i am looking for the proper forms/wording to do a Personal Property Trust. Several searches on the web only got me to various articles by various gurus who recommend them - but no forms.
Can anyone help?
Run a search on this forum for trusts in re some views on them. I personally think that land trusts & PPT’s are far less useful than hyped…and as a lawyer/accountant/investor, I have a clue on such issues.
Using free documents is unwise - penny wise, pound foolish. If you have something worth protecting, get it done right. Free forms off of the internet are not normally cheap - in that they can easily cost you much more than properly drafted documents.
John Hyre
i think i have some lou brown personal property trust forms lying around somewhere.
if its trusts are so over-rated, how come a couple of 40 yr old RETIRED investor millionaires
in my local club recommend them ???
ever notice how its always the lawyers and CPA’s who pooh-pooh the idea???
Niravmd,
Brilliant response. Take legal advice from non-lawyers because they are wealthy, or so they say. Next you’ll be taking medical advice from car mechanics because they are healthy & auto repair advice from doctors because their BMW’s run well. Brilliant I say, brilllllllllliant!
Trusts are useful in many circumstances BUT grossly oversold by circuit speakers to small (especially newbie) investors. A simple search will reveal WHY I think that. You are of course free to respond with a rational counter as to WHY you disagree. Simply arguing that “rich dad” or his local cousins do it & so should everyone else is entirely inadequate. People who disdain the advice of a good lawyer are the ones most likely to need one later, in more dire circumstances. I suspect you will learn this lesson.
John Hyre
niravmd,
A Subject To student of mine called me recently and related his story of attending a local real estate club.
He said he was in “awe” of the investors there telling there stories of conquest and for many months this went on as he attended the meetings regularly. Then he decided to start investing and within a short period of time he had completed purchasing and selling 4 properties.
Not thinking much about having done only 4 properties, at one meeting he related he was working on his 5th Subject To deal, he said, “you would have thought he was a sign from investing heaven as these same pro investors were all over him asking questions on how he did it, could they do it, etc.” Funny how the “awe” can shift.
It is understandable why a newbie would go for the trust pitch and think their rear ends are covered when in fact it is only a method to sell product and does not always work the way it is promoted in the real investing world.
Not being an “attorney or CPA” and having done my fair share of Subject To deals without using a trust, I guess I will just have to continue on listening to my attorney and CPA regarding legal and financial matters, so I am prepared should the “I don’t have to learn the hard way” occasion ever arise.
John $Cash$ Locke
John Locke is not an attorney or CPA - but he has the sense to use both. I suspect that he heeds their ahe dvice & modifies it based on his own experience & judgment. That’s how it should be done. Ignoring CPA/Attorney’s based on the counsel of a self-proclaimed (or even for real) rich guy is a bad idea. Blindly following the advice of any professional is also unwise. That’s why knowing WHY someone has recommended or disdained a given practice is so important - the consequences (good or bad) of following/not following a given set of advice falls to YOU and it is YOUR JUDGMENT that must ultimately guide you. Without an understanding of the WHY’S, it is difficult to formulate good judgment.
John Hyre
most attorneys have never heard of a land trust.
attorneys aren’t taught all aspects of the law. they are
taught how to argue and read legalese. CPA’s arent even
taught asset protection, so my CPA’s advice on asset
protection is as good as my mechanics.
if you fell down and broke your spine would you use a
doctor you’ve used for years, or would you seek out a specialist?
i’m always skeptical of who i take my advice from. the
first question i ask anyone is what makes them qualified
to answer a certain question.
i have a friend who owns millions of dollars worth of real estate in several countries. in north america, he puts all of
his property in a land trust with an LLC as the beneficiary.
he’s been an investor for 30 years.
thats good enough for me.
i know another local investor who has being doing subject
tos for a dozen years using a land trust.
i dont understand why the concept is so difficult to understand? you put it in a land trust to hide the ownership
of the property. its not foolproof but its a deterent to
lawsuit. if you don’t want to use it, put your stuff in an LLC, thats fine but now everyone knows what you own.
Typical defensive seminar-goer response. You know people who do it and are successful. I know people who are successful & don’t use land trusts.
