Any Land Trust experts out there?
What are the liabilities of acting as a trustee on a Land Trust for an investor? And more importantly can anyone quote any statutes?
If I did this I would be in Michigan and the land Trust would be for an investor in New York with the property in New York.
I need an answer of why not. I do not need just a statement that it is not a good idea, I need the actual reason, it would get me out of a family liability. The investor is a Cousin.
Thanks.
Framer,
Here are several reasons why it is not a good idea for you to act as trustee:
An individual trustee’s failure to charge a fee would not support the land trust’s validity in court. The attempt to charge a fee would not be seen as adequate unless the party were a bonded entity.
An individual trustee’s death would embroil the property in his/her own bankruptcy, Probate and other personal legal actions.
An individual would most likely never be bondable as a trustee and would likely not have the resources to provide a completely separate, free and bonded collection and bill-paying service.
An individual would not be seen by the courts as a standard trustee, charging fees “commensurate with industry standards”: therefore severely impairing the integrity and structure of the land trust.
One’s own personal appointment would not be seen by a 2nd or 3rd co-beneficiary as a mutually trustworthy holding entity. Such likely bias obviously would not be in the best interests of any of the co-beneficiaries.
There should be enough reason there to discourage them from having you be trustee.
Da Wiz
Are you sure you really want to consider being a Trustee?
TRUSTEE DUTIES
The following is a list of the duties of a Trustee. Upon Acceptance of a Trusteeship
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Administer in accordance with its terms and purposes
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Administer the trust in good faith.
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Administer in the interests of the beneficiaries.
Duty of Loyalty
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Administer the trust solely in the interest of the beneficiaries.
Impartiality
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Trustee shall act impartially while investing or managing or distributing the trust property giving regard to beneficiaries respective interests.
Prudent Administration
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Administer the trust as a prudent person would consider the purposes, terms, distributional requirements, and other circumstances of the trust.
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Exercise reasonable care, skill and caution.
Costs of Administration
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Incur only costs that are reasonable to the trust property.
The purposes of the trust and skills of the trustee.
Trustee’s Skills
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A trustee who has special skills or expertise is named trustee in reliance upon the trustee’s representation, that the trustee has special skills or expertise and shall use those special skills or expertise.
Powers to Direct
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While a trust is revocable, the trustee may follow a direction of the settlor that is contrary to the terms of the trust.
Control and Protection of Trust Property
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A trustee shall take reasonable steps to take control to protect the trust property.
Record Keeping and Identification of Trust Property
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A trustee shall keep adequate records of the administration of the trust.
Enforcement and Defense of Claims
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A trustee shall take reasonable steps to enforce claims of the trust and to defend claims against the trust.
Collecting Trust Property
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A trustee shall take reasonable steps to compel a former trustee or other person to deliver trust property to the trustee and to redress a breach of trust known to the trustee to have been committed by a former trustee.
Duty to Inform and Report
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Keep the qualified beneficiaries of the trust reasonably informed.
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Concerning administration of the trust and material facts necessary to protect their interests.
Discretionary Powers—Tax Savings
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Trustee shall exercise discretionary power in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries.
General Powers of Trustee
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A trustee, without authorization by the court, may exercise: powers conferred by the trust except as limited by terms of the trust other powers to achieve proper investment, management & distribution of trust property.
Distribution upon Termination
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Upon termination of a trust, the trustee sends to the beneficiaries a proposal for distribution.
The right of any beneficiary to object to the distribution terminates if the beneficiary does not notify within 30 days after the proposal was sent.
Delegation by Trustee
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Trustee may properly delegate under certain circumstances, duties & powers to a prudent trustee of comparable skills.
Da Wiz
Gary
Did you read my Post? I said I am looking for an out. I don’t want you to tell me it is a bad idea. I know that already. I want to know what statute, section or what ever of what code precludes me from being a trustee. Especially for the state of Michigan.
I know that you can act as a Trustee in your own estate trust in the state of Michigan, so long as the trust clearly defines the transfers of control at death. I am the successor or inheritor Trustee in the case of my Mother’s Estate Trust. But that is to bypass probate.
I want to know about another situation, wherein I would be the trustee of a Land Trust in New York, as I am in another state, namely Michigan.
