I am starting to get a grip on sub 2’s. However, I still have a few questions based on one of JIM FL postings. Mostly concerning setting up a land trust.
Just so I understand:
1- . Is it absolutly nessecary to set up a land trust or is it just a good idea?
2- The main purpose of a trust is to hide the title transfere from the lender?
3- Are than any tax benefits or consequences of a trust?
4- How do you set up a land trust? CPA? Attorney?
5-The buyer (me) will be the trustee, but the sellers will actually own the trust untill I get someone to buy the house and pay off their loan. Is that right?
6- What excactly is a trust? Just its own entity?
7- So when the seller(grantor) signs a warranty to trustee(ME), will this name me directly or as trustee of such and such trust? What will be the verbage?
ok, so the following is what I have so far on how to work a trust within a sub 2 deal.
1-set up a trust and name myself as trustee, but at this point the seller still own the trust
2- have seller warranty deed the property to the trustee(ME), record this
3- have seller assign a beneficail interest in trust to me. Now does this name me as trustee or just as me? This basically transferes ownership of the trust to me or my LLC is that right?
Team me,
I’ll try to respond, since I posted the description.
I’m sure others will respond as well, giving you their perspective.
I’ll just run down your list and respond within, if that’s okay.
You asked:
“1- . Is it absolutly nessecary to set up a land trust or is it just a good idea?”
REPLY:
Some folks do buy properties all the time, sub2, and do not place them in a land trust. I know a local guy who is holding about 50 of them, in his LLC, and just had the seller deed them directly there, no problems with loans being called etc.
Personally, I prefer to keep who owns the properties out of public record, and the trust helps with that.
Next you said/asked:
“2- The main purpose of a trust is to hide the title transfere from the lender?”
REPLY:
Well, that’s one benefit, and its a good one. Another benefit is this…imagine, you sign a house up with a seller, taking title in your name. A few days later, you are in a car wreck, and get sued, resulting in a judgement against you. That can attach to any real estate owned in your name. Since the properties are held in trust, it won’t attach, unless a lawyer spends the time and money to find it…which most won’t if it proves too difficult. Not bullet proof, and certainly not asset protection, that’s what entities are for, and liability insurance. Just another layer for folks to dig thru, and why make anyones life easy who wants to come after you.
Next:
“3- Are than any tax benefits or consequences of a trust?”
REPLY:
A land trust as far as the IRS is concerned is flow thru, meaning, the benefits of owning the property held by the trust pass on to the owner of the trust. Check IRS pubs for this, or consult a CPA to verify, since I’m not one.
Next:
“4- How do you set up a land trust? CPA? Attorney?”
REPLY:
For the first one, yes, use an attny to set it up, and get the forms needed that comply with your state laws etc. Most courses that teach sub2, do come with sample forms, and these are GREAT to use to have the attny draft good ones from, since the samples show your intent. After that, you can do them yourself, and the cost is simply notary expenses, and recording fees, plus title work/insurance for the entire sub2 transaction.
Next:
“5-The buyer (me) will be the trustee, but the sellers will actually own the trust untill I get someone to buy the house and pay off their loan. Is that right?”
REPLY:
Nope, not really. I act as trustee ONLY when I am reselling the property right away, and the beneficial interest holder is the seller, who then assigns that to my entity. However, its better in my opinion to have an individual from out of the state with a different last name than your own as truste on the deed you record placing the house into a trust. After this is done, I then get a POA for the trustee to manage things, and substitute the trustee in other cases, and prior to close.
No, once the sellers sign with you, they deed the house to a trust, and sell you the trust, leaving the sellers with ZERO OWNERSHIP of the property. When BUYING sub2, you are doing just that, BUYING…as in, taking ownership.
Next:
“6- What excactly is a trust? Just its own entity?”
REPLY:
Here is a definition of that for you:
LAND TRUST:
A form of ownership whereby property is conveyed to a person or an institution called a trustee, to be held and administered on behalf of another person called the beneficiary.
Next:
“7- So when the seller(grantor) signs a warranty to trustee(ME), will this name me directly or as trustee of such and such trust? What will be the verbage?”
REPLY:
Correct sort of.
The seller is the GRANTOR on the deed, and they are granting title to the trust, with wording something like this:
‘WHOEVER your trustee is, as Trustee and not personally under the provisions of a trust agreement dated the BLANK day of BLANK Two Thousand and BLANK, known as Trust Number WHATEVER YOU NAME THE TRUST’
Make sense?
Next, you asked/said:
“ok, so the following is what I have so far on how to work a trust within a sub 2 deal.
1-set up a trust and name myself as trustee, but at this point the seller still own the trust”
REPLY:
Hopefully, you see above, yes, you can be trustee, but not a great idea, and in fact, being trustee and ben. int. holder makes it a dry trust, but when reselling fast, that doesn’t really matter, according to my attny. Otherwise, do as I suggested and use someone else as trustee. But yes, when the seller deeds to a trust, the trust owns the house and the seller owns the trust, UNTIL they assign ownership of the trust (beneficial int. holder) to you.
Next:
“2- have seller warranty deed the property to the trustee(ME), record this”
REPLY:
Yes, the deed needs to be state law compliant, and then gets recorded, this is what conveys ownership (Title) to the property, into the land trust on public record. Title is conveyed once the deed is signed and delivered, recording simply makes it public record.
Next:
“3- have seller assign a beneficail interest in trust to me. Now does this name me as trustee or just as me? This basically transferes ownership of the trust to me or my LLC is that right?”
REPLY:
When the sellers assign ben. int to me, its not really to me, but an entity I control, like an LLC or corp.
The trustee is a person, and assignment of ben int goes to an entity, making it even harder to find who owns the property.