I mentioned that the WHY’s are important. Understanding WHY something does or doesn’t work and WHY some people use and WHY some don’t is superior to simply aping someone.
Have you even researched why NOT, to make a semblance of a balanced opinion? Did at least look up what I posted on the subject. I doubt it. I’m not saying that you cannot disagree…BUT to form an opinion either way, you need to know both sides. All I’ve seen you is parrot what your “successful friends” do and make a general statement about privacy. I think that the atttude that LT’s provide significant privacy is based on the opinion of people who’ve never tried to find a property owner. Certain types of trusts (read: involved & expensive) can be used to create some privacy. The land trusts I’ve seen are a joke in that respect. They’ll hinder someone who relies on the public auditors’ site AND is dealing with a property that is separately managed (rarely the case with small investors, they run their own show). In short the benefit is so small as to justify very little in the way of hassle.
At least look at both sided of the story before simply copying what others do…or snidely taking potshots at attorneys & accountants. If you bothered to take a minute to research before you write, you would also see that I happen to be one of those specialists you mention.
John Hyre
For many years I owned a Bail Bond Company and learned a considerable amount about what most people only think is hidden from public view.
The fugitive recovery company I used was made up of people who retired from government organizations that had 3 letters from the alphabet designations. For those that have seen a DOJ report on someone will understand what this means.
When a person we wrote a bond for would “skip” or take off, if the bondsman cannot find them they are responsible to the court to pay the amount of the bond. Since we could write bonds for considerable amounts of money, you can see that there are risks involved in this business, should we not be able to track a skip down.
I remember one skip that had a $50K bond with us, I called the fugitive recovery unit we used and gave them the information on file on this person. Within 24 hours this skip was back in our custody, they found him about 600 miles away in a small trailer park in space # 3 of a park that had 10 spaces. The city had a population of about 600.
You might be wondering what this has to do with Land Trusts as being taught on the seminar circuit, compared to finding a skip, breaking a trust to find ownership of a property is a walk in the park.
If a person is sued:
In any discovery, post judgment, to learn what assets a person might have, they have to admit owning a beneficial interest in any trust if that were the case. To say they owned no assets in such a case would be actionable as felony.
A beneficiary in a land trust can be sued and have his beneficiary interest taken away by a creditor.
John $Cash$ Locke
so correct me if i’m wrong, but i’ll paraphrase what i think you’re saying.
assume i buy a property subject to in a land trust where my name is not on the mortage, the title or as the trustee of the trust, and where the trust beneficiary is not publicly recorded.
if i get into a car accident and someone else sues me,you guys are saying that they’ll still find out that i own the property in a land trust??
and supposing if the beneficiary is a C corp of which i own shares. if an attorney asked me in court if i owned a beneficial
interest in a land trust, could i then say no, being that the C corp owns it and not me?
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The most likely lawsuit is from the tenant of the Sub2. They know who they’re dealing with. In the case of small - medium investors, they’ve probably met you personally…signing the lease, etc. There will be a trail to follow even in lieu of that - who pays property taxes? Who signs checks? Which bank accounts are they deposited into? The list goes on. In the case of small to medium sized investors, the answers to most of those questions get us to the investor or perhaps one step removed. Close enough for horseshoes, hand grenades & lawsuits.
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Car accident: It’s a guru-created myth that lawyers check to see what you own when deciding whether to sue. Filing a lawsuit takes about an hour of time & @ $100 filing fee. I’m not going to look for assets - I’m going to file suit and force you to spend lots of time & money just to respond to the suit. Whether you have assets becomes relevant later on…perhaps during the suit if it means I have to spend time & money to fight you, more probably once (if) I get a judgment. In the former case, there are plenty of ways to gauge your wealth. Where do you live? What do you drive? Can I figure out that you are an investor in general? Are you insured - if you are, that alone is enough to press the lawsuit and look for a nice settlement from the insurer. If I actually get a judgment, I bring you into court and force a listing of ALL your assets, including interests in trusts. And that’s all assuming that I cannot find the sub2 house (which is probably overleveraged and of little value to me, at least in the case of all too many sub2 investors) via indirect methods - ANYTHING that touches you and the house will be on the databases - just one teensy water bill that you paid or put in your name is all it takes.
