Thomas Harpole

Trusts and Asset Protection (Part I)

TOPIC: TRUST AND ASSET PROTECTION:

Have a leasing corporation that leases from the trust and subleases to make a profit.

Instead, after having formed a corporation, the Trustee through his corporation had leased the property from the Trust, and his lease had given the corporation the right to sub-lease the property to its own tenants at a price that would provide it an acceptable profit. This was all done in accordance with written directions from Sam. The key part is that the corp is the tenant of the trust.

Have an out-of-state Trustee that is a friend.

Have a Tenant Inspection Form with their signature within 3 days. Make any negligence at the property the responsibility of the Tenant. The property had been sub- leased by the leasing corporation and entrusted to the tenant in good condition as evidenced by a copy of the tenant's own inspection form, initialed and returned within three days of occupancy as required by the Rental Contract. Any negligence was their responsibility as agreed to in their lease contract.

Be sure to document your replacing of the Trustee with an Out of State Trustee. PosHis original Trustee prior to having been replaced by his current out of state Trustee.

Always sign AS TRUSTEE if you are doing something for the property. The Trustee had signed the Rental Contract with the leasing corporation solely as Trustee and not individually. Under the law, he had no personal legal liability.

Be an innocent beneficiary. Sam was just an innocent Beneficiary. He wasn't involved. Indeed, no one even knew he owned the property. This was exactly the situation that he had been protecting himself against when he had placed each of his properties into a different land trust.

Make your wife the successor Trustee and vice versa. Make your wife’s Living Trust the Beneficiary of your real property and vice versa. At the same time, Sam was the Beneficiary and successor Trustee on his wife's own individual holdings in the same way she was on his. Sam had made provisions for his children to gradually take charge of some of the properties, and he had been giving them Options on his beneficial interests which they could exercise only when they had become capable of handling the responsibilities.

Grantor keeps all the power while alive. A grantor can revoke or change the Beneficiary or Trustee at any time.

Grantor = Beneficiary means it’s disregarded. When the beneficiary of the Trust is the Creator, Settler, Grantor, he/she/it must file income taxes as if he/she/it owned assets and received income/losses. It is disregarded for the IRS. When the Creator/Grantor/Settler is a legal entity, it files income tax returns on the appropriate form.

When a Revocable Trust is no longer Revocable: They automatically become IRREVOCABLE upon the death of their Creator/Grantor/Settler. At that time, the Trust becomes a tax paying Trust and must obtain a Federal Tax Identification Number.

Use a Manager to watch over a Trustee of a Living Trust. Of course an inter-vivos trust also gives one an opportunity to watch how well a trustee administers an estate in the event a manager is desired.

Redact the Beneficiaries in Trust Agreement and Place Abstract on Public Record.

In addition, I routinely include in the Deed or conveyance an ABSTRACT of all provisions of the Land Trust Agreement itself, omitting only the identities of the Beneficiaries. This way, in the event of the need for proof of authorization for the powers and actions of any of the participants, the Deed can serve rather than having to show the Trust and lose all the privacy it affords the Beneficiaries. The Trust Agreement which describes the terms and conditions of the Land Trust normally need not be recorded.

Beneficiaries can be anyone. This includes individuals, partnerships, corporations, other Trusts, a joint venture, professional associations, societies, etc.

Trust Agreement must determine who holds the power of the Trust. The Trust Agreement incorporates the terms of the way in which the property may be held as well as the general agreement as to whom the power of direction will go.

Another person or entity can act as the Director for the Beneficiary. In similar fashion, through a Letter of Direction, in the event John or Jane, or both of them, wanted some other entity to oversee operation of their Land Trust and its assets, they could show in their Land Trust Agreement and in their recorded conveyance into Trust that they wished another person to act as the Director for their benefit. This person would then be empowered to perform certain acts. His tenure would be limited and the limits of his authority could also be described specifically so that no abuses would occur.

Being All Three: In a Land Trust, a lone person can be the Grantor (creator, settler, donor), Trustee, and Beneficiary/Director. Of course with this arrangement, should he become incapacitated, the Trust would be in trouble unless a successor had been provided for in the Trust Agreement.

Have a Successor. Your Trust should make provisions for the orderly transfer of the Trustee's duties and powers to a Successor Trustee who will not let things go awry in the event your original Trustee becomes disabled, incompetent, distracted, irresponsible, or victim of a fatal mishap.

Changing Trustee should be noted on the conveyance (who or what entity are successors). Unless you make provisions for a replacement Trustee on the Deed or conveyance you use to place property into Trust, the original Declaration of Trust must be filed with any change of Trustee.

The Trustee is not liable. In the absence of written instructions from the Beneficiary or Director, the Trustee isn’t liable for violations of ordinances as they pertain to assets in theTrust, since he has no powers to control operations within the premises.

A Trustee for a Land Trust is NOT an Agent of the Beneficiary in any sense, nor is the Beneficiary the Agent of the Trustee under trust law. Without such appointment, the courts have repeatedly ruled merely being the Trustee of the Trust doesn't automatically make the Trustee an agent or the Grantor or Beneficiary. And for that reason the Trustee cannot bind the Beneficiary nor is he in turn able to be bound by the Beneficiary, except as specifically provided for in the Trust Agreement which both of them must accept.

