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The EHTrust/EHT: What is it?

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Ordinarily a sale and transfer of real estate happens when an owner, choosing to sell, places another party on the property’s publicly recorded title as the new owner. When this process is done in the “regular” fashion–’depending on tradition and geographical location–the deed (‘grant deed, warranty deed, or bargain and sale deed) is transferred within a process known as “escrow,” wherein the property’s legal title is temporarily entrusted with an appointed third-party known as an Escrow Settlement Official or Escrow Officer.

The third-party’s function is to hold the property’s legal ownership until the transaction has been completed at which time title passes to the acquiring party (buyer).  The equitable title (the equitable interest in the property), however, remains with the relinquishing party (seller) until the transfer is consummated…i.e., when escrow closes).* This temporary title-holder in escrow is virtually always an highly trained and qualified officer of a licensed and bonded escrow company; a settlement official within a title insurance company; an attorney; or sometimes the real estate broker responsible for the sale and transfer transaction.

It’s important to note here that the conveyance of title-ownership in escrow serves to protect both buyer and seller from illicit or untoward actions by either of them during the course of the transfer process (‘such as, say, one’s attempting to alter the terms of the purchase agreement; secretly borrowing on the property prior to final transfer; causing litigious claims against the property following title inspection; tampering with the verbiage in the transfer documents or the public record, etc.).

HOWEVER, in a bonafide “land trust transfer (e.g., as is the basis of the ODWM EHTrust Transfer™”… whereby ‘instead of the seller’s deeding the property’s title to an escrow settlement official, or directly to the acquiring party, essential the same function takes place.  The basic protections are attained by the title’s being vested in a qualified third-party, licensed and bonded  trustee (‘who acts for the term of the trust as the legal and equitable owner (title-holder) of the property throughout the entire term of the trust (‘this trust model is commonly referred to as an “Illinois-type Land Trust”).

Next comes the naming (appointing) of the acquiring party (the would-be “buyer”) to the position of lease-holder (lessee) in the property, and as the “Remainder Co-beneficiary” in the trust.  In other trust forms, the  remainderman (or “remainder agent”) is a replacement trustee whose responsibility is to take-over management and control of the trust in the event of the demise of the original trustee.  HOWEVER…in that a title-holding land trust is inherently beneficiary-directed vs. being trustee-directed (he trustee only temporarily holding ownership), the remainder agent is another beneficiary

At this juncture, the resident co-beneficiary (the co-beneficiary who is leasing the property from the trust) is availed of all (100%) the benefits of fee-simple real estate ownership, along with the added (major) advantage of having virtually complete asset-protection, relative to future litigation in rem (i.e., ‘legal actions against the property).  This because one’s beneficiary interest in a properly drafted land trust is characterized as personalty (personal estate) rather than as realty (real estate)Therefore, since personalty, unlike realty is not available for partition by outside judgment creditors, including even the IRS (i.e., ‘meaning that only the beneficiaries themselves or their respective spouses or partners could move for a partition action against the other).

In other words, by employing the ODWM EHTrust Transfer™ relative to the disposition, acquisition or management of real estate, an acquiring party is afforded full income tax write-off benefits for mortgage-interest and property tax expense.  Additionally the acquiring party receives future appreciation potential, equity build-up from mortgage principal reduction; full use and occupancy of the property; all available water and mineral rights; and the right to lease, sublease, rent or sell (‘unless otherwise stipulated in the contract).

In addition to the above, the party’s’ respective interests are well shielded against creditor judgments; IRS and/or state tax liens; bankruptcy proceedings; actions in marital dissolution; probate; and potentially irreconcilable disputes between the parties themselves.

In that a legitimate land trust transfer is analogous to a long-term escrow process, the presence of the third-party title-holder prevents any party’s personal untoward or illicit actions, or any other actions that would be detrimental to the interests of other party/ies, or to the property or its title (i.e., nothing can be done with or to title; to the underlying loan; or to the property itself without 100% concurrence by all beneficiaries in the form of express mutual direction of the trustee).

WHAT ARE THE DISADVANTAGES? Other than the need for all parties to comport themselves in accord with the best interest of the other party, the ODWM EHTrust™ actually affords far more benefits than does any seller-assisted financing device or scheme: or even more than traditional home sale and purchase for that matter…’especially from the standpoint of classical Asset-Protection. One’s ownership of beneficiary interest in the EHTrust™ remains wholly private, secret, unrecorded and virtually invisible and unassailable by judgment creditors.

Re. “Legal” Vs. “Equitable” Title:  In law, the term Equitable Title refers to the right of enjoyment, use and monetary benefit of an asset (‘specifically real property in this case), as guaranteed and defensible in court.   Legal Title, on the other hand refers to one’s evidentiary, legal and demonstrable ownership of an asset, which, ownership can be defended and upheld in court, or can fail without appropriate public recording. 

The holder of equitable title in a property receives the benefit of its economic appreciation, whereas the holder of only legal title does not.  In a bona fide and properly constructed title-holding (land) trust the trustee holds both legal AND equitable title, whereas in other more common trust arrangements and escrow proceedings it is only the legal title that is held by the trustee (or escrow official): ‘the equitable title remaining in the grantor (the “seller”)

 

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