In the case of a Sub2 or free & clear property, a LT CAN provide a superficial veneer of privacy. I say “can” because most small to medium sized investors leave a clue somewhere (usually quite a few). And even that veneer is easily pierced for a minor invbestment in a skip tracer or the like. Obviously, if the property is mortgaged, your name VERY likley is at the recorders office. In my view, the very limited privacy aspects of land trusts do not justify the hassle in most cases. There ARE cases where they are justified - for ease of assignment or avoiding transfer taxes, for example. But for privacy? Rarely what they’re cracked up to be. Of all the people I know, I would have the smallest transaction cost to using LT’s in such a manner. I rarely bother, and when I do, there’s usually a motivation other than the limited privacy those devices provide. Before computer databases, I’d have seen greater privacy by using a trust. For the truly wealthy, there ARE privacy benefits to certain kinds of (generally expensive) trusts. Land trusts provide a fig leaf at best.
In re attorney asking the question that you posed: That’s another guru myth. The attorney (unless a complete idiot) will ask: Please provide a list of EVERYTHING that you own directly or indirectly, in your name or otherwise, or have owned within the last x years (just in case eveything got retitled into cousin Cletus’ name, a common dodge known as a “fraudulent transfer”). Omitting from that list is PERJURY. Democratic presidents from Arkansas get away with it - everyone else doesn’t! The attorney will ask more specific questions for certain, but playing cutesy (the definition of “is”, anyone?) will get you in trouble in they choose to investigate (PI follows you?). Happens all the time.
John Hyre
niravmd,
I have said many times, I am not fond of attorney’s, but not crazy enough not to use one.
John Hyre is familiar with the creative investing industry, if you read any of his posts where he is answering an investors question, it is to offer guidance to the investor.
When a Land Trust issue came up where the investor who used a trust “out of a course” (not John’s or anyone asscociated with him) ran into Attorney General problems, John was one of the first one’s offering to help this investor and I believe offering his services pro-bono. To me this tells me what kind of stuff John is made of.
Here is a case (in part) where someone was advising on Land Trusts.
Florida Bar v. Hughes, No. SC01-617 (Fla. 07/11/2002)
Hughes admitted knowing that, in July 1997, this Court enjoined him from counseling, advising, and preparing documents for individuals in the creation and transfer of land trusts.
However, Hughes considers himself an expert in the Illinois-type land trust. *fn1 Despite the injunction, Hughes advised others, including Mr. Larry Bunting and Mr. Keith Barbour, about land trusts.
Also, Hughes has drafted land trust forms that he uses to create or transfer land trusts. Further, Hughes manages property wherein he either has an interest in the property or he is the trustee under a land trust agreement, and he buys and sells real estate either as a beneficial owner or as the trustee.
CONCLUSION
Accordingly, we agree with the referee that Robert E. Hughes, Sr., continued to engage in the unlicensed practice of law, thereby violating the injunction issued by this Court in Florida Bar v. Hughes, 697 So. 2d 501 (Fla. 1997). Robert E. Hughes, Sr., is hereby found in indirect criminal contempt and is sentenced to ninety days’ imprisonment.
However, that sentence is suspended contingent upon Hughes’ full compliance with the injunction and the other terms recommended by the referee, including payment of the $500 fine.
Further, Hughes shall not engage in the practice of law and the injunction enjoining him from engaging in the unlicensed practice of law in Florida shall remain in effect. Judgment is entered for The Florida Bar, 650 Apalachee Parkway, Tallahassee, Florida 32399, for recovery of costs from Robert E. Hughes, Sr., in the amount of $1,923.62, for which sum let execution issue.
If an investor is looking for asset protection then employ the services of a professional who understands asset protection, if an investor is looking to see that his paperwork complies within state specific guidelines, then employ a professional to review your paperworkand offer you guidance.
One of the main reasons our industry is currently under attack from state and federal authorities is because the proper paperwork was not used. Creative investing done properly can be very rewarding, hiring an attorney to review your paperwork is just part of doing business.