The Trustee can be compelled to reveal the identity of the Beneficiary. However, absent of specific prohibitions in the Declaration of Trust, the Trustee can be compelled to identify the Beneficiary under circumstances which place the Trustee in legal jeopardy. Alternatively, he can resign as Trustee, and absent of any specific knowledge that the Beneficial ownership has or has not been transferred, wouldn’t be able to swear under oath as to the Beneficiary is.

When deeded to a Trust: Title is presumed to be taken subject to any and all liens, easements, encroachments, reservations, and covenants of record.

The Beneficiary has no legal or equitable interest in Trust Assets. Because under Land Trust law, the Beneficiary has no legal or equitable interest in Trust assets, he/she/it isn’t liable for any damages sustained in connection with a rental. The Trust, having protected the Beneficiaries privacy, it is difficult to identify or locate him/her/it; so the process server approaches the Trustee. As the Beneficiary, he would own neither equitable nor legal

title in any real estate assets. His interests in the property would be personal

property under a carefully drafted Trust Agreement. Therefore, the judgment lien

would not attach to the property, albeit in some instances the income from the

Trust might be possibly attached. The Grantor and the Beneficiary wouldn’t have a “merger of interest” because the Beneficiary wouldn’t have any incidence of ownership in the property under the special rules of Land Trusts. It would only have an interest in the avails and proceeds of the property itself, not in the title per se. Beneficial interests can be treated as if they were real estate, but as a practical matter THEY ARE PERSONAL PROPERTY, IF this is spelled out in the Deed of Conveyance and in the Trust Agreement. As a result, a beneficial interest is not affected by a Lis Pendens which might be filed against a property owner, since it isn't attachable to the Beneficial interest.

The Trustee should not have directorial powers. Thus the Trustee is not responsible. Nor is he a legal representative of the Director/Beneficiary. Of course, if the Trustee shares directorial powers with the Beneficiary, he can be summoned and served. He can even share in liability to some extent. He shouldn’t do this. Thus, it is crucial that a properly drawn Trust Agreement delineate the extent and limitation of the authority of the Trustee clearly and concisely, and these powers should also be made a part of the deed of conveyance from the Beneficiary to the Trustee on behalf of the Trust which is filed in the public records.

Fiduciary Account for Installment Sales. Since a Land Trust can only hold real estate-related assets and cash and/or Notes are personal property, the Trustee needs to set up a special fiduciary account into which funds would be deposited. He has the duty of instructing the escrow agent to disburse the sale proceeds, rents, or interest payments to the Beneficiary over the lease or contract period.

Installments of Beneficial Interest. When a property is being sold with seller financing, the buyer buys only my intangible Beneficial Interest directly from me with full disclosure as to exactly what is happening. Because the Beneficial Interest is intangible PERSONAL PROPERTY, the transaction is governed by the Uniform Commercial Code. When personal property is being bought, no incidence of legal or equitable interests are acquired until the final payment has been made. Thus, under the UCC I have the right to use any means to protect my interests short of breaching the peace WITHOUT THE NEED TO RESORT TO THE COURTS. This comes in particularly handy when a defaulting buyer under a contract simply disappears. All I have to do is to change the locks and instruct the Trustee to re-rent the property. When I sell my Beneficial Interest on an installment, I also append a Rental Contract which gives the buyer the right to occupy the premises as a tenant for 30 days as full liquidated damages anytime he defaults on his payments to me. Afterward, once he had paid the first and last month’s rent, he can rent the premises on a month to month basis for top market rents. So, if later on the buyer defaults on the purchase contract, I merely rescind it. If he fails to pay rent, the Trustee initiates eviction procedures just as he would for any other tenant.

How to have balance of Power between Co-Trustees (one corporate): Following that, my wife would become the successor Trustee and the Beneficiary but she would have one of the Trust Departments of the local bank as her co-Director. Both parties would need to act together to liquidate Trust assets. It went on to say that, in the event she wished to dispose of a property and the banker didn't agree with her, that the Trust would have to pay her $2500 per month until they could come to an agreement. This would necessitate that some Trust assets would need to be liquidated to provide the funds. After 6 months the bank and my wife couldn’t reconcile their differences, the bank was to be summarily discharged and replaced as co-Director and my wife would continue to be co-Director and Trustee together with a replacement Trust company chartered in Florida selected by her to act as co-Director. In the event of a common disaster in which both my wife and myself were killed, the same procedure would hold true between my surviving heirs and the bank's Trust Department.

The Beneficiary can Ratify the decision to sell (so title approves it). On the other hand, any Trustee who does take an unauthorized action to deed a property or to borrow money, pledging a Trust assets as security, loses the immunity afforded by law to the Trustee. He or she automatically has full personal liability exposure against all assets to the extent of any damages caused by such unauthorized action. That's why all authorizations should be in writing - and accepted in writing to ratify all decisions.

Just your equity in one property is vulnerable when done right: If any suit is lodged against the property held in Trust and a lien awarded, then it attaches only to that property but to neither the Beneficiary nor the Trustee. If only a single property is held in Trust, then only that property is affected by the lien. It doesn't attach to other Trust properties with the same Trustee and Beneficiary, nor to them as individuals.

The Trustee can petition to be dismissed from a lawsuit: Your tenant might carelessly sue the Trustee. The Trustee would petition the court on a Motion for Summary Judgment to have the suit dismissed, since he was only the Trustee, not the Owner, and was exempted from any personal liability for Trust law and State law. The Owner would be the Trust itself.