Is there an actual law that you can quote me, or is this rhetoric? Maybe my cousin is correct and this is all legal? After all he got his Info directly from Bill Bronchick.
And I would be getting a fee paid to me. A one time fee, and then .
Don’t tell me the earth is round, show me the Earth’s shadow on the moon.
Thanks
Art
Wiz, could you please tell me where I can research the above…as well as research your post about trustee duties. I have read a lot of conflicting things about this. I also thought trustee duties were a state issue. If it is a federal thing, post where I can research it further. Thanks.
An individual agent (e.g., an attorney) may not be a bona fide agent for the beneficiaries and the trustee at the same time, and should not be an agent for multiple beneficiates with different positions and points of view at the same time (e.g., New v. New, 148 Cal. App 2d 372 (1957).
An individual as trustee, though permissible under the law, may create undue risk for the beneficiaries by not knowing the laws or details of land trust administration (filing responsibilities, leeway in responding to inquiries, etc.).
It is legal to be a Trustee of a land trust in another state. My Trustee, from whom I obtained this information, handles trusts across the nation. I am not a lawyer and am not aware of the specific laws governing your question. I do know that there are no laws in Michigan preventing you from being a trustee. I refer you to my trustee’s website and you can proceed from there and contact him if necessary for the answers you need. Good luck.
http://equityholding.org/why.html
Da Wiz
Here’s the deal.
My cousin has 8 new houses that he has taken sub2. He uses the Land Trust system that Bill Bronchick sells. Not the one you and Bill Gatten sell. As such he uses out of state friends and relatives. He pays them $100 per house to have their name on the trust. he handles all of the issues however. They do not do anything else as he pays the bills and escrows the taxes. He even signs a liability thing that says he is responsible for the trustee duties. It is a 'confession we give".
That is what I have, to tell you about it.
Where does that put me? If I do it it would be 800 dollars cash in my pocket, but at what liability, and do I need to be bonded, and how do I come up with the money to be bonded?
I would like to see more references or something that says a trustee has to be bonded. Is it a law? Or just someones opinion?
I am not questioning it, but there are things I am seeing that I have never seen before in any discussions about trusts, and I would like some clarification.
Thanks in advance.
Your “confession” constitutes a dry trust. A DRY TRUST is a trust in which the trustee has no duties to perform. The land trust that underpins the NARS Equity Holding Trust System™ cannot be construed as a “dry trust” because the trustee clearly has function, duty and purpose (even if such purpose and function is only to hold title and sell the property under its Power of Sale as directed by the beneficiary/ies).
The often uttered comment that the land trust is, in general, a “dry” or “failed” trust is more than just an inaccurate statement; it is completely untrue! Anyone who has ever studied land trusts in detail learns quickly that the trustee’s obligation to deal with matters of title, and its Power of Sale, clearly excludes the trust from the category of “Dry” or "Failed.” Such claims have surfaced many times over the years, and have been consistently refuted and ruled against. However, those who try to skirt around the rules like taking “confessions” are really risking having their trust declared “dry” or “failed”.
I didn’t make up the rules, but they are fairly easy to follow. Don’t become a trustee if you don’t know what your are doing. The duties and knowledge required of a trustee are usually beyond the layman. Best of luck to you.
Da Wiz
I have talked to two different lawyers through a legal service. One from the state of Michigan, and one from the state of New York. Both specialized in trusts and were familiar with reals estate transactions. Both said that it was legal and that I had merely should in good prudence get bonded. Only because it is more than one trust. My cousin said he would get me bonded.
The only issue that comes up is if I die, or my cousin dies, and he is the beneficiary. When he sells it I do not have to be around physically, I only have to have paperwork signed by me in front of a notary. He can perform for me all the duties of trustee as he is the beneficiary if the trust so allows it.
I have also now had it confirmed for the 3rd time that for the purposes of land conveyance, except through estate transfers, land trust are not a legally recognized entity in Michigan. This lawyer had heard of the Nars trust, and he researched it for a previous client that was selling a house and had an investor present it to him. His recommendation was that it would not hold up in court in Michigan. But he is only a lawyer, and what do lawyers know.
The first person to tell me was the lawyer I talked to about setting up a business for real estate and I discussed the trust options. I talked to him in person. The second was a Real Estate Investor of some re-known in Michigan. That Investor was referred to me by Bill Bronchick. The investor was Wendy Patton.
