How to Protect Your Interest in Real Property

Imagine a creditor trying to find out how much money you have at your disposal. Copies of deeds and the taxes paid on real property are public records that anyone can look up at the county courthouse. Sometimes property appraisers keep records, which include the layout of your property and the value of your fixtures, also fairly accessible. Many of these records are available on the Internet, absolutely free. There are ways, however, to keep this information out of the public view.

Land Trusts

A land trust is a device that allows you to put your property in the name of another person, company or bank, keeping your name out of the public records. No one looking at the records will know who actually owns the property, how much it sold for, or how many times it sold. A land trust, in essence, shields your identity. Once the trust is closed, the trustee has no duty to keep the records, so there may be no way to find the owner. Land trusts can be used in most states, but in some it is more difficult than others because the laws don’t specifically authorize them. Check with a real estate attorney in your state to determine whether setting up such a trust is feasible where you live.

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Living Trusts

If it is difficult or impossible to use a land trust in your state, a living trust may suffice. Someone other than yourself should be the trustee. Be aware, however, that sometimes living trusts are recorded, so they are not as private as land trusts.

Corporations

Often times if a corporation owns a piece of property, stock in the corporation could be sold with no record of the price paid or who the purchaser is. In most states, corporations must disclose their officers and directors, but not the names of their stockholders. If you are buying a piece of property, you could arrange for the seller to convey it to a corporation and then transfer the stock to you. There may be tax considerations involved, so be sure to discuss this with your accountant. If you use an out of state corporation, that could make it even harder to find you.

Limited Liability Companies (LLC) and Limited Partnerships (LP)

These are two of the best ways to hold real property because they have strong asset protection benefits. As the owner of an LLC, you are not liable for the debts of the business or the acts of employees. And if you do something wrong personally, your LLC cannot be taken away from you as long as it is set up correctly. Be sure to obtain advice from a real estate or business attorney, or an accountant. These days it is very simple to start an LLC in most states. In some cases you can even do it online.

If you own your property as a Limited Partnership, your property will be protected from the claims against one partner (if the claim is unrelated to the business). The underlying reason is that it would be unfair to the other partners to have the partnership dissolved or property seized for acts over which they had no control. When it is used for asset protection purposes, an LP is usually called a family limited partnership, or FLP. An LP or an FLP is a partnership agreement between two or more persons in which at least one of them (the limited partner) has no right to control the business and no liability for debts of the partnership. The general partner (or partners) controls the business or assets and is liable for the partnership debts. The limited partners own a share, but have no say in the operation. They can share in the profits according to their percentage ownership if the general partner decides to distribute profits.

All a creditor can do against a limited partnership is obtain what is called a “charging order” which is a lien against the limited partnership interest. It only entitles the creditor to any profits distributed to the partner, but in a FLP, the general partner can decide not to distribute any profits. And, with the lien, the creditor may have to pay a share of the taxes on the profits of the LP even if no profits are distributed!

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Foreign Trusts

Setting up a trust overseas has fallen out of favor in recent years because such trusts have often been viewed by the courts as being formed with an illegal intent to defeat creditors’ claims. Although they look shady, there are some benefits. For a more detailed discussion of the benefits and drawbacks to foreign trusts, see “Foreign Trusts and Offshore Entities To Protect Your Assets”.

Case Studies: Protecting Your Interest in Real Property

Case Study 1: Protecting Privacy With a Land Trust

John and Sarah, a married couple, owned multiple properties and were concerned about their privacy and the potential for their personal information to be accessible through public records.

They consulted a real estate attorney who recommended setting up a land trust. The attorney explained that a land trust would allow them to transfer their properties to the trust, with a trustee acting as the legal owner.

By doing so, their names would no longer appear in the public records, effectively safeguarding their privacy and making it difficult for others to identify them as the property owners.

Case Study 2: Asset Protection With an LLC and LP

Ethan, a real estate investor, wanted to protect his real property from potential personal liabilities. He consulted with a business attorney who suggested a two-fold approach using a limited liability company (LLC) and a limited partnership (LP).

The attorney advised Ethan to establish an LLC to hold his properties, which would separate his personal assets from the liabilities of the business. This would shield Ethan from personal responsibility for any debts or lawsuits related to the properties.

Furthermore, the attorney proposed creating a family limited partnership (FLP) to add an additional layer of protection.

By structuring the ownership of the properties as an FLP, Ethan could retain control as the general partner while limiting the liability of his limited partners, who could include family members.

This arrangement would help safeguard the properties from claims against individual partners, protecting the assets from potential personal legal issues.

Case Study 3: Privacy Through a Living Trust

Emily, a homeowner who valued her privacy, sought a solution to protect her real property from public records. Since land trusts were not commonly used in her state, her real estate attorney suggested setting up a living trust as an alternative.

Emily designated her sister as the trustee of the living trust and transferred her property into the trust’s name. By doing so, the ownership of the property remained private, as the trust’s name appeared in the public records instead of Emily’s name.

Although the living trust was recorded, it still provided a level of privacy and protection for Emily’s real property.

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