A land trust is an entity that has been proven in the court system for over 150 years and is considered a transfer entity by the IRS. An LLC (Limited Liability Company) is an entity and must have a tax identification number issued by the IRS. Limited liability companies have come under increasing attack by the court systems at both the regional and federal levels.
The LLC was developed as a supercorporation and has definite benefits in terms of record keeping and ease of administration. Possibly its greatest asset was the protection from lawsuits it provided because the winning plaintiff in a case could only have one “charging order” against the LLC.
This judgment could only be collected if the LLC’s income or assets were disbursed, essentially rendering the judgment uncollectible. This changed in a 2010 Supreme Court decision that allowed creditors to pierce the corporate veil and take action against LLC members. What was covered were single member LLCs, including those where a husband and wife were the only members, which is the most common type of LLC. Many states are reviewing their regulations and statutes regarding LLCs in light of the Supreme Court ruling.
At the other end of the asset protection spectrum, a land trust is an entity formed to own an asset, usually real estate. If a judgment is entered against the trust or the trustee, the sole asset owned by the trust can be seized if required without the risk of additional assets of the beneficiaries being affected.
It used to be that one of the best asset protection vehicles was a land trust with an LLC as the beneficiary. The land trust is not used to avoid any tax obligation, but rather to avoid succession and so that the beneficiaries of the land trust remain anonymous in the public record. If an investor’s assets are not visible to the plaintiff’s attorney, he has a better chance of not being sued.
Recently, an attorney, who forms entities for clients, told me that his business has shifted sharply from forming LLCs to reopening the time-tested Sub-S Electoral Corporations. If he decides to open any entity, always get local legal advice and have a professional in that business complete the process. You can save money by doing it yourself, but in the long run, DIY can be very hassle-free and costly if not done correctly.