In California, the general trust law is found in Probate Code §§15000-19403. There is no specific land trust statute in California, unlike Illinois Land Trust Law (765 ILCS 405/410/415/420), Massachusetts Business Trust Law (MBT) (MGLc182, §2 ) and Virginia Land Trust Law (Va. Code Section 55-17.1).

Therefore, land trusts created in California for California property are based on the general trust law of the California Probate Code mentioned above. But an out-of-state land trust can be formed that would hold title through the trustee of a California property, to take advantage of more beneficial laws and case law in another state. In fact, the Virginia Supreme Court in Air Power, Inc v. Thompson, 244 Va. 534, 422 SE 2nd 786 (1992), has confirmed that Va. Code Sec. 55-17.1 gives the trustee of a land trust legal and equitable power of ownership of the real property, which protects the privacy of the beneficiaries.

In fact, since California does not have a specific land trust statute, there is no legislative history or developed case law in this state, only California general trust law and case law. But a general trust law may have some advantages over a specific land trust statute with more requirements. In fact, the Illinois land trust statute (75 ILCS 435) requires that power of attorney holders owe fiduciary duties to beneficial interest holders. California’s general trust law does not have a similar requirement.

In any case, the avoidance of the legalization of real estate in a land trust overcomes all the difficulties in its creation.

I. California General Trust Law:

A. Trust Creation:

California Probate § 15000 states that “(e) this division (Division 9 of the Probate Code) shall be known and may be cited as the Trust Law.” And § 15001(a) states that “(e) except as otherwise provided by law: this division applies to all trusts regardless of whether they were created before, on, or after July 1, 1987.”

Among other methods of creating a trust, a trust may be created by: “(b) (a) transfer of property by the owner during his or her lifetime to another person as trustee,” under California Probate Code § 15200(b) . And “the trust is only created if there are trust assets,” according to sec. 15202 of it.

“A trust may be created for any purpose that is not illegal or contrary to public order,” according to sec. 15203 of the same. A land trust does not have an illegal purpose or is against public policy in California, although it is not widely used in this state.

And “a trust, other than a charitable trust, is created only if there is a beneficiary,” according to sec. 15205 of it.

B. Real Property and Movable Property Trust:

In order not to violate the Fraud Statute, which requires a written instrument to be enforceable, §15206 states that “a trust in connection with real property is not valid unless shown by one of the following methods: (b) By an instrument in writing convey the trust duly signed by the settlor, or by the settlor’s agent if authorized in writing to do so.”

And under § 15207(a) thereof, “(l) the existence and terms of an oral chattel trust may be established only by clear and convincing evidence.” According to § 1528 of the same, “no consideration is required to establish a trust…”.

Finally, “a trust created pursuant to this chapter (1, part 2, Division 9 of the Probate Code) relating to real property may be registered with the county recorder’s office in the county where all or a portion of the real property is located,” under sec. 15210 of it.

II. Mechanics of a land trust:

A. Advantages and benefits:

(1.) Privacy:

One of the most heralded advantages of a land trust is that a trust grant deed to a trust property in the name of a different trustee (private or institutional) may be recorded in the County Register, but the land trust agreement which indicates the names of the settlor/trustor/investor and the beneficiaries are not recorded.

Therefore, the creator/grantor of the land trust: the settlor/trustor who invests in real property can keep their name, as well as the names of the beneficiaries, off the books of the County Recorder and the County Assessor, since a to some extent hide the investment from public view.

But a judgment creditor of a settlor/settlor or beneficiary may subject the latter to written interrogatories about his assets, or an examination of the debtor under oath in court to determine assets, and not simply rely on the Registrar and County Assessor. asset searches.

The land trust agreement may also use a name for the land trust that is different from the name of the settlor/trustor who created it. This is another asset protection benefit. And if the beneficiary thereof is also the same settlor/settlor, the settlor may designate his or her living trust or wholly owned limited liability company as the beneficiary to avoid gift tax issues.

(2.) Inheritance Avoidance:

In addition, just as successor trustees may be designated in the land trust agreement, successor beneficiaries may also be selected to avoid interruptions in the distribution of trust assets upon termination of the trust, outside of probate proceedings.

A land trust can be created as revocable (terms of the agreement can be changed) or irrevocable (cannot be changed), but the latter requires filing separate tax returns and is taxed at a higher rate than the rate. settlor/trustor’s individual tax return. , unless it is considered a simple trust in which all income created is taxed to the beneficiaries. For federal income tax implications, if the grantor/settlor is also the beneficiary, the Internal Revenue Service (IRS) classifies it as a grantor trust that has tax consequences that flow directly to the settlor’s Form 1040 and state return. .

(B.) Disadvantages and Pitfalls:

(1.) Separate agreement for each property:

To preserve the privacy of the investment or transaction and the asset protection benefits of the land trust, only one piece of real estate can be included in it. Therefore, a different land trust agreement is created for each property. This could be cumbersome, although the same settlor/settlor, trustee and beneficiary can be named in each agreement.

(a) Simple alternatives:

Easier alternatives are to purchase investment or rental properties through a limited partnership (LP) or limited liability company (LLC), or transfer such properties to a more flexible living trust that does not require filing of tax returns. separately, or transfer ownership interests of an LLC (not title to the property) to a living trust.

An LLC can also create a land trust by transferring title to a property to the trustee and designating itself (LLC) as the privacy beneficiary of the property. Sometimes, less is more; because, in fact, creditors can see through and have recourse against the avoidance of the execution of the judgment on properties through asset protection schemes. And property ownership transfers can lead to tax assessments.