Understanding Personal Property Trusts for Real Estate Investors

Personal Property trusts are primarily used by real estate investors with substantial amounts of property who are prone to liability through the nature of their work or personal matters (lawsuits, divorces, etc.). When you own any property that requires a title or deed, it becomes public record. Anyone with a computer looking for good candidates for a lawsuit can look up these records can be apprised of your net worth with just a few clicks of the mouse. As a real estate investor, I find it in my benefit to keep my assets personal, and personal property trusts are the best way to do this. Personal property trusts function almost exactly like land trusts: the title to the personal property is held in the name of a trustee (this can be set up as revocable or irrevocable; I have always used the former) who is forbidden to disclose the name of the beneficiary. This way, when someone goes snooping around my assets, very little of the property I actually own will be revealed to them. However, there are other benefits to personal property trusts as well. What you need to know about personal property trusts.

1. You can put more in personal property trust than you think!

Anything that can be held in public records can be held in private trust. From corporate stock to bank accounts! However, be sure to talk to your lawyer about some of the caveats that go along with putting some assets in trust.

2. You can transfer any property into a personal property trust without paying any taxes!

There is no gift tax or income tax consequence for transferring property into a revocable, living trust! Because as far as the tax man is concerned, the property still belongs to you.

3. Purchase Options:

For real estate investors, personal property trusts can have an added benefit. If you are exercising a purchase option on a particular property, you can maintain your anonymity and make the property look less valuable to competitors by placing that purchasing option in a personal property trust.

4. Mortgages:

Mortgages are assets, and are easily found by searching through the public records. Utilizing a deed of trust not only hides these assets but can make you look like a less desirable target by making your property look encumbered.

5. Cars or Mobile Homes

The Department of Motor Vehicle's records are also open to public scrutiny. Simply placing the title of your vehicle in the name of a trustee (as long as they have an address) can help keep these holdings private.

6. Wills

Many people create trusts to avoid the tangled, costly web of probate court. Furthermore, once your will is executed, it becomes public record leaving your heirs exposed to the scrutiny you went through all that trouble to avoid. However, if your assets are owned in trust, they bypass probate (and public scrutiny) and it becomes the job of your trustee to distribute your assets to your heirs per your instructions. You also get out of having to pay any inheritance tax.

7. Placing each property with a separate trustee means additional security.

8. You can be your own trustee.

9. If your trustee lives out of state, it is that much more impossible for snoopers, creditors, and litigants to find out who the property actually belongs to.

10. The laws on personal property trusts may vary from state to state, and some title companies and lenders may insist on disclosure. Some real estate investors opt for trust stacking (combining personal property trusts with land trusts to ensure privacy). Consult your lawyer about the specific laws in your state and possible caveats.