Learn about the history of Trusts and how you can use them for privacy and to protect your assets...
Today we’ve never had it so good, yet many readers seem worried about: (1) When the “housing bubble” will burst, (2) what will happen to retirement plans when employers file for bankruptcy, and (3)law suits. In this month’s newsletter I’ll try to put these threats into perspective and suggest ways in which to deal with them.
In so many words, a Land Trust is a legal arrangement whereby title to a property is held by an entity called a Trustee and all the benefits, rights, and powers of ownership are retained by a person called a Beneficiary. The rights and duties of these are spelled out in a duly notarized and signed document called the Trust Agreement. Think of a Land Trust as if it were a politically, economically, and socially powerful ally to whom you have entrusted all your real estate holdings.
Let me tell you about one of the most successful real estate wheeler/dealers I ever met. He bought over 550 houses in a single year by finding people who were relocating. He sought out those who had homes with loans equal to approximately 60% of value. He also tried to locate owners of free and clear building lots of equivalent equity value. He would offer the home owner one of the lots free and clear in return for the owner's equity. And he'd offer the lot owner a 2nd mortgage at low interest rates and low payments in return for the lot.
Big expensive houses appreciate more, look better, and are easier to rent, but they create negative cash flow in almost any market. If you’re looking for ways to reduce negative cash flow and increase your income, think small, cheap, and mobile.
As credit begins to disappear from the market, people are going to revive the ancient and tested practice of trading their equities.
Last time we were trying to solve the riddle of being able to buy houses at today’s prices and rents that would be feasible as long term rental investments that would generate current positive cash flow. I think trading in one house for another is the solution, but it’s almost impossible to find two people who can make a straight property swap.
What could we accomplish if we combined trusts, corporations, and LLCs? Let's start by creating as much privacy as possible by placing all real estate properties into separate Illinois-type Land Trusts. Land trust are cheap and easy to form. Moreover, the U.S. Constitution and 100 years of case law support their validity in America. These can be formed under the laws of several States, but Section 55-17.1 of the Code of Virginia would be my first choice. Placing property into a land trust would create privacy by getting the owner's name out of the public records. This move would probably create a lot of confusion in the enemy camp.
Suppose we put our assets into trusts, and placed the beneficial interests into a Business Trust, as mentioned previously, and formed a corporation and used it to operate any business interests we had. This would provide both privacy and tax planning options. Next, let's have these two entities form a Limited Liability Company. It would be the part of our iceberg seen by the public. The corporate Managing Member of the LLC would meet and greet customers, sign contracts and leases. What might this accomplish?
I'm an inveterate tool collector. I can't pass a flea market or garage sale without stopping to buy tools. I've got a footlocker full of miscellaneous tools that I rarely ever use. They sit there, at the ready, awaiting my call. But, they're neglected for the most part. Why? Because I'm just too lazy to put them to work. Over the years, my sloth has cost me a lot of money. I've a feeling that a lot of you readers have the same approach when it comes to financial tools.
In 1988 the IRS issued Revenue Ruling 88-76 which established that Limited Liability Companies would be taxed the same way as Partnerships are taxed, IF, they avoided having more than two corporate characteristics as identified in 26 CRF 301.7701-2,3 and 4 present in the entity. These include Centralization of Management, Free Transferability of Interests, and unlimited Continuity of Life, and Limited Liability. Most state LLC Acts attempt to achieve this.