A real estate investor was telling me he uses title holding trusts, can someone explain the pros/cons of this from the perspective of an investor. This would be for renting out non owner occupied single family property in CA.
Title Holding Trust is also known a a Land trust. Some cahracteristics and observations;
-generally fully revocable
-set up to hold title to specific real or personal property
-similar to standard revocable trusI
If you are considering such a trust, review all goals and expected benefits and structure trust to ensure following considerations are addressed:
-Income taxes on ordinary income such as rental income (not reporting income)
-Capital gain tax on the sale of property
-Gift taxes due from gifting property to others
-Property reassessments for property tax purposes
-Lender due on sale clauses
-Lender title seasoning requirements
A title holding trust is typically used by people who want to keep public ownership of their property as anonymous or confidential as possible. The name of the trust is often innocuous with names like "720 Sycamore Title Holding Trust." The trust includes a trustee and a beneficiary. The trustee only has the power given to him by the beneficiary. Be careful in selecting your trustee because he may have the power to execute deeds or deeds of trust. A title holding trust is revocable and income from the trust passes through to the beneficiary of the trust. Personally, I think you're better off using an LLC to hold rental property, but understand that an LLC on balance will cost more money to administer and operate in California.
In Nevada we call this the Real Estate Privacy Trust because title is held to the property by the Trustee who is generally prohibited from disclosing the Grantor. Often the property is held with a name such as "the 235 Main Street Trust". It minimizes exposure of the Grantor's privacy.
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