I am sure that there are some who have done NARS trusts in Michigan. But because it can be done does not make it legal.
Truth to tell Gary, what the lawyer and Wendy have told me is that it is not so much illegal, as that there is no provisions in code to allow for the recognition of it.
In the state of Michigan, this last lawyer said it was better to use an LLC for each house or small group of houses as a means of protection than than to try and get by with a land trust. Interesting thing was he did not seem to concerned with the DOSC. He said at worst an investor’s buyer could probably assume the mortgage for a small fee, if he had been living in it for 6 months.
I squeezed as much info as I could out of him as I could. Lawyers love to talk.
So I will act as Trustee as trusts work in New York.
But not in Michigan.
But thanks for the general info on the trusts Gary, you are knowledgeable for a Ph.D… that is. Sorry, I work with one, and a couple of engineers. I have one Engineer that I respect. The Ph.D… on the other hand thinks he is an expert on everything. He is smart, but he does not believe anyone else can know more on a subject than him, unless they are also a Ph.D… and even then he doesn’t give ground sometimes. Even if it falls outside his Ph.D… which is in physics.
Art
Art, Your conclusions are flawed. Legal service lawyers are not a great resource! They’re one step above a workers comp lawyer. Give them this information:
In Michigan, there is no specific land trust authority but it is allowed under case law (Rose v. Rose 1 N.W.2d 458 (1942); see MCLA 555.1-555.5, §1–5 & 432, §Sect 2 . Se Rose v. Union Guardian Trust, 300 Mich. 73; 1 NW 2d 458 (1942). And, of course under Federal law in all 50 states (US Code TITLE 12 CHAPTER 13 § 1701j–3).
In Michigan, the trustee needs to retain the function of actively dealing with matters of disposition, in order to avoid characterization as a passive or dry (or “failed”) trust. Title companies, lenders, real estate agents and attorneys may conduct closings. Conveyance is by warranty deed that must give the full consideration involved or be accompanied by an affidavit that does. Many transactions involve land contracts. Mortgages are the security instruments. Private foreclosure is permitted; it requires advertising for 4 consecutive weeks and a sale at least 28 days following the date of first publication. The redemption period ranges from 1 to 12 months. Michiganders use ALTA policies and endorsements.
Now, framer35, you said, “I have also now had it confirmed for the 3rd time that for the purposes of land conveyance, except through estate transfers, land trust are not a legally recognized entity in Michigan.” That is a ridiculous statement. If they are legal for estate transfers, they are LEGAL to transfer title. That is not rocket science. LIKE I SAID MANY TIMES, THERE ARE FEW LAWYERS WHO KNOW MUCH ABOUT LAND TRUSTS. YOU HAVE TO QUIT SHOPPING AT BARGAIN BASEMENT LAW FIRMS. We do land trusts in Michigan regularly.
As to your personal comments, keep them to yourself, Art., they diminish what we try to accomplish on this board and make you appear arrogant and ungrateful. Your Ph.D. comments are childish, and, by the way, my daughter is an engineer.
Da Wiz, Ph.D.
I have no degree of higher education. I poke fun at those who are supposed to be relatively speaking, experts in their field. But they also seem to think that because they have a great deal of knowledge in one area that pre-supposes them to have superior knowledge in all fields. Quite often in my experience they do have Ph.d. after their name. I also know very smart individuals that do not have extra letters at the end of their name. One is my father. One is my brother in law. I also know and respect two very smart individuals with P.E. at the end. Any one of these four have accomplished on their own what most others others never have. But their achievements are independent of their suffixes.
My comments if you took them offensively, is regrettable. I intended for you to understand that despite my reservations about my usual dealings with higher degreed individuals, you at least attempt to explain yourself. However you are insulting lawyers in general, when you claim superior knowledge in the area of trusts, even though I was talking to an attorney who’s specialty was trusts.
I was not consulting legal aid. I was consulting a large law firm that has several large departments with various areas of expertise. That they happen to be providers of a legal service plan subscription does not mean that they can not also know what they are talking about. I have found RE lawyers that were “specialists” in RE that did not understand some things about the difference between a Warranty and a quit claim deed. I go by the soundness of their advice, and I try my best to verify. And if I have to I ask again.