How to Lien out a House to Protect it: This might be accomplished at the inception of the Trust by having the Trustee “buy“ the house from the Grantor with 100% “carry back“ non-recourse seller financing on it. A mortgage lien would be recorded on the house to secure the debt. Payments would be structured to absorb all rental cash flow, and to accrue and compound when there were insufficient rents.

Have the Trustee resign and automatically change the domicile of the Trust: beneficial interests are personal property, not real estate, claims against them must be made in the State of domicile in which they are held. Nobody can compel someone to be a Trustee, and standard Trust language gives the Trustee the right to resign anytime that he feels continuing as Trustee would place him into legal jeopardy or cause public embarrassment, he would have the right to quit with 30 days notice. If successor Trustees were listed who lived in other States, anytime a Trustee resigned or was replaced, the domicile of the Trust would automatically change to the State in which the new Trustee resided.

It is great for you, as Landlord, to sign as Trustee even if it’s your Trust. Suppose you leased your property to someone who perceived that the landlord was a "Trustee"; that-sounds pretty official, doesn't it? And if any of the hangers-on down at the various "do-gooder" agencies decided that your poor tenant was entitled to free legal services, relief from eviction proceedings or garnishment of wages; or if a local judge had to make a decision to protect the Trustee who, in his mind might be representing the interests of "minors", you might find some advantage in letting a Trustee represent your interests. EVEN IF THIS TRUSTEE WERE TO BE YOURSELF!

Use a Living Trust. The Beneficiary can designate an INTER-VIVOS TRUST as his successor and file this election with his Trustee in advance of his death.

The location of the Trustee will apply according to admin of the Trust. Since Land Trusts have the effect of converting an interest in real property into an interest in personal property, the law in the location where the Trustee is located will apply to anything pertaining to the administration of the trust. In effect, a property located in a State with high inheritance and capital gains taxes could be placed into a Land Trust. The Beneficiary and the Trustee could be located in another state such as Florida or Nevada where there are no inheritance taxes to speak of, and the Trust could be formed as a Florida Land Trust. In this instance, no probate need be undertaken, since the Trust didn't die, and no duties need be paid to the State in which the real property trust assets are situated since the Trustee would not have died, nor the Trust terminated.

Form 56 must be used to reveal beneficial interest to IRS. Revenue Ruling 63-16 requires an Illinois Land Trust Trustee to file with the District Director the notice of fiduciary relationship as required under Section 6903 of the Internal Revenue Service Code of 1954 as amended. The IRS form 56 is used for this purpose.

THINGS to put in the agreement/conveyance: First of all, THIS IS CRUCIAL! The Deed of Conveyance should spell out the fact that the beneficial interests of the Beneficiary will be Personal Property. Only Real Estate should be put into an Illinois type Land Trust; however, Interests in real estate such as options, leases, mineral rights, etc. would also qualify. To maintain privacy, the Grantor should also direct that the Trustee not divulge the names of any of the Beneficiaries without a duly executed court order.

The Beneficiary is almost never revealed in court precedent. Precedent indicates that, except for IRS reporting and replacement of a deceased or incapacitated Trustee, or to prevent fraud or criminal activities, jurisdiction. Thus, no one really knows who actually owns or controls Trust revelation of the identities of the Beneficiaries is rarely enforced in any property. They only know the name of the Trustee. Efforts by third parties to force Trustees to divulge the identities of their Trust Beneficiaries have generally failed in civil courts. Since one of the prime reasons to place property into Trust is to preserve privacy, the law has consistently upheld that right. Of course this requires a resolute Trustee. When the Trustee is forbidden to reveal the identity of the Beneficiary, only a court order to do so in the legal jurisdiction of the Trustee will obtain this information. That could necessitate the suit being refilled in the proper jurisdiction at great expense to the plaintiff.

Massive benefits to personal property (Beneficial Interest): If the Trustee should mortgage the real estate without the Beneficiaries' written instructions, then the Trustee has perpetrated a fraud on both the mortgage company and the Beneficiary. If the Beneficiary obtains a loan, he might make a collateral assignment of his Beneficial interest to the lender, but that lender will only be able to control the property under the terms of the overlying Trust Agreement. If there are Co-Beneficiaries, the property legally cannot be sold by forced sale to satisfy the debt. Nor can the Beneficiaries’ interests be separated by a partition suit. Nor can the IRS force a sale or seize the property legally. Title to the underlying real estate cannot be clouded as a result of any suit against the Beneficiary. Nor is title affected by deaths, marriages, divorce, etc. Personal property statutes carry additional benefits, too. When real estate is involved in a law suit, the suit must be conducted in the State where the real estate is situated. But in the case of personal property, a lawsuit must be conducted in the State in which the parties to the suit are domiciled.

Think about using a Trustee Entity (your LLC) to adminster everything: Now suppose you had formed a separate Land Trust for each partner. His proportionate share would be reflected in the beneficial interests he placed into Trust. You also have what would have been all vehicles that might have been owned by the partnership placed into separate vehicle trusts. You decide that Aardvark Trust Company would be a separate Trustee for each of you under a completely separate Trust Agreement with the power to act only upon the majority agreement of all holders of beneficial interests in that property. Aardvark would also be the Trustee who held the automobiles. Of course you would be sure to have this arrangement conform to existing laws your area.

