Realty411 Magazine Featuring Eric Counts, Credit Nerds - Page 81

There are lots of ways to hold the Beneficial Interest in a Land Trust (i.e. individually, through another entity or via the Trustee of another trust). This article will concentrate on using a Limited Liability Company (LLC) to hold the Beneficial Interest in a Land Trust and the many benefits of this strategy. Just because you put your property into a Land Trust does not mean you have avoided all liabilities stemming from that property. The liability from property held in a Land Trust flows through to the Beneficiary of the Trust. This is why most real estate investors (holding title to investment property in a Land Trust) make the Beneficiary of their Land Trust, an LLC. Linking the Land Trust with the LLC is a good structure that yields the privacy (of ownership) benefits from the Land Trust AND the asset protection benefits of the LLC. The basics of asset protection is rooted in privacy and the most inexpensive (and effective) way for real estate investors to obtain privacy is through the use of a Land Trust to hold title. Unlike all other forms of holding title, the Land Trust is NOT registered anywhere on planet Earth! This prevents everyone from Using a Limited Liability Company As The Beneficiary of Your Land Trust By Randy Hughes, Mr. Land Trust “looking you up” via the internet to determine your assets (and your sueability potential). Yes, most attorneys will try to determine your assets prior to suing you to make sure if they win their lawsuit against you, they will get paid (thus, your “sue­ability potential”). Not holding title to real estate in your name will help you avoid 90% of potential frivolous lawsuits. The remaining 10% of potential lawsuits can be effectively dealt with at the Beneficiary level with your LLC. However, many real estate investors are under the mistaken assumption that all LLC’s are the same when it comes to asset protection. THIS IS NOT TRUE! Single­member LLC’s are particularly vulnerable to attack. Here is why. Real estate investors use LLC’s primarily because they seek the protection of a Charging Order in case of legal attack. A Charging Order is the remedy a creditor uses to place a judgment against a Limited Liability Company. A judge may award the creditor the rights of an assignee (distribution of profits) but not the membership interests of an assignee (ownership). The judgment creditor as assignee therefore cannot force distributions, maintain managerial rights, or exercise any measure of control over the Limited Liability Company. Additionally, the judgment creditor is obligated under IRS Revenue Ruling 77­137 to report and pay taxes on their share of income regardless of whether such earnings are distributed or retained! The charging order protects LLC owners and investors (that were not involved in the litigation that produced the “assignment” to the creditor) from the creditors of a debtor owner. 81