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Trusting Your Trustee (Trusts/Trustees Series - Part 1)

            Many real estate investors consistently use what I call a “grantor revocable title holding trust”, which is a more accurate term than “land trust”, to take and hold title to a piece of real estate they buy for investment purposes.  Such trusts can be used whether the property is being held as a long-term rental or being bought as a buy, fix and resell or being resold as a quick flip.  The most important component of such an arrangement is the capacity and integrity of your trustee.  They not only must be a person of impeccable character, but they must have enough business acumen and diligence to be able to perform the role of a trustee.

            One thing that is frequently omitted when real estate investors talk about using trusts is that the trustee of a trust has a fiduciary duty to the beneficiaries of the trust.  A good definition of “fiduciary duty” is taken from Black’s Law Dictionary: “A duty to act for someone else's benefit, while subordinating one's personal interests to that of the other person.”  I summarize it like this.  When you only have time to do one of two things, you do that for which you have the fiduciary duty.  For example, if the banks close in five minutes, and you have different deposits to make at two different banks, you go make the deposit for which you have the fiduciary duty rather than the deposit for yourself.

            I hope this gives you some insight regarding trusts and the importance of selecting the correct trustee to be the fiduciary.

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