Even Bankruptcy is nothing to fear: He can never hold property in his own name again without old judgment liens attaching to it. He solved his problem by getting sellers to convey their properties into Trust, then he bought their beneficial interests without fear of attachment. He might prefer to Option those same interests under the above arrangement, and after holding them one year, sell for long term capital gains.

Avoiding Due on Sale: We also hear a lot from people in States in which the due-on-sale clause has caused many properties to go unsold at great distress to the sellers as well as potential buyers. Here a little strategy should be employed. First the seller should get his attorney to write a letter to the lender advising him that the property is going to be placed into Trust as an estate planning device. Indeed, it would be beneficial for the owner to designate an Inter-Vivos Trust as the Beneficiary of his Land Trust, and this could be communicated to the lender on the attorney's stationery. The letter could also explain that since no change of ownership was actually taking place, that no due-on-sale clause would be operable. The attorney could be named as Trustee for the time being. He could designate a Trustee's bank account from which all payments would subsequently be made and it might be politically expedient to place this in the same institution as the mortgage was being paid into. So far so good, but what do we do next? Now, the Beneficiary-seller sells his beneficial interest to you, transferring the ownership of it from the Inter Vivos Trust to you. These moves are going to have varying tax implications which will depend upon the timing of the various moves, the net gain to the seller, and whether or not a qualifying tax-free sale of a person residence is involved. As long as the Trustee is informed, that is the key. The property insurance, now in the name of the Trustee, remains the same. The payments continue to be paid from the same bank account by the same Trustee. Later on (i.e. after 6 months), you can name someone else as Trustee and that will be done by an automatic Trustee replacement clause in your Trust Agreement which no one but you, the Trustee, and the Seller will ever see. When a lender wants to see the Trust, usually, showing it the first page which contains the names of the Trustee and Beneficiary, and the last page which shows their notarized signatures will suffice.

The Trustee would write each Beneficiary a check from the rents which your children could then use to pay for their education, automobiles, clothing, or to invest in properties held in their own individual Trusts. Of course, if you needed the write offs, you could convey OPTIONS to your kids on beneficial shares which they could exercise at a later date, capturing capital gains for themselves in the process.

As your mind continues to roam over the possibilities, it's not hard to see where a parcel of raw land might be placed into trust and leased back with the beneficial interest being conveyed as mentioned above. Then the parent might construct an improvement for use in his business which he would both pay off and write down over the period of a (i.e.) 10 - 15 year lease as a leasehold improvement. Once his leasehold expired, the owners of the beneficial interests would automatically get the building free, realizing an immense gain in the value of their shares.

Signing Mortgages: When signing a mortgage loan, here's what should be done. First of all, the Trustee can legally only sign a loan on the assets when directed to do so in writing by the Beneficiary. Second, the Beneficiary cannot bind the Trust with his signature. Both of these features must be taken into consideration when mortgaging property. The Trustee is directed in writing by the Beneficiary to obtain a loan and to convey the proceeds to the Beneficiary. The Trustee then does this, signing the Note and mortgage or Deed of Trust solely as the Trustee and not individually, without any personal liability. If the lender will then wire the money into the Beneficiary’s bank account, this is all that needs to be done. This is in effect a non-recourse loan. The Trustee has not signed personally nor has the Beneficiary.

Using Insurance with Sub2 and Due on Sale: While we're discussing insuring your risks, if you place property in trust, it is wise to transfer all insurance policies to the Trustee with the Beneficiary being an additional named insured. Of course, if you are using the Land Trust to circumvent a Due-On-Sale clause, you might just name the Trustee with a proviso in the Trust Agreement that all insurance proceeds be distributed for the benefit of the Beneficiaries, when received by the Trustee.

Another way to avoid: payment to the Trustee: What happens when under the Beneficiary's direction, the Trustee sells a Trust asset? First of all, the law pretty well protects the Trustee to insure that he has been paid his compensation, if any is due. In many states the Trustee has first claim on any assets that are foreclosed or sold at public sale by the courts. Here's how that might work in accordance with a Land Trust agreement, or the law in some states: The instant the property is sold, under the terms of the Land Trust, it is converted to a Personal Property Trust in which cash is being held by the Trustee for the Beneficiary. This cash is not real estate, but personal property, so, depending upon the situation, it might be viewed to be non-attachable except by the Trustee. The Trust Agreement might stress that the Trustee is to have a first priority lien against liquid Trust Assets in the event his Trustee fees are not paid when due. In that event, he would be allowed to pay himself out of that cash. If his fees were considerable, they might consume all the cash - leaving none for other creditors such as the mortgagee, IRS, and other general creditors. An interesting development, n'est-ce pas?

If my Trustee is domiciled in Virginia for example, I can use their Land Trust Law even if I don't live there and out of state property is titled there. I particularly like to form Land Trusts under the laws of Virginia, so I form Land Trusts and title property in other States into the name of a Trustee domiciled there. I also title Virginia property I control into Trust there. This gives me the legal basis for using Virginia Land Trust law even though I don’t live there. I take this little extra step as additional insurance so that my Land Trusts won’t be dismissed as a sham.

