Land Trusts to Hold Florida Real Estate for a Self-Directed IRA

Guest article by Joseph Seagle:

One of the benefits of holding assets in an IRA is that the assets in the account are not subject to claims of the beneficiary’s creditors. This makes the IRA an asset protection tool in addition to its benefits as a retirement planning tool. Without careful planning, this protection may be thwarted.

A common scenario for lawyers: The client purchased a home directly into his self-directed IRA, using IRA funds. After renovating the property, he flipped it for a nice $27,000.00 tax-free profit within the real estate IRA. Frantically, months later, he calls his attorney who advised him during the purchase. His IRA custodian was just served with a lawsuit alleging that the seller-IRA failed to disclose latent defects in the property such as PB plumbing in the walls and asbestos ducts running under insulation in the attic. While facts are disputed, the IRA is going to have to defend the lawsuit at great expense. If it loses, the IRA’s other assets are up for grabs. The lawyer quickly reviews his malpractice insurance policy for coverage and notification requirements.

A prudent attorney will advise the client to never purchase real estate directly into the IRA’s name. Instead, an entity should be inserted between the IRA and the real estate. To do this, many attorneys will recommend that the IRA’s custodian be the sole member of an LLC. However, the asset protection abilities of the single-member LLC have been called into question by recent court decisions, and the lack of confidentiality may make the IRA a target nonetheless.

A Florida land trust holding title to the property would be cheaper, faster, and provides anonymity of ownership. A third party independent land trustee ensures the beneficiaries’ anonymity and confidentiality. The IRA custodian would be the sole beneficiary of the land trust, or it could be a co-beneficiary with other entities, individuals, or even other IRA custodial accounts. A simple co-beneficiary agreement would be used to spell out the sharing of responsibilities and profits. And, better yet, in this case, the lawsuit would have been filed against the land trust whose only asset was the property it had just sold to the buyers, negating the need to defend the lawsuit.

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