John $Cash$ Locke
thanks for elaborating in great detail. i know you’re busy with tax season and i greatly appreciate it.
John.
I have enjoyed this conversation and your remarks. I have a (insurance)client who uses trust’s on everything he buys (draws the documents himself). Let’s use your example:
- The most likely lawsuit is from the tenant of the Sub2. They know who they’re dealing with. In the case of small - medium investors, they’ve probably met you personally…signing the lease, etc. There will be a trail to follow even in lieu of that - who pays property taxes? Who signs checks? Which bank accounts are they deposited into? The list goes on. In the case of small to medium sized investors, the answers to most of those questions get us to the investor or perhaps one step removed. Close enough for horseshoes, hand grenades & lawsuits.
If his brother is the beneficiary of the trust (the one you sue, right?) and lives in California, he lives in New York, don’t you the plantiff attorney then have to bring suit in California? The property is in New York, as well as the party bringing the suit.
Is that deterent enough to use trusts? Help me understand this, as I insure over 237 landlord’s and am asked all the time about trusts. Most attorney’s here won’t do them and investors are confused as to all they hear from these “guru’s” who sell courses.
Thanks, John!
Confusion is the norm with trusts. Part of the reason is that few lawyers understand them - it really is a specialized field. Part of the reason is guru hype & consumer gullibility. Most gurus care about one thing: selling as many courses as possible. Part of the reason is that trust law is complicated, common-law-based and varies greatly from state to state. In contrast, for example, entity law is fairly uniform between states, relatively simple and statute-based. Laymen can do entities at home with a good chance of success. Trusts (excepting simple land trusts) are not the ideal do-it-yourself project (that’s a serious understatement).
To your question: Depends on state law. First, when the beneficiary & the grantor are well & truly different people (and not a sham, like putting all my assets in my cousins name to try & avoid creditors), you know longer have a typical land trust. If the gantor has the ability to revoke the grant of property (likely) and/or a general power of appointment (meaning I can replace trustees & even beneficiaries), the trust is still clearly a revocable trust…meaning that if I get a judgment against the grantor (your client), I can “seize” his powers, undo the trust, and take all of the stuff WITHOUT going to CA.
If, on the other hand, your client-grantor has made a truly irrevocable grant to the trust (can’t change beneficiary or trustee, no sham, in that CA brother is giving me his money, etc.), then I cannot execute a judgment against NY client on trust’s assets because he TRULY doesn’t own them. This is an irrevocable trust and it does provide asset protection. The downsides: You DO NOT OWN THE PROPERTY! Depending on the terms of the trust agreement, the trustee and or beneficiary are in control. This is way such trust agreements are so long & expensive to draft - the grantor wants to limit trustee/beneficiary actions before relinquishing control & ownership of the assets. Bear in mind: In all but four states, if the grantor is a beneficiary, no asset protection. This would include a “wink. wink” agreement between the brothers.
Of course, if the trust owns a property that was connected to the litigation, that property is vulnerable - but the vulnerability is not limited to that property. Rather, once the responsible party is determined (e.g., the manager of the property), that party’s assets are subject to seizure to satisfy a judgment. If that party is an undercapitalized entity, two things happen: First, the entity gets pierced. Second, SOMEWHERE, SOMEHOW, a human being fouled up - that human being gets sued. In the case of large companies, it may be an employee - but the largeness of the company gives me plenty to go after. In the case of a smaller company, it’s probably the owner who was ultimately managing things - that’s who I’d go after, among others.
If I were looking to seize trust assets, I probably need to serve the beneficiary in CA - which is not at all the same as litigating the case in CA. If I cannot find the beneficiary or (better yet), they avoid me, I can eventually petition the court to allow me to serve by publishing in the paper. Because no one ever reads the paper to see if they are being sued, I will get a default judgment. For an example of how that happens, take a look at a foreclosure where the spouse on the deed has disappeared. Once service of process fails, the spouse gets sued as “John/Jane Doe, spouse of such & such”. Invariably there’s a deault judgment b/c service by publication is never in fact received by the spouse. IF I have to serve beneficiary, it will slow me down, as service of process issues always do. But they will not stop me. I know, I’m litigating a case currently where service of process is an issue!
