. Once the property is in the land trust, the only way to find out who the beneficiary of the land trust is, is to sopoena the trustee to court. An attorney does a search on your name to find out what you have to take and finds absolutly nothing. This will deter most attorneys most of the time. If they do go digging, you make them work their tail off to find your assets. Even then, if you structure it right, and they don't know how to ask the right questions, they still won't find the assets. For example:
Q: Are you the beneficiary of a trust?
A: No (My LLC is the beneficiary, not me)
Q: Are you the manager of a corporation?
A: No (Again, I'm A manager of corporation)
If you do nothing more than put your home in your wifes name rather than your own, you'll deter 50% of the lawyers. Put it in a land trust and it's more like 95%. Have a land trust with multiple beneficiaries (being LLC's) and they'll have to have a really good reason to go to all that work to go after you.
In the event that they do successfully sue your LLC, they can ONLY access the assets within that LLC. So, what if you have $500K of assets and $800K of liens against those assets? (placed by another corporation that you have). There's nothing to get at. Additionally, you can have the land in one LLC and the structures in another. You can have a managing LLC that has all of the liability, but none of the assets.
If you only have one or two houses, a single llc and a couple of land trusts will be more than enough. As you get more you'll want to go to greater lengths to protect what you have. I know a developer who does very well for himself. He says that he spends about half of his time and efforts protecting what he has. For example, he wears a recording device ALL OF THE TIME when he's working and keeps audio records of all of his conversations that he can use in court when necessary. [ Edited by hibby76 on Date 03/05/2004 ]
Wow thanks alot guys this information is incredible. I have to say Hibby your making me want to attend law school...ha ha ha. You sure know how to motivate someone. Thanks again and happy investing.