Anonymity and Other Benefits of Title Holding Trusts

A Title Holding Trust (“THT”), sometimes referred to as a land trust, holding trust or blind trust, can be a simple and inexpensive method for taking and holding title to California real estate or personal property, confidentially and privately .

A THT can be established by an individual, partnership, trust, limited liability company or corporation. The person or entity that sets-up the THT, the Trustor, enters into a standardized THT Agreement with the Trustee he or she appoints, typically a fiduciary services company. The Trustee then designates one or more Beneficiaries (usually the Trustor) and Successor Beneficiaries (usually the Trustor’s children) of the THT, under the terms of the THT Agreement. The Trustee has no authority to act without specific written authorization and direction from the Beneficiary of the trust. The Beneficiary owns the THT, and retains all ownership rights and complete control over the property, including the power of direction over the trust. The Trustee executes grant deeds, promissory notes, deeds of trust, leases and otherwise manages the property held in the trust, only upon specific written authorization and direction from the Beneficiary of the trust. The trust may be modified, updated or terminated, and additional California real estate or personal property can be added to the trust, at anytime.

The Trustee holds title to the property under its name, in its fiduciary capacity, as Trustee of the trust.  Public records, including the County Recorder’s, County Assessor’s and County Tax Collector’s public files and records, reflect the legal title and ownership of the real estate or personal property in the name of the Trustee, “as Trustee for Trust No. 12345.” The Beneficiary is not identified on any public record, and the Beneficiary’s information is not disclosed to any party unless authorized by the Beneficiary, the trust agreement, or required by law or court order.

When title to real estate is held in a THT, courts have held that the beneficial interest in the trust is personal property. This beneficial interest includes the right to receive any income and any proceeds from the sale or mortgage of the property. The Beneficiary reserves the right to occupy or otherwise possess and use the real estate. However, as personal property, the beneficial interest in the trust can be easily assigned to another party without the need to prepare, sign, notarize and record a grant deed.

Reasons a THT may be desirable for acquiring, holding and disposing of real estate or personal property include:

  1. Anonymity and privacy of ownership;

  2. Succession of ownership and avoidance of probate for California residents;

  3. Partial distribution of property by assignment of Beneficiary interest, without the necessity of recording a deed;

  4. Protection against liens or judgments being enforced against the property, or clouds on title, caused by one investor’s death, divorce, bankruptcy, and debts;

  5. Protection against a partition action by one of the investors to force a sale of the property;

  6. Convenience of conveyance or refinancing, by requiring only the Trustee’s signature, rather than that of multiple owners;

  7. Assignments of beneficial interests in a THT without requirement of any 1099-S reporting, as a transfer of a personal property interest and not a real property interest;

  8. No requirement for a registered agent for service of process, unlike for a corporation or limited liability company;

  9. As a fully revocable grantor trust, the THT is a pass-thru and disregarded entity, so no separate tax returns or other filings are required;

  10. The assignment of a beneficial interest in the THT is considered a valid conveyance of title for income tax purposes, which qualifies for tax-deferred exchange treatment under Section 1031 of the Internal Revenue Code;

  11. The Trustee has no personal liability as Trustee of the THT;

  12. THTs are generally more cost-effective compared to other forms of real estate ownership, with no annual filing fees, tax return preparation fees, minimum annual taxes, Secretary of State filing fees and registered agent costs – requiring only the annual Trustee fee;

  13. The Trustee of the THT remains the insured party before and after any transfer of beneficial interests, obviating the need for costly title insurance endorsements with respect to transfers of beneficial interests;

  14. Real estate investors can acquire real property without tipping off sellers or competitors.  (Walt Disney acquired all of the land for Disney World in Florida through a THT, so no one could take advantage by inflating prices); and

  15. The beneficiary’s interest in a THT can be used as collateral for bank loans without the additional need and expense of obtaining a mortgage, even if a mortgage already exists.

It should be noted that, although THTs provide many benefits to real estate investors and property owners, they will not serve to circumvent income and property taxes otherwise payable. Nor will they circumvent a due-on-sale clause contained in a promissory note secured by the property, if 100% of the beneficial interest is transferred.

Though a THT can be established at any time, in order to take maximum advantage of the confidentiality and privacy benefits of the THT, the trust should take title to the real estate or personal property when it is first acquired, so the Beneficiary never appears on any public record tied to the property.