Leawood Land Trusts – 4 things to keep in mind
The article below is pretty interesting. I’ve never had to do a Leawood land trust, but I’ve used them in other places. As the article states, we usually use these for privacy, such as when someone buys a vacation home and doesn’t want a public search done for them. They are also useful for public figures (like a politician or a movie star), as those persons are trying desperately to keep some sense of normalcy in their lives (this is especially true for politicians).
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Land trusts: four reasons why you might need one, and the implications to keep in mind
A land trust is a type of revocable living trust designed for only one purpose ” to hold title to real estate. Usually, they are created to provide some level of privacy and/or protection to the landowners. A trustee is chosen (typically a corporate entity), and beneficiaries make their wishes known to the trustee with respect to the title of the property. The trustee then sets up the beneficial interests (ownership structure and divisions of assets). The title is held by the trust, and the beneficiary interests are considered personal property. Land trust agreements are not part of the public record, and therefore the ownership of the property does not show up on cursory searches. This obscures the ownership, assuming the choice of trustee and name does not make the ownership obvious ” e.g. you serve as your own trustee. The following are some popular examples of the use of a land trust, although there are many others. Ownership privacy ” Keeping ownership private is an excellent way to defend against frivolous lawsuits. It can also be beneficial where multiple parcels of land are being acquired in preparation for development projects. Probate avoidance ” Land trusts can keep beneficiary interests out of probate by either outlining in the trust document who would receive beneficiary interests in case of the beneficiary’s death (similarly to a will), or to include them in a separate personal trust. Family concerns ” A crumbling marriage or children who disagree on the disposition of a land asset (and everything else) can lead to family arguments about the beneficiary interests ” but the land itself remains insulated and under the control of the trustee. Liens and personal judgments ” Land trusts can be used to protect landowning partners against the separate liabilities of any individual partner. Liens or judgments against a single partner affect their beneficiary interest, not the property itself ” thus keeping the title clear for transactions.
The tax implications of land trusts depend on the nature of the beneficiaries. When correctly drafted, taxes should be based on a proportionate division of incomes, deductions, etc. per the rules set up for the beneficiary interests. If the beneficiaries are partnerships or corporate entities, the rules are less straightforward. It is best to consult a tax professional before setting up a land trust, regardless of the beneficiary’s status.
It is also important to remember that land trusts are almost always revocable ” which, in the end, means the assets are traceable back to you. Most of the protection offered by revocable land assets is to make it more difficult for creditors to uncover the assets ” but a diligent attorney may be able to find the assets and potentially include them as recoverable assets in a lawsuit. With irrevocable trusts, you no longer own the assets, and thus there is true protection for the beneficiaries, whoever they are.
Unfortunately, land trusts can be used for shady reasons as well as for legitimate ones. For example, property owners can use the privacy aspects to skirt ownership regulations and make it difficult for local regulatory enforcement agencies to enforce laws on neglected property.
Do not be taken in by a straight-up sales pitch on land trusts that provide ultimate protection. Before creating a land trust, it is important to outline your objectives and consult with a professional as to whether the land trust is the best path to meet those goals, or if it should be part of your overall strategy. Land trusts can be useful ” but understand all the ramifications of establishing one, both from a tax and a privacy/protection standpoint.
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