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Benefits To Buyer And Seller Active Tax Write-Offs: Mortgage Interest and Property Tax deductions are available to the co-beneficiary who pays them, while the Passive deduction (depreciation) may be taken by, or shared among non-resident beneficiaries (re: IRC 161; 167[h]).
All Benefits of Home Ownership (without the usual down payments, bank qualifying, etc.) can be conveyed to a co-beneficiary in a land trust, without the necessity of a new loan.
Avoidance of Legal Hazards: Bankruptcy, marital dispute, lawsuits, etc. against one beneficiary of a Land Trust cannot affect others' beneficial interests.
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- Confidentiality, Secrecy, Anonymity, Privacy: Though some jurisdictions may require the identities of the trust's original beneficiary to be provided upon creation of a land trust, beneficiary interests in land trusts need not be disclosed to third parties, absent a court order. Subsequent assignments, however, are not recorded and can remain wholly anonymous.
- Conversion of Real Property (Realty) to Person Property (Personalty): Real estate ownership is converted to personal property ownership in a Land Trust. This is validated by case law in most states, including Texas.
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- Ease of control by Multiple Owners: Most forms of "joint ownership" (including shared equity financing, land contracts, lease options and the so-called "All Inclusive Trust Deed," or "Wrap-Around" arrangements) can be done simpler and safer with properly constructed Land Trusts. Parties can easily divide their beneficiary interests and future profits in any proportions they wish.
- Ease of Transfer: Transfer of interest in a Land Trust requires a simple assignment, rather than a formal execution, thereby avoiding transfer [re-conveyance] tax, change in tax-basis or property tax reassessment.
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- Enhanced profits from sale and/or management of Real Estate, because of many of the benefits noted here.
- Gifting Made Simple and Manageable: The land trust can be used to avoid gift taxes by gifting $10,000 to individuals ($20,000 for a married couple) over a number of years to beneficiaries in a land trust, wherein the donor would be retain power of direction over the trustee (and therefore over the assets).
- Homestead Rights: Land Trusts do not interfere with homestead exemption provisions for their beneficiaries. The property in a Land Trust is deemed by all state and federal governmental institutions to be owned by the trust's beneficiaries.
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- Loan Collateral: With the mutual consent of all beneficiaries, beneficiary interest in a land trust can be excellent loan security, for those who understand it.
- No Property Tax Increase, since there is no sale or divesture of the real estate, or conveyance of the grant deed beyond the trustee in a land trust conveyance.
- No Need for Public Sale-Price Disclosure. There is no actual "sale" with the assignment of beneficiary interest in a Land trust, so there is no "price" to disclose.
- Protection against "Partition" by creditors to satisfy a debt. As personal property, beneficiary interest in a land trust cannot be divided by creditors.
- Protection of the property from judgment liens, tax liens, bankruptcy and legal actions in marital disputes. It is established that liens against beneficiaries in a land trust do not attach to the property. Even federal tax liens are not charged against land trust property, but can be charged against income accruing to the beneficiary/ies by levy. Property tax liens, mechanics liens and RICO liens (Fl) can, however, attach to the property irrespective of ownership interest. Also land trust property is not subject to claims by/of an ex-spouse, which is to say that the property may be dealt with without the concurrence of the ex-spouse, assuming such title interest was relinquished prior to creation of the trust.
- Residential Tax Exclusion. There is currently a $250,000 income tax exclusion for each taxpayer (i.e., $500,00 if married and filing jointly) for all real estate sales after May 7th, 1997. One must now pay income tax on sums received in excess of the exclusion limits unless the means of disposition is via the system prescribed in this publication, in which event, such income tax may be due only at the trusts termination (2 to 20 years later) when the property is sold or refinanced out of the trust.
- Tax Deferred Exchange. Exchange privileges remains intact for non-resident beneficiaries. A beneficiary interest in a land trust, even though deemed Personalty, may be exchanged for Realty under the guidelines of IRC 1031 Like-Kind Tax Deferred Exchange.
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We are not attorneys and are not providing legal advice. Please consult your own counsel before entering into any legal agreement.
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