If you’re a property owner in Arizona, you may want to consider setting up a land trust to protect your assets. This guide provides a comprehensive overview of land trusts in Arizona, including their benefits, how to set one up, and what to consider before doing so.
What is a land trust?
A land trust is a legal arrangement in which a property owner transfers ownership of their property to a trustee, who manages it on their behalf. The trustee holds legal title to the property, while the beneficiary retains all of the rights and responsibilities of ownership. Land trusts are often used to protect assets, maintain privacy, and avoid probate.
How does a land trust work in Arizona?
In Arizona, a land trust works by transferring legal ownership of a property to a trustee, who holds the property on behalf of the beneficiary. The trustee could be an LLC that you control. In that way, you still control the land, but you have more privacy from people trying to research your assets online. You (the beneficiary) retain all of the rights and responsibilities of ownership, including the ability to sell, lease, or mortgage the property. The trustee’s role is to manage the property and ensure that your interests as the beneficiary are protected. Arizona does not have any state law that specifically permits land trusts. However, there is nothing inherently illegal about setting up the ownership of your property this way.
Land Trusts in Arizona Could Be Unwound Using Alter Ego Doctrine.
There are many companies that promote land trusts as a method of asset protection. They say that land trusts in Arizona provide protection by providing privacy. I’m not so sure about that. If I were on the front lines in a battle, with gunfire all around me, I’d rather be inside a tank (protection) than hiding under a camouflaged blanket (privacy). Land trusts in Arizona provide privacy. They do not provide asset protection from lawsuits and creditors.
The legal argument that a creditor or lawsuit plaintiff would use to pierce your land trust is the Alter Ego Doctrine, also known as veil piercing. The gist of this argument is that if you still have effective control and use over real property, then your creditors should be able to seize that property to pay what you owe them.
You can also read our blog post Is There Such a Thing as an Arizona Land Trust?
Benefits of using land trusts in Arizona.
There are two benefits to using a land trust in Arizona. One of the main benefits is that land trusts in Arizona can provide privacy for the beneficiary, as the trustee’s name is listed on public records instead of the beneficiary’s. Second, a properly drafted land trust can simplify the transfer of property to heirs, as the property is already held in trust and can be easily passed on without going through probate.
Setting up land trusts in Arizona.
Setting up a land trust in Arizona is a relatively straightforward process. First, you will need to choose a trustee to hold legal ownership of the property. This can be an individual or a corporate trustee, such as a bank or trust company. Next, you will need to draft a trust agreement that outlines the terms and conditions of the trust, including the rights and responsibilities of the trustee and beneficiary. Once the trust agreement is signed and notarized, the trustee will take legal ownership of the property and manage it on behalf of the beneficiary. It’s important to work with an experienced attorney who specializes in land trusts to ensure that the trust is set up correctly and meets your specific needs and goals.
Common misconceptions about land trusts in Arizona.
There are several common misconceptions about land trusts in Arizona. One of the most common is that they are only for wealthy individuals or those with large estates. In reality, land trusts can be beneficial for anyone who wants privacy regarding what real property they own. (But remember that a land trust does not provide protection from creditors or lawsuits.) Another misconception is that land trusts are only for real estate investors or developers. While they can certainly be useful for these individuals, land trusts can also be beneficial for homeowners who want to protect their primary residence or vacation home.
It’s important to consult with an experienced attorney to determine if a land trust is right for your specific situation. For example, a land trust most likely does not get a step up in basis if you die. That could mean that your heirs have to pay unnecessary capital gains tax. Also, in our opinion, you do not get the homestead exemption if the trust is not drafted property.
Have More Questions About Land Trusts in Arizona?
If you want to protect real property in Arizona, we can help. Give us a call at 602-443-4888.