My problem was I was hoping to find someone, in the legal profession on this site that could respond to me. I have gotten a great cross reference of advice but no lawyers have responded as far as I know. From that I was hoping to make a decision based on this advice. I defaulted to two different lawyers that said that it was legal to do this if I was bonded. But as you disdain lawyers as much as I do Ph.D.'s I would expect you to not agree with them. Especially since you promote and sell this trust.
Now should I listen to legal advice from lawyers in my state or you?
I have no problems with your daughter being an engineer. If she listens to those who have working knowledge of the area that she may profess expertise in she will do well. But because she learned something in a text book, does not make her necessarily more competent than the person who does it in the real world. That text book was written by the experience of others the real world but it is no substitute for that experience, only a short cut. If she dismisses the advice of others out of hand without considering it for the value of what it is she will not be successful. I at least considered what you had to say even though you are not a lawyer in this area. In fact it was because of previous posts by you regarding the act of being a trustee that prompted me to investigate this more when my cousin approached me.
Do you have a Ph.d. in land Trusts?
All things considered, they may be bargain basement and therefore of less value than seeking out another lawyer and paying $500 and hour, but of what value are your comments then, as they were freely given. Are they by your definition, albeit interpreted by me, of even less value?
I work in the field of building systems. It is my job to get things to fit together. These last two days, I have dealt with an Architect who can not understand why I have a problem with his elevation and floor plan layout as regards to his window schedule. He dressed me down for not using string dimensions ( I had ) to check the layout (His Job, I don’t work for him) and called anything I found a mere pencil line error ( It is drawn in AutoCad ). Of course the error, clearly visible and called out on the fax, was 4.5". Pencil line indeed. I calmly wrote back into the email additional errors he had done, not calling them errors of course, just asking for additional clarifications and merely stated the facts. This was copied to our mutual client.
Our Client is a Lawyer. He understood plain english, and could read a fax and blue print. I have not heard any more from the Architect other than to say he had to make more revisions. So no I do not assume that because someone is a Lawyer, or a Ph.d or and Architect that they are all knowing even in the area of their expertise. But I do weigh their advice.
Three lawyers, two of which are experts in Trusts and related Michigan State Law, and one Real Estate Investor have said that using Land Trusts in the State of Michigan are not a good nor reliable and viable way of doing RE Deals, nor are they needed. This is their expertise, should I heed their advice?
But I should defer to a Ph.d of course.
I will check out your link, however. Even if your NARS, PAC, etc, does seem long and involved. How do you explain it to your seller and buyer? They have to be highly educated. I am not, so I can not understand it enough to explain it to the average seller and buyer I encounter who also do not have suffixes at the end of their name other than Jr. and Sr. If you throw to many 25 cents words at them or me and we are lost to either faith in “experts” or not trusting what begins to sound like a scam. I have found understandable plain language works best for me. But what ever works for you.
And I reiterate, I was not attacking you personally. Point in fact I thought you would be able to understand the tone enough to comprehend my compliment and thanks. Apparently I failed in making my language plain enough for you. My apologies. I will endeavor to try harder next time.
Art
Art,
You asked, “how do you explain it to your seller or buyer?”
Seller: "If you are willing to wait up to 3 years for most or all of your equity, and remain on your loan for 3 years I am prepared to legally assume 100% of the responsiblility for all mortgage obligations, maintenance and repairs, management and upkeep of your FOR SALE or FOR RENT OR LEASE property. As a real estate investor, I make this proposal in the hopes of obtaining income tax benefits relative to mortgage interest and property taxes. I will agree to pay 100% of your equity in 3 years and reserve the right to sublet the property, while fully guaranteeing the performance of such a pre-screened party re payments, insurance, taxes, maintenance, etc.
During my tenure in our agreement I ask only that you continue the existing mortgage financing in place, and that the property be held in a bonafide land trust in your name (at my expense). I require only that you name me a co-beneficiary of the trust, and a triple-net lease tenant in the premises. You are not obligated to transfer the property’s title to me until I have fully retired your existing mortgage and repaid current equity. Your property is never at risk."