Personal property has advantages in a lawsuit. In Illinois, a beneficial interest in a land trust is considered intangible personal property. Burditt Radzius, Chartered v. Brown (In re Barone), 184 B.R. 747, 749 (N.D.Ill. 1995); In re Fowler, 90 B.R. 375, 377 (Bankr.N.D.Ill. 1988); In re Marriage of Mostow, 126 Ill. App.3d 67, 81 Ill.Dec. 490, 492, 466 N.E.2d 1292, 1294 (1st Dist. 1984). 765 ILCS 405/1; In re Kress Rd. P’ship, 134 B.R. 292, 298 (Bankr. N.D. Ill. 1991).

If someone is suing the beneficiary and trying to get a lien on their Beneficial Interest: The proper method under the Illinois Code of Civil Procedure to perfect a lien in intangible personal property is via a citation to discover assets, under 735 ILCS 5/2-1402. The rules provide that if the assets are held by a third party, the citation to discover assets must be properly served on both the party holding the assets (trustee) and on the judgment debtor. In conjunction with the issuance of this writ, the plaintiff also instituted a supplementary citation proceeding under Section 73 (2) (e) of the Illinois Civil Practice Act,' the purpose of which was to discover any assets belonging to the Pascals which would be available to satisfy the judgment and which the sheriff most probably would be unable to locate and levy upon.

You must keep proper records for an LLC to be considered legitimate and not pierced. Evidence may include but need not be limited to (1) inadequate capitalization; (2) failure to observe corporate formalities; (3) nonpayment of dividends; (4) insolvency of the debtor corporation; (5) nonfunctioning of the officers or directors; (6) absence of corporate records; (7) commingling of funds; (8) failure to maintain arm's-length relationships among related entities; and (9) whether, in fact, the corporation is a mere facade for the operation of the dominant interest. See id. at 379 (citations omitted). A family relationship between corporate officers and the taxpayer is also a factor to consider. Horton Dairy, Inc. v. United States, 986 F.2d 286, 289 (8th Cir. 1993).16

https://www.davismcgrath.com/single-post/2015/07/22/land-trust-beneficial-interest-is-personal-property-corporateowned-real-estate-can-t-be-l

First Clover Leaf Bank v. Bank of Edwarsville, 2014 WL 6612947

Spenthrift Clauses: One option is to include a “spendthrift” clause in the trust, which essentially restricts the beneficiary’s access to the funds and protects them from their own creditors. The usual and distinguishing features of a spendthrift trust are provisions in the trust instrument against alienation by the voluntary act of the beneficiary and against seizure of the bene. ficiary's interest in satisfaction of his debts.

Key language to include in your Trust Agreement:

“Notwithstanding that this is a revocable trust, no revocation or amendment shall be valid unless consented to in writing by all beneficiaries holding a beneficial interest in the trust at the time of such revocation or amendment.”

“The beneficial interests of [Partner’s Full Name] as set forth in Schedule A are irrevocable and shall not be diminished, altered, or divested by any amendment or revocation of this Trust without his express written consent.”

“The Grantor retains the right to revoke or amend this Trust solely with respect to his own retained beneficial interest. Any such revocation or amendment shall not affect the beneficial interest of [Partner’s Name], which shall remain fixed as stated herein unless otherwise agreed in writing by both parties.”

“The primary purpose of this Trust is to hold title to and manage the property located at [insert address] for the equal benefit of [Your Name] and [Partner’s Name]. This trust shall not be amended or revoked in any manner that would alter the ownership or economic interests of the named beneficiaries without unanimous written consent.”

“The Trustee shall have no authority to take any action, including but not limited to revocation or amendment of this Trust, which would adversely affect the beneficial interest of any other beneficiary without their express written approval.”

Case law further reading:

https://www.davismcgrath.com/single-post/2015/07/22/land-trust-beneficial-interest-is-personal-property-corporateowned-real-estate-can-t-be-l

https://via.library.depaul.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=3104&context=law-review

https://www.rocksolidlaw.com/land-trust-blog

https://www.cleverlegal.com/choice-and-structure-of-real-estate-entities-in-colorado/

You can use a nominee to sign as Trustee when selling or refinancing. When a property is held in a land trust, the trustee’s name appears on the title, not the beneficiary’s. To transfer ownership, the trustee must sign a Trustee’s Deed, which is the legal document used to convey title from the trust to the buyer. This is necessary because title companies need to clearly see who has authority to sell the property. Since the trustee is the party of record, only they can execute the deed, even if the beneficiary is the one arranging the sale behind the scenes. In cases where a nominee (such as an LLC or title-holding trust) is used instead of a formal land trust, that nominee appears on title and must also be the one to sign the deed. The nominee or trustee acts under written instructions from the beneficiary but is the legal “face” of the property. Without the correct party signing the deed, the title transfer may be rejected or delayed. This structure ensures anonymity and protection for the beneficiary, while keeping the chain of title clean and enforceable. Ultimately, whoever holds record title—trustee or nominee—must be the one to sign the deed to transfer ownership.

The Doctrine of Merger does not apply to Land Trusts. In traditional trust law, if the trustee and the sole beneficiary are the same person, the trust collapses under the merger doctrine, because there’s no longer a legal separation between ownership and benefit. This results in the person being treated as the outright owner, and the trust no longer exists. However, this rule does not apply to land trusts because they are creatures of contract rather than traditional equitable trusts. In a land trust, the trustee holds only bare legal title and has no discretionary power; they act solely at the written direction of the beneficiary. Even if the same person is both trustee and beneficiary, the trust can remain valid because there’s still a formal legal structure separating the roles. Courts in states like Illinois and Florida recognize land trusts as distinct from ordinary trusts and do not apply the merger doctrine in the same way. This makes land trusts useful for maintaining anonymity, liability protection, and streamlined control over property. Unlike traditional trusts, land trusts allow one person to occupy multiple roles without collapsing the structure. This distinction is what preserves the legal integrity of land trusts even under arrangements that would invalidate ordinary trusts.

