In California, general guardianship law is found in the Probate Code 15000-19403. There are no specific land trust laws in California, unlike the Illinois land trust, (765 ILCS 405/410/415/420), the Massachusetts business trust (MBT) statute (MGLc182, 2), and the Virginia land trustee law (Va. Code Sections 55-17.1).
Thus, land trusts created in California for California property are based on the general trust laws in the California Endorsement Code mentioned above. But an out-of-state land trust can be formed that will hold rights through a California property trustee, to take advantage of the more favorable statutes and case law of other states. Indeed, the Virginia Supreme Court at Air Power, Inc. v. Thompson, 244 Va.534, 422 SE 2nd 786 (1992), has confirmed that Va. Code Sec. 55-17.1 gives the land trust trustee both the legal and fair powers of the real property, which protects the privacy of the beneficiary.
Indeed, because California does not have a specific land trust law, there is no legislative history or case law developed in this state, only California general trust law and case law. But general trust laws may have some advantages over certain land trust laws with more requirements. Indeed, the Illinois land trust law (75 ILCS 435) requires that the holder of a directive power owes a fiduciary duty to a beneficial interest holder. California’s general guardianship law does not have a similar requirement.
After all, the evasion of a will over real property in a land trust trumps all difficulties in its creation.
I. California General Trustee Law:
A. Trust Creation:
California Probate 15000 states that ”
Among other methods of creating a trust, a trust can be created by: “(b)(a) the transfer of property by the owner during the lifetime of the owner to another person as trustee,” under 15200(b) of the California Probate Code. And “a trust is created only if there is a trust property,” under 15202 thereof.
“Trusts can be created for any purpose that is neither illegal nor against public policy,” according to 15203. Land trusts are not for illegal purposes, nor are they against public policy in California, although they are not widely used in this state.
And “trusts, other than charitable trusts, are created only if there is a beneficiary,” according to 15205.
B. Trust Of Real Property And Personal Property:
In order not to violate the Statute of Fraud, which requires a written instrument to be enforceable, 15206 states that “a trust relating to real property is invalid unless proven by one of the following methods: (b) By a written instrument conveying a properly signed trust by the settler, or by the resettlement agent if authorized in writing to do so.”
And under 15207(a) thereof, ”
Lastly, “a trust created pursuant to this chapter (1, section 2, Division 9 of the Probate Code) relating to real property may be registered at the county registrar’s office in the territory where all or part of the real property is located,” under 15210 thereof .
II. Land Trust Mechanism:
A. Advantages and Benefits:
(1.) Privacy:
One of the much touted advantages of a land trust is that the trust grant deed of a trust property in the name of a different trustee (private or institutional) can be recorded with the County Recorder, but the land trust agreement names the truster/settlor/investor and beneficiary. not recorded.
Thus, the creator/trustee of the land: the trustee/settler who invests in real property can keep his name, as well as the names of the beneficiaries from the Regional Registrar and District Appraiser books, and to some extent hide the investment from public view.
But the creditor’s appraisal of the trustor/settlor or beneficiary may ask the latter to answer written questions on his/her/his assets, or for the examination of the debtor under oath in court to determine assets, and not rely solely on the Registrar and County Appraiser. asset search.
A land trust agreement may also use a land trust name that is different from the name of the trustee/settlement who created it. This is another asset protection benefit. And if the beneficiary is also the same trustee/settlement, the latter may appoint his living trust or wholly owned limited liability company as the beneficiary in order to hopefully avoid gift tax issues.
(2.) Avoiding Endorsement:
In addition, just as a successor trustee may be appointed in a land trust agreement, a successor beneficiary may also be selected to avoid interference in the distribution of trust assets upon termination of the trust, outside of the probate process.
Land trusts can be created as revocable (the terms of the agreement can be changed) or irrevocable (irreversible), but the latter requires filing a separate tax return and is taxed at a higher rate than the trust/settlement tax rate. , unless considered a simple trust where all income generated is taxed to the beneficiary. For federal income tax implications, if the giver/trustee is also a beneficiary, the Internal Revenue Service (IRS) classifies it as a trustee with tax consequences that flow directly into the Form 1040 trust and state returns.
(B.) Disadvantages and Traps:
(1.) Separate Agreements For Each Property:
To maintain investment or transaction privacy and the asset protection benefits of a land trust, only one real estate property can be registered as a property in it. Thus, a different land trust agreement is created for each property. This can be tricky, although the same trustor/settlor, trustee, and beneficiary may be named in each agreement.
(a) Simple Alternative:
A simpler alternative is to purchase an investment property or lease through a limited partnership (LP) or limited liability company (LLC), or transfer the property to a more flexible living trust that does not require filing a separate tax return, or transfer ownership of the LLC interest (not the title of the property). ) for living beliefs.
An LLC can also create a land trust by passing on the title of the property to the trustee, and designating itself (LLC) as the beneficiary for ownership privacy. Sometimes less is more; because indeed, creditors can see through and have recourse to avoid executing a property valuation through an asset protection scheme. And the transfer of ownership of the property can result in tax assessments.