I sent this letter to my clients yesterday. It’s an article I recently wrote, about the benefits of holding your real property in a Florida Land Trust.
There are potential dangers to property ownership that most home owners don’t consider. Litigation happens more than we think, and there are ways to guard against it using a land trust. A trust also offers many useful advantages in its own right.
Here’s the full article.
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How to Safeguard Your Property from Litigation
Homeowner’s Insurance is NOT enough to protect your most valuable asset
America is growing increasingly litigious, and the more assets that people think you have, the more tempting a target you will become for opportunistic lawsuits. So what to do?
You’ve heard it dozens of times: “the best defense is a good offense.” This definitely holds true for asset protection, and shielding your property in a land trust.
In addition to shielding your assets directly from attack, asset-protection planning also serves your goals by making you a more difficult target.The more judgment-proof you make yourself, the less likely it will be that a litigant will bother to pursue a case against you. At the very least, you may be able to influence a settlement.
It is nearly impossible to protect your home completely from both legitimate and frivolous lawsuits. Your goal is to make it as financially exhausting as possible for a litigant to seek financial gain.
The only winners in a lawsuit are the lawyers. Even if you are involved in a lawsuit and win, you are still out your own legal expenses, which can be very high. Preventing a lawsuit is more important that winning a lawsuit. Asset-protection planning is a key measure that can prevent you from being involved in a drawn-out legal battle.
How Your Property Can Be Attacked
Here are some common situations resulting in asset attachment:
- Auto Accidents. Your personal assets can be attached if the lawsuit amount exceeds your insurance coverage.
- Teenage Drivers. You can be held liable not only for your own driving actions, but also for those of your teenage children.
- Party Host Liability. If you host a party, you may be liable for the actions of your guests if they leave your home intoxicated.
- Rental Property. Most homeowners are aware of the liability if someone is injured on their real property, but most don’t realize this carries over to their rental properties as well.
- Debt. Most of us at some time in our lives will find ourselves in a position of not being able to meet all of our financial obligations. Collection agencies can attach any and all of your personal assets as well as your real property if not protected.
The Land Trust as Best Defense
The Florida Land Trust is a fully revocable grantor trust drafted specifically to buy, hold, finance and sell Florida real estate or other personal property in a confidential or private manner pursuant to the Florida Land Trust Act that was adopted by the Florida legislature in 2006.
Consider these benefits of a Florida land trust:
- Anonymity. Real property is public record. By using a land trust there will be no registration of the purchase, sale or ownership recorded in your name.. Anyone seeking a judgment will have no knowledge of your ownership or interest in the property and will be less likely to be able to seize it.
- Keeping Prices Secret. You can keep your purchase and sale price secret.
- Avoiding Liens. Liens, judgments and other claims against you or your partners do not touch the property. This means you can buy and sell properties, even if you have judgments or liens against you.
- Avoiding Probate. When you die you can have your trust property instantly go to whomever you name. No lawyers, no cost and no delays.
- Avoiding Lawsuits. Attorneys first look at the viability of a case and secondly at the assets of the person being sued. If they can’t see the assets there is a better chance of not pursuing or settling the case.
- Control. When you have several partners owning a property, a land trust can allow you to manage it more easily.
- Management. It’s a lot easier to deal with tenants of a property when you represent yourself simply as an agent for the land trust, rather than an owner of the property. You can establish an authentic relationship, and still insist that the terms of the lease be met.
- Negotiation. Having a trust between you and a potential buyer or seller gives you a neutral position in any negotiations, where your interest in the outcome is not revealed. You can be a sympathetic party, wanting to help make the deal work, but limited by the terms of the trust.
- Better Financial Statement. If your property is in trust, the mortgage need only be in the name of the trust, not your name. As a direct owner of a property, your name would be on your mortgage, counting as debt on your credit score, potentially tipping your debt ratio into a poor credit risk. A trust eliminates this, plus you get to add your equity to your financial statement.
To set up a land trust you should first consult with an attorney, as well as your tax and investment professionals. Everything in this article pertains to Florida only – a state which has clarified much case law into a clear statute – and is a general summary of the elements involved.
You essentially deed your property to the trustee using the specific language required by Florida statute and you need a written Land Trust Agreement. Under IRS regulations the trustee should file Form 56 (or a similar form or letter) to disclose that he or she is acting for you, the owner.
The beneficiary of your trust can be you individually, a corporation, a limited liability company, a partnership or any other legal entity. If you are the beneficiary individually, you can name any other person or entity to become the successor beneficiary immediately upon your death. If your company is the beneficiary, you can name a successor in your company papers.
A land trust has absolutely no effect on taxes. It has no taxpayer identification number. All finances of the property are passed through to the owners.
© Stephanie Passman