Transfer the economic ownership privately via and ABI to your LLC. If you name yourself as both the Grantor and the Beneficiary when creating a land trust, some local assessors may treat the transaction as a change in ownership that triggers property tax reassessment. This is because it may appear that nothing substantively changed, which can result in the loss of property tax protections or exemptions. In some jurisdictions, it could even be considered a taxable event, especially if paired with other transactions. To avoid this, it’s generally better to name yourself as the Beneficiary initially and then assign your beneficial interest to your LLC. This keeps the public record clean while transferring economic control privately. The assignment of beneficial interest is not recorded with the county, so it typically doesn’t trigger reassessment. This structure also enhances asset protection and simplifies estate or business planning. It separates title (held by the trustee) from economic interest (held by your LLC) without publicly disclosing the transfer. Overall, it’s a safer and more strategic way to use a land trust for property control.

Notifying taxing authorities with an ABI: This means that when you sell the Beneficial Interest in a land trust, you’re not selling the real estate itself — you’re selling personal property, much like selling shares in a company. Because of that, the transaction does not get recorded in public records like a deed would. The property title stays in the name of the trustee, so to the outside world, nothing appears to have changed. This preserves privacy and can avoid triggering things like property tax reassessment or public liens. However, in some states or counties, there may be a requirement to notify local tax authorities that the beneficial ownership has changed, even if the deed itself doesn’t. This varies by jurisdiction, so it’s important to check local rules. The key takeaway is that transferring Beneficial Interest is a private, off-record event — which is part of why land trusts are popular for anonymity and control.

The out of state maze of a Trustee: This passage highlights how using multiple out-of-state entities in a land trust can create a legal maze that’s difficult for creditors or courts to penetrate. If the trust holds property in one state, the trustee is based in another, and the beneficiary is an LLC from a third state, it becomes challenging for anyone—especially a court—to figure out who controls what. Things get even more complicated if the Power of Direction (the authority to tell the trustee what to do) is irrevocably assigned to someone in yet another state or even another country. In that case, a judge trying to enforce a judgment may struggle to compel the out-of-state beneficiary to direct the trustee to sell the property or assign their interest. This structure creates layers of distance and jurisdictional complexity that make enforcement difficult. It doesn’t make you judgment-proof, but it significantly increases the difficulty and cost for a creditor trying to collect. It’s a classic asset protection strategy built on legal separation and procedural friction.

Keep the trust active (know in your state what it takes to constitute active and valid and what minimum duties). To dispose of this latter problem, the Illinois courts, displaying a liberal attitude, have held with near unanimity that either the duty to convey upon direction of the beneficiary 17 or the duty to sell at the end of twenty years,'" or both, are sufficient to constitute an active trust.

Doctrine of personal property: This sentence refers to a legal principle that helps define the beneficial interest in a land trust as personal property rather than real estate. Many land trust agreements include a clause directing the trustee to sell the property after a set period, often 20 years. That clause makes the trust an “active trust”—meaning the trustee has a duty to act in the future (i.e., sell the property). Under long-standing legal doctrine, the existence of this active duty means the interest held by the beneficiary isn’t tied directly to the real estate itself, but instead to the proceeds or outcome of that eventual sale. Because of this, the beneficial interest is treated as personal property (personalty) from the start, not real property. This classification has important consequences for taxation, asset protection, and how the interest can be transferred or encumbered. It also reinforces the idea that the land trust functions more like a contractual or financial structure than direct ownership of land.

✅ Ultimate Land Trust Agreement Checklist

🔐 STRUCTURE & PARTIES

📜 TRUST PURPOSE & TERMS

🎯 BENEFICIARY RIGHTS & POWERS

🛡️ TRUSTEE LIMITATIONS & LIABILITY

📁 RECORDKEEPING & PRIVACY

🔁 FLEXIBILITY & EXIT STRATEGY

🧾 TAX COMPLIANCE

🛑 PROTECTIVE CLAUSES

It always comes back to knowing State Statutue. This note is pointing out that trust law — particularly around distributions to beneficiaries — is often governed by state statute, but in Colorado, there may not be a specific statute dictating timelines or procedures for distributions. That means Colorado likely relies on common law principles and the terms of the trust document itself, unless there’s a dispute that requires court intervention.

In the absence of clear statutory rules, the default rules under common law and the Colorado Uniform Trust Code (UTC) apply. Under those principles: • The trustee must follow the terms of the trust agreement above all. • If the trust allows distributions “at will” by the beneficiary, that can be enforced as written. • Trustees still owe a fiduciary duty to act in good faith and in the best interest of the beneficiary. • There are no automatic deadlines unless the trust specifies them. • Courts may get involved only if a trustee is withholding distributions unreasonably or violating fiduciary duties.

So in Colorado, unless your trust agreement sets a schedule, distributions are as flexible as the language you draft allows, guided by fiduciary duty and common law.

