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By Randy Hughes, Mr. Land Trust
Many investors think, “I’ll put multiple properties into one Land Trust! That should be easy.” They could assume that managing one trust will be a breeze compared to managing multiple Land Trusts. They may also think that there is no downside.
Investors who think like this have not thought their plan through. The reverse can be the case. Managing multiple properties in one Land Trust is a snap (especially when you use my exclusive Trust Tracker, included with my Basic Course). It’s having all your properties in one Land Trust, or one basket as I like to say, that things can get tough, very tough, fast.
Welcome to the New Year
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Before I continue, permit me to point out that I started writing about Trust Trusts twenty-two years ago. My students requested it. They wanted to learn more about the scores of benefits of using a trust to hold title to their properties.
When I speak in front of an audience or teach a Land Trusts Made Simple® class, the question of whether to hold multiple properties in one Land Trust is sure to come up. My basic answer is “you can hold multiple properties in one trust, but I do not suggest you do that.” Why not? Read on my fellow real estate investors.
Here’s Why Not
First, there is a basic principle to asset protection that says, “keep all assets separated.” This applies to all types of investments (cash, stocks, bonds, real estate, precious metals, etc.). The theory behind this is that if liability occurs against one of your assets, it will not directly affect all your other assets. For example, if you titled ten single-family rental houses in one LLC and you had an uninsured loss or legal claim against the property/owner, any lien or judgment against the owner/LLC would tie up ALL the properties inside the LLC. Dumb, huh?
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However, if you hold the title to each of those ten rental houses in separate Land Trusts and a contingency-fee attorney and their deadbeat client attack one of them, any potential judgment would be rendered against the property itself and there would be no effect on your nine other properties. Therefore, the smart real estate investor puts each property into its own separate Land Trust. I encourage investors to take asset protection a step further by making the Beneficiary of the trusts one or more LLCs.
Hunting Expedition
There’s another benefit to NOT putting multiple properties into one Land Trust. If a subpoena is issued to the Trustee in search of information about the trust and its assets, the subpoena would apply to ALL properties inside the trust (not just the property involved in the litigation)! Double dumb, huh?
Furthermore, any assignments of Beneficial Interest or contingent beneficiary provisions in your trust will apply to all properties held in that trust. This removes one of the best reasons to use a Land Trust. For example, if you wanted to sell one property on an installment contract, you could not do it effectively when holding more than one property in one trust.
It does not cost anything to form a trust. Therefore, it makes sense to always put each property into its own, separate trust.
I encourage you to learn more by going to my FREE online training at www.landtrustwebinar.com/411 and text the word “reasons” to 206-203-2005 for my free booklet, Reasons to Use a Land Trust. You can also reach me the old-fashioned way by calling me at 217-355-1281. (I actually answer my own phone, unlike most other businesses in America today!)
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