Posted June 23, 2024 by James Billings
Introduction to Trust Instruments for Real Property
Several people have asked me, James, what is the best way to hold title to real property using different types of trust instruments? In this post, we will delve into the nuances of business trusts and real estate land trusts, exploring their original purposes, advantages, and disadvantages.
Understanding the Original Design of Trust Instruments
The business trust was originally designed to operate a for-profit business and could hold various types of assets, including real and personal property. On the other hand, the land trust was specifically designed for holding title to real property, not for personal property or operating as a for-profit business.
Key Differences Between Business Trusts and Land Trusts
- Control
- Business Trust: Control lies with the trustee who manages all operations from buying to leasing properties.
- Land Trust: Control is with the beneficiaries who direct the trustee on all matters, ensuring the trustee has no autonomous power.
- Safety and Liability
- Business Trust: Offers limited liability and asset protection, suitable for a for-profit setup.
- Land Trust: Lacks in providing asset protection and limited liability, posing potential risks.
- Tax Implications
- Business Trust: Offers flexible tax classifications—disregarded entity, partnership, or corporation.
- Land Trust: Generally treated as a disregarded entity, with no options for partnership or corporate tax classifications.
Practical Applications of Business Trusts in the Real World
Large corporations, like Walmart, utilize business trusts for holding title to their properties, highlighting the trust’s effectiveness and reliability. A look into the Walmart Real Estate Business Trust provides insights into strategic asset management by major players.
Conclusion: Choosing the Right Trust Instrument
While both trust types offer privacy, the business trust stands out as a more robust option for holding title to real property. Whether you’re managing large assets or looking for a tailored solution, understanding these instruments’ capabilities and limitations is crucial.
Get your free copy of the LLC versus Business Trust comparison chart here.
If you have any questions, please contact James Billings, founder and owner of TrustArte, at james@trustarte.com or 619-537-8625. Visit my YouTube channel for video content.