Consider a Director for your Trust. In a land trust, a Director is a person appointed by the Beneficiary to hold the Power of Direction, which means they have the authority to instruct the Trustee on actions like selling, leasing, or refinancing the property. The Trustee cannot act independently and must follow written directions from either the Beneficiary or the Director. Appointing a Director adds flexibility and privacy, especially when the Beneficiary wants to remain behind the scenes. It also allows the Beneficiary to delegate authority to a trusted advisor, property manager, or attorney without giving up control of the economic benefits. This separation of roles can strengthen asset protection and complicate creditor access. A Director can be located out-of-state, adding an additional jurisdictional layer. In the trust agreement, the Beneficiary should explicitly name the Director and clarify the Director’s powers and limits. The Trustee must then act only on the Director’s written instructions. This setup maintains legal control within the trust while allowing operational flexibility.

You need a Successor. A lone person can be the Grantor (creator, settler, donor), Trustee, and Beneficiary/Director. Of course with this arrangement, should he become incapacitated, the Trust would be in trouble unless a successor should been provided for in the Trust Agreement. In Colorado, it’s not mandatory to name a successor trustee directly on the deed when transferring property into a trust. However, it’s highly advisable to do so within the trust agreement to ensure seamless succession. If a trustee vacancy arises—due to resignation, death, or incapacity—and no successor is designated in the trust, Colorado law provides a hierarchy for appointment: first, a person named in the trust; second, someone agreed upon by all qualified beneficiaries; and third, an individual appointed by the court . To maintain clear authority over real property held in trust, a Statement of Authority should be recorded with the county clerk and recorder. This document identifies the trust, its state of creation, mailing address, and the individual authorized to act on behalf of the trust concerning real property transactions . Recording a new Statement of Authority is necessary whenever there’s a change in trustee to ensure public records accurately reflect the current trustee’s authority. This practice helps prevent delays or complications in future real estate transactions involving the trust property.

Consider all possibilities for Trustee: The Trustee of a land trust can be almost any legally competent individual or entity, but who you choose can have major implications for longevity, liability, and control. Depending on your state’s laws, you can appoint a Corporate Trustee, such as a trust company, bank, escrow company, or title company. Corporate Trustees are often used because they offer continuity; they don’t die, become incapacitated, or disappear like individuals can. This makes them ideal for multi-generational planning, where the trust is expected to last decades or even longer. By appointing a corporate entity, you ensure that the property remains under stable title, even as Beneficiaries change over time. A corporate trustee may also be seen as more neutral, which can be helpful in estate disputes or business partnerships. However, some charge fees or require approval for each transaction, so it’s important to understand their policies. In states that allow private land trusts, it’s common to use LLCs or trusted advisors as Trustees instead of banks to maintain privacy and flexibility. Ultimately, choosing the right Trustee depends on your goals — whether you’re prioritizing permanence, anonymity, low cost, or administrative convenience.

The Trustee is NOT an agent of the grantor or beneficiary. In trust law, simply holding the position of Trustee does not make someone an automatic agent of the Grantor or the Beneficiary. This means the Trustee does not have broad authority to act on their behalf unless the trust agreement clearly gives them that power. Courts have consistently held that agency must be explicitly granted; it cannot be assumed based on the Trustee’s role alone. As a result, the Trustee cannot legally bind the Beneficiary to contracts or obligations unless the trust document authorizes such actions. Likewise, the Beneficiary cannot impose liability or duties on the Trustee beyond what’s written in the trust. This separation protects both parties from unintended obligations or liabilities. Without specific provisions in the trust, there is no automatic legal agency relationship. The Trustee is instead a fiduciary, acting only within the defined limits of the agreement. This underscores the importance of carefully drafting trust documents to reflect the actual intent and relationship between the parties involved. The rule that a trustee is not automatically an agent of the grantor or beneficiary protects both parties from unintended liability. For the beneficiary, it means they are not personally liable for any contracts or obligations the trustee enters into unless specifically authorized in the trust. This provides a layer of asset protection, ensuring that if the trustee makes a mistake or is sued, the beneficiary remains shielded. For the trustee, it ensures they are not responsible for the actions or debts of the beneficiary. If the beneficiary enters into unauthorized arrangements, the trustee cannot be held liable for those actions. This legal separation maintains the trust’s integrity and prevents courts from treating it like a sham. The implication is that any authority must be clearly spelled out in the trust agreement, especially if the trustee is expected to act on the beneficiary’s behalf. Without explicit language, no binding agency relationship exists. This makes careful drafting of the trust document critical for defining roles and responsibilities.

Serve the Trustee only when legally appropriate. In legal matters involving a land trust, it's important to understand that serving the Trustee is only effective to the extent the law permits. For example, if a statute of limitations is about to expire on a claim or violation of law, serving the Trustee might satisfy the legal requirement for initiating the claim — but only within the limits of what the law allows. The Trustee is not automatically responsible for the actions or liabilities of the Beneficiary or Director. He also cannot be served as their representative unless he shares in their authority or has acted outside the trust’s terms. If the Trustee begins exercising directorial powers, he exposes himself to potential liability and legal service. This is why it’s crucial for the Trustee to stay within the narrow role outlined in the trust. The structure is designed to limit liability and define clear boundaries. Trustees should avoid stepping outside their duties to preserve protection.

