Using Land Trusts For Anonymity And Asset Protection

Land trusts have been with us for centuries. They’re a powerful weapon that should in the arsenal of every serious real estate investor.

A land trust is an entity that takes legal ownership of a piece of property at the behest of the property owner. The property essentially belongs to the owner, but it doesn’t look that way on paper.

I want to show you a clever strategy by which you can use land trusts to afford you both anonymity and asset protection for your investment properties (and even for your personal property). My law firm has used it successfully with thousands of clients over the years. Ready?

When a piece of property is held in a land trust, it’s very hard to trace the ownership of the property back to a private individual. You see, unlike an LLC, a land trust is not recorded anywhere. There’s no searchable public record. The only recognition that the entity exists is on the deed. The name of the trust appears on the deed, but the paperwork is kept private. And the name can be anything you want.

A trust has a trustee and a beneficiary. The trustee is the person whose name goes on the title, but the beneficiary really owns the trust. Most modern land trusts have a fairly passive trustee at the helm, while the beneficiary holds all the real power and rights. Remember that.

And so, if you don’t want people to know you own a property, here’s what you do:

Establish a land trust to hold the property. Call it HappyFace Trust, for instance. You’ll deed your property over to HappyFace Trust and you’ll name a nominee trustee—someone other than yourself—to put their name on the deed. This person, an attorney for example, will serve in the trustee role but only for title transfer purposes. You’ll name yourself as successor trustee of HappyFace Trust.

So, if Bob Bobson were serving in role of nominee trustee for you, the deed would read, “Bob Bobson, trustee for HappyFace Trust.” And you would be named as the successor who takes over in the event Bob quits or is fired.

Or resigns.

Aha. And that’s the key to the strategy. A land trust is a grantor trust, which means that it is revocable. It can be changed or withdrawn at any time the grantor is alive. So as soon as the purchase is complete, the trustee will resign. And they will give you a trustee deed, appointing you the new trustee. You won’t do anything with this document for now; you’ll just keep it on file.

Because here’s the thing: the trustee deed goes into effect the minute you receive it, but it is not entered into any kind of public record. Again, it’s a private document. What that means is that Bob can resign from his trustee position immediately after the sale, making you the legal trustee of HappyFace Trust, but Bob’s name can remain on the deed.

Do you see how this works? You become the legal trustee, with all the attendant powers, but Bob’s name remains on the deed for public-facing purposes—until such time as you want to sell or refinance the property.

This strategy is highly effective. I get messages every week from real estate investors who are trying to acquire property they presume I own—because I’m the nominee trustee. Most people, even attorneys, don’t understand how land trusts work, and that’s to your advantage as an investor seeking privacy.

As great as land trusts are at providing anonymity, however, they don’t offer asset protection (except in Florida). If somebody slips and falls on your property, they’ll still sue the beneficiary. The solution? Don’t name yourself the beneficiary. Name as beneficiary an LLC that you’ve set up. That way, if someone sues the land trust, any potential damages will be contained to whatever the LLC owns—liability won’t spread to you personally or to your other holdings.

I love this strategy, but I’ve only spelled out the basics above; as always, you’ll want to talk to a qualified real estate attorney to help you execute the plan.