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Not All Trusts Are Created Equal.

By John Dietz - Email Editor

Date : Oct 10, 2006

As always, there are plenty of Asset Protection shams to talk about. Of late, I have been inundated with folks wanting to put everything under the sun, including their residence, in a trust vehicle, more specifically, a land trust. As the late, great Waylon Jennings wrote in his famous song Luckenbach, Texas: “Maybe it’s time we got back to the basics of love.” In our case, put in some musical notes, your best baritone voice, and replace the word “love” with the word “trusts.”

Today, just about all the land trusts being promoted are some basic version of the original Illinois land trust started in 1868. Most folks seem generally confused with land trusts and their purpose. The reason may be the fact that they are now being marketed as solid Asset Protection tools. A land trust can be useful in certain situations, but due to the fact that they are revocable trusts, and therefore, anything inside of them would be available to creditors, land trusts are not per se Asset Protection vehicles. For years these trusts have been used by people and companies to purchase property under an assumed identity.

A little story.

It seems like yesterday that a nice fellow walked into my office asking if I had any interest in selling one of my office buildings. At the time, I had no interest and had never considered such a proposition, but of course, I let the man explain his interest in this particular piece of property. To give you a picture, the man, who will now be named "George," was dressed in a cotton golf shirt with a very relaxed demeanor. George said he and a couple of fellows/partners were getting together to buy some properties for future developments, and since they were really just getting started, they naturally could not afford much. George said he and "the guys" had put some money together and formed a trust called English Farms. He said some of the guys were previous farmers, and they may someday want to dabble in farming again and wanted to know if I knew anyone locally that had a fair amount of acreage. He claimed they really liked the area and had been pricing different properties to get a feel for the local market. George assured me they did their homework and would be willing to offer a fair price.

The negotiations went on for several more weeks. After many meetings and becoming happily involved in the process, I started some due diligence of my own. For me, this always begins with speaking to a couple of related industry pros. One day, after speaking to a real estate friend about the offer George and the company had proposed, he paused and said, “Something doesn’t smell right.” My friend was a seasoned real estate veteran, and if he had some misgivings, it was time for me to start doing some real homework. I decided to start asking around; let’s face it, it’s not everyday that someone walks in off the street and wants to buy your property. Most of the real estate audience probably knows where this is going. …

Fast forward to the end of story. As it turns out, these small town guys represented, at that time, one of the biggest shopping mall developers in the U.S., and I won’t mention the name of the company, but I’m sure most of you can figure it out. The final price they offered was about half of what the property was worth at that time. The interesting part of the story was that nothing these guys told me was a lie, well not really: They had a trust named English Farms; they did have a group of guys; they did like the local area; they were pricing the market; I suppose the farming part may have been a stretch. In the end, the appearance of the good ol’ hometown boys was a ruse to hide the real identity of their deep pocketed shopping mall developers.

Back to the land trust. Is it an Asset Protection vehicle? No, not really. Typically, the promoters are overstating the benefits of the trust vehicle and its Asset Protection powers. The fact is land trusts in the states that permit them do obscure ownership...that is good; however, putting your home in a land trust doesn't make sense for most situations. In previous articles, we have discussed plenty of ways to title your home and will continue to do so in future newsletters.

Holding title to your home or any other property is a function of your current plans, your future plans, your circumstances, your estate plans and your Asset Protection needs. Deciding what’s best, at least where your main residence is concerned, should be determined by you and your local estate planner. A good option is equity stripping. Take a look at our educational module on mortgages and equity stripping, click here for the link.

We have and will continue to talk about what to do with your residence as the climate and marketplace changes. As always, we cannot stress enough that you need to get some real solid advice as to your goals and time frames. This goes back to those one-size-fits-all Asset Protection Plans: They do not exist!

Remember the guys that tried to buy my property? They painted a very pretty picture. This is the same thing your children do when they have been accused of bad behavior. They accentuate the positive and leave the negative alone. One more point worth noting: Children can at times get you to think they actually did you a favor by behaving inappropriately. Of course, getting duped by your children, on occasion, is part and parcel of being a parent; but getting duped by the latest Asset Protection sham is what we would like to keep you away from.

So, please watch out for the snake oil (land trust) salesman.

Until next time,

John

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