The Trustee must establish a fiduciary account for non-real estate funds. Since a land trust is structured to hold real estate assets, any cash, interest, or loan payments it receives are considered personal property and must be handled separately. The Trustee cannot hold these funds in a personal or general account. Instead, he is obligated to create and manage a special fiduciary account to receive such funds on behalf of the Beneficiary. This is especially important when dealing with installment sales, rent collection, or proceeds from real estate transactions. The Trustee then provides written instructions to an escrow agent to disburse the funds according to the trust agreement. This ensures transparency, legal compliance, and proper beneficiary treatment. Mismanaging these funds could expose the Trustee to liability. Maintaining this separation of property types helps protect the trust and the parties involved.

Beneficial interest sold on installment retains no buyer rights until paid in full. Unlike installment contracts for real estate, where the buyer slowly builds equitable interest, selling beneficial interest in a land trust does not grant the buyer any ownership rights until the final payment is made. Under the Uniform Commercial Code (UCC), beneficial interest is personal property, and the seller retains full control until the contract is satisfied. If the buyer defaults or disappears, the seller doesn’t need to initiate lengthy court action. Instead, they can simply reclaim control, such as by changing the locks or directing the Trustee to re-rent the property. This bypasses the complex eviction or foreclosure process associated with real property. The key is maintaining proper documentation and contract terms that clarify these rights. This strategy offers a powerful remedy and preserves control for the seller. It also reinforces the distinction between real and personal property law.

Use a rental contract to create clean remedies if the buyer defaults. When selling beneficial interest on installment, pairing it with a rental agreement allows for a straightforward fallback in case of default. The rental contract gives the buyer the right to occupy the property as a tenant for a limited period — typically 30 days — which serves as liquidated damages. After that period, if the buyer doesn’t cure the default or continue making payments, the seller can simply rescind the contract. If the occupant remains and fails to pay rent, the Trustee can begin standard eviction procedures, just like any other tenant. This eliminates the need for foreclosure or litigation over beneficial interest. It’s a streamlined, landlord-friendly solution that protects the seller’s control. The process needs to be properly documented, but once done, it allows for efficient property recovery. This approach is both practical and legally effective.

Liens against property in trust attach only to that property. If someone files a lawsuit and obtains a judgment lien against property held in a land trust, that lien attaches only to the specific property involved — not to the Beneficiary or Trustee personally, nor to other properties held in other trusts. This is because each land trust is treated as a separate legal entity for titling purposes. As the Beneficiary's name is not public, a creditor often won’t even know who to pursue, so the suit is usually directed at the title-holding trust. As a result, liability remains limited to the property that generated the issue. This structure offers strong asset protection, especially when each property is placed in its own trust. It helps isolate risk and contain legal exposure. The goal is to prevent cross-contamination of liability between properties or individuals.

Trustees are generally not liable when sued by tenants. If a tenant sues the Trustee over a property dispute, the Trustee can typically seek dismissal by filing a Motion for Summary Judgment. The rationale is that the Trustee is not the owner in the traditional sense but merely holds legal title for the benefit of others. Because of this role, and under both trust law and state statutes, the Trustee has no personal liability for acts relating to tenancy unless they stepped outside their limited duties. The actual “owner” in functional terms is the trust itself. Courts have recognized this distinction and routinely uphold it when the trust is properly structured. Trustees must avoid active management roles or personal guarantees to maintain this protection. Proper documentation and adherence to the trust’s limitations are key.

Beneficial interest is personal property and generally shielded from real property liens. A well-drafted land trust agreement should clearly define the Beneficial Interest as personal property. This classification is critical because it separates the Beneficiary's ownership from the property itself, reducing the risk that liens against the Beneficiary attach to the real estate. While a creditor might pursue trust income in some cases, they typically cannot touch the real estate if it's properly held by the trust. This adds a layer of asset protection that’s difficult to achieve through conventional titling. It also keeps ownership flexible and private. To be enforceable, these protections must be explicitly stated in the trust agreement. Clear delineation of property types strengthens legal standing in the event of a dispute.

Use high leverage and carry-back financing to dilute lien equity. One strategy for protecting trust property is to ensure it’s already encumbered by senior liens that would absorb most or all of its equity. This can be accomplished by having the Trustee “purchase” the property with 100% seller financing using a non-recourse note. That note is then secured by a mortgage recorded against the property, showing on public record. This leaves little to no equity for a creditor to reach, making the asset unattractive for collection. Payments can be structured to consume all rent income and compound when unpaid. Even if a lien is awarded against the trust, it’s unlikely to result in any collectible value. This preemptive strategy further strengthens the trust's asset protection profile. It must be implemented carefully to ensure enforceability and economic realism.

Beneficial interests are personal property and must be pursued in the state of domicile. In the context of land trusts, the beneficial interest is not considered real estate—it is personal property. This distinction means that any legal claims or enforcement actions related to the beneficial interest must be made in the state where the trust is domiciled. This adds an additional layer of asset protection, as it limits the jurisdictional reach of creditors or claimants. The person or entity attempting to make a claim would need to establish standing and proceed under the laws of the trust’s home state. This rule reinforces the importance of proper domicile selection in structuring land trusts. It's also one reason many investors choose favorable jurisdictions like Nevada or Florida. Defining the beneficial interest clearly as personal property in the trust agreement helps ensure these protections are upheld in court. Always make sure the trust documentation supports this legal characterization.

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