BUYER: "Are you looking for a home that you can get into without the hassle of bank loan qualifying, income verification, or squeaky-clean credit? Now there is a better way than wasting thousands of dollars in non-refundable deposits and rent you will never get back!
I buy a home and place it in a land trust. I then need someone to live in the property, make the payments on time, and be responsible for maintenance and repairs on a 3-year, triple net lease. I want you to treat this house with love – as if it were your own. I ask for no down payment – you will only pay closing costs (5% plus 1st month… Moves You In!).
There will be no bank or credit qualifying. If you agree to this and keep your end of the bargain, I’ll give you the house. How? When you sign the lease and pay the closing costs and advance lease payments, I will immediately assign you a Beneficiary interest in my trust.
You will (although only leasing) acquire IMMEDIATE home ownership benefits and are allowed by the IRS to write off the monthly mortgage interest payments and property taxes. You will also share in the future appreciation of the home on a 50/50 basis. At the end of three years, if you want to buy the property, you can do so at Fair Market Value. If you choose not to, there is no obligation or penalty."
It’s really not that hard to explain, Art.
Da Wiz
Gary and Framer,
I’m a bit perplexed here, Wizzy Ol’ Boy, wouldn’t it be prudent to occasionaslly mention whose books and courses you are quoting from, and from whose website and materials this information can be gleaned?
Secondly, Framer34, you do not need a parachute to jump off a curb. It is fine for you to be a trustee for another person. And doing so would not constitute a dry or failed trust. A problem would only arise if an attorney were to despose you as trustee and force you relinquish all pertinent information in the trust documentation, and then attempt to prove that the trust was in essence no more at best than a grantor’s trust versus a bona-file land trust.
A diligent opposing attorney would be looking for the following nicks in your armor:
Is the trustee in the business of of holding titles to RE for more than one entity?
Is the trustee charging a fee “commensurate with industry standards?” If the trustee is acting without a fee, the transaction will likely be seen as a matter of convenience and not a legitimate active trust.
Is there a paid property manager? If so, payment to a third party manager 'would violate the regulations regarding self-management and probably constitute an ‘assocation’ and be doubly taxed as a corportion depriving beneficiaries of ceertain rights under a bona fide land trust.
Does the trust in any manner have the trappings and/or under-pinnings of a partnership, corporation or business trust (any one 'would deny the intneded function of a land trust)
Is the arrangement in essence just a disguised security agreement, equitable mortgage or a loan of monies? Easy to prove if the arrangement is too loose and does not show a professional structure with appropriate rules and safeguards.
Is there a Merger of Title (i.e., trustee and beneficiary being the same individual or the alter ego of different entities under the same ownership acting as both trustee and beneficiary)?
Does the transfer document (deed) vest the title in the trustee rather than in the trust (i.e., with a true land trust the trustee’s name must come first in the title vesting, not the name of the trust: for example, the title should read: “Framer34, as Trustee for the XYZ trust,” Vs. “XYZ Trust with Framer34 as trustee”…the latter would constitute a vesting of the title in the trust and not in the trustee, thereby giving the trust, rather than the trustee, the title to the property, thereby nullifying characterization as a land trust. As you may know, in a land trust, the magic happens when the trustee holds both legal and equitable title and the beneficiaries hold only a personal property interst versus one of realty.
Now in your case (Framer) can you be a trustee? Absolutely!
You merely need to be nominated as such by the grantor and fulfill the requirementrs of the trust agreement. In doing so you will need only to function in the best interest of the beneficary/ies and assume the potential burden of being drawn into lawsuits relative to the beneficiary, the property and the trust itself. Our trustee’s are constantly fending off lawsuits (alll successfully and well budgeted for, I might add) and being required to file answers to frivilous lawsuits and attend depositions…not always an enviable postion to be in.
Generally from the beneficiary’s standpoint it is obviously better to have a corporation act as trustee in that a coporation cannot die an get the property tied up in its probate process as would an individual acting as trustee. And a professional trustee corporation is better able to withstand outside pressures from inquiries by judgement creditors, attorneys, the IRS, etc… (and my guys only charge $12.00 per month).
But the fact remains the trustee’s being a third-party natural person will not invalidate a properly drawn land trust.
Bill Gatten
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thank you Bill
John Locke did say you were a gentleman and a friend. Thank you for the relevant input.