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Having been in the land trust transfer and facilitation business for nearly fifteen years, we get frequent
questions regarding the superiority of the (Illinois-type) land trust versus the limited liability company (the LLC) as asset protection devices. My response is always the same: an LLC will protect YOU; the land trust will protect your property, and when used together your real estate holdings can be virtually “armor-plated.”
But never forget that in today’s litigious society holding real estate in your own name is tantamount to walking down Lawyer Boulevard with a sign on your back saying: “I dare you. Sue me. I’m rich.”
The LLC
The LLC is a company (not a corporation) that combines many of the features of a corporation, but which is more akin to a sole proprietorship or partnership, depending upon the number of its members. In comparison the LLC, as a pass-through tax entity affords its members simplicity in tax accounting and reporting. Beyond that, however, the LLC’s primary purpose is that of shielding its member-owners from litigation that would befall the company and its assets. In other words, were an LLC to be established for the purpose of operating a packing plant and someone were to slip and fall into a meat grinder and loose a leg or two, the claimant’s legal recourse would be limited to the assets of the company. Any assets owned by the members of the LLC that were outside the company would be beyond the reach of creditors. Even if the business were to be taken over, or closed down and liquidated by the claimant or the court, the member’s homes, golf club memberships, automobiles, furniture and private bank accounts would remain beyond the law suit.
Bear in mind that any person or any company could choose to hold a single house, condominium, townhouse or apartment building in an LLC, LP (limited partnership) or FLP (family limited partnership) as the holding entity’s only asset. Any of these holding forms will protect the participants themselves personally from legal claims; however, in the event of a legal action the asset of the holding entity is not protected (i.e., against lawsuits, martial dissolution, creditor judgments, or tax liens). Although, ideal for holding small businesses, these devices when used by themselves are not always the ideal method for holding and protecting one’s real estate.
The Land Trust
Much has been written in the last twenty or thirty years about the feasibility, functionality and versatility (and safety) of the “Illinois-type” Title-Holding Land Trust. But there continues to exist a major lack of knowledge as to what a land trust is, it uniqueness, and all that it can do for its beneficiaries.
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