BIG OLD CAVEAT: I have GROSSLY oversimplified a complex topic that varies from state to state, to educate, as opposed to render legal advice.
John Hyre
Sorry for all the typos in there - this time of year, I type fast and get back to billing!
Hyre
Thanks so very, very much!
so if corporations give you a lot to go after and trusts provide no asset protection, what do you recommend as an asset protection strategy?
That’s like asking “How do I make money in RE”. We could write volumes on it. A lot will depend on your exact circumstances. Again, search the archives, I’ve written a fair amount on the subject.
First, I’ve never said NOT to use entities. I DO think many people spend far more time & money on them than is appropriate and let other, more fundamental issues, want for attention. Entities are useful (if last ditch) means of protecting yourself. They should be used, albeit with their limitations & costs (in time and money) in mind. Complex entity structures & NV entities are rarely appropriate for small-medium sized RE investors. They are “sexy” & fun to talk about, but should not take such a role that they interfere with the economics of a business & more primary means of asset protection.
I am also not against trusts in general. My point has been much more narrow than that: In my opinion, the asset protection & privacy aspects of land trusts do not jusify their cost in time & money, particularly where leveraged plain vanilla rentals are concerned. Others differ, that’s fine. I’ve explained WHY I think as I do, which allows readers to reach their own conclusion as to how they employ their time & money in this regard.
If you have something to protect, by all means use all legal AND economically rational means to protect it. BUT do not take great pains to protect what you haven’t got. I see SOOOOOO many newbies spend serious time and money on worrying how to protect what they haven’t got. They also tend to think they are “protected” and therefore engage in quetionable or ill-advised or flat out unethical behavior, because they think they can. Their time & money is better spent acquiring things to protect in a rational & ethical manner - THEN worrying about entities & trusts - do a DEAL for Pete’s sake! Once you’ve got something to protect, then play some defense with trusts & entities.
Among other items:
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Far more time should be spent on examining how one does business. I see SO many poor practices that invite litigation. Why not see WHAT causes lawsuits and run the business to minimize that risk? Why not draft contracts that favor you WITHOUT going overboard & being so one sided that a court will hate you & try to undermine your case (at best) or flat-out refuse to enforce the contract at all (at worst)? Why not maintain the properties in good condition, periodically inspect them (and document all of the above)? Why not get a knowledgeable lawyer to review docs, instead of using online freebies or un-edited stuff out of a course written by some out of state layman? Why not take extreme care when dealing with someone who is under duress (the classic “motivated seller”)? Why not pen short but clear contracts that have reasonable & clear disclosures of risks (classic issue with sub2 agreements). Why not treat tenants, buyers & sellers well, leaving something on the table for them, instead of squeezing every last penny out of a deal (BUT be sure to avoid the opposite issue - being too generous - because that will kill your business). If you partner with someone, create a well-thought out and lawyer-reviewed OPERATING AGREEMENT. It’s amazing how few people in fact reduce such agreements to writing and how much trouble it can save. Blows me away. If you have an entity, take the time to maintain it properly - so few people do. The list goes on and on and on.
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Get excellent insurance. Know what it covers - and what it doesn’t cover.
Between having an excellent case (meaning you are on firm legal ground, run an ethical business and appear like the sort of person we all want to like & help) and strong insurance, the odds of ever needing that entity are IN FACT quite low. By all means, have an entity as a back-up - but don’t focus on a back-up that is unlikely to be needed at the expense of building that case and getting insurance. Don’t overdo the back-up! And by all means - use trusts when you have enough to make the costs justifiable. Heck, if you want to use a land trust, have at it - I just think that the cost in time & money does not justify the true benefits in most cases. Two exceptions might involve avoiding transfer taxes & anti-assignment clauses.
That’s all for now.
John Hyre
Just to add to John’s excellent comments, there is a another reason to consider using trusts to hold your real estate.
For me, the real benefit of a trust is estate planning. My heirs bypass ancillary probate for each of my out of state rental properties held in a trust.