Trusts: Investor Land Trusts in Texas

A Creative Form of Ownership, Transfer, and Finance

by David J. Willis J.D., LL.M.


In Texas, a “trust may be created for any purpose that is not illegal” (Prop. Code Sec. 112.031). Trust law falls under the Property Code (the Texas Trust Act contained in Prop. Code Chaps. 112-117) while the law of LLCs falls mostly under the Business Organizations Code (BOC Sections 101.001 et seq.).

The scope of this article is limited to investment-oriented living trusts (meaning trusts formed during the lifetimes of the participants) for the purpose of holding investment real estate. These trusts may be revocable or irrevocable.

Testamentary trusts, which take effect upon the death of the person creating the trust, are usually more complex, often because of tax issues—so consult an appropriate expert for advice on those.

Caution Regarding Liability Barrier

It is important to understand that a trust does not have a liability barrier as do registered entities such as LLCs and corporations. Placing investment properties in a land trust may therefore not be a sound asset protection approach unless the overall entity structure provides a liability barrier at some other point or interface with potential plaintiffs.

Caution Regarding Merger

It is also important to be cognizant of the doctrine of merger (Prop. Code Sec. 112.034). If the purported trustor, trustee, and beneficiary are all identical, then as a matter of law it is not a trust at all. Basically, the law does not allow you to convey your own property into trust to be managed by you for your own benefit. This rule frustrates many investors who want to do just that.

Types of Land Trusts

There are many kinds of land trusts. The biggest distinction is between those that are intended to own investment property versus those intended to hold the homestead. Assuming that the intended application is investment, what is the strategy? Will the trust being used to acquire and flip property? Or is the primary purpose the transfer of property to a credit-impaired borrower? Is anonymity a concern? And what about duration—short term versus long term?

The following are the main categories of investor land trusts (these may overlap):

holding trusts, which exist simply to hold real property for whatever purpose is intended by the trust agreement (probate avoidance, for instance);

entry trusts, used by an investor to acquire a property, usually with the intention of flipping using an assignment of beneficial interest;

exit trusts, used by an investor to transfer limited rights in a property to a buyer who is working to restore credit and obtain traditional financing; and

anonymity trusts, which endeavor to conceal the principal or principals behind the trust (the beneficial owners), at least for a period of time.


A trust may exist to hold any number of investment properties. There is no problem in doing this; but as noted above, there is no liability barrier against lawsuits as is the case with registered entities such as LLCs and corporations. In fact, the existence of a liability shield is the defining characteristic of an LLC. It is essentially what one is paying for when an LLC is formed with the Secretary of State.

If the LLC is sued it is generally the case that members and managers are not personally liable for satisfying a judgment against the LLC—at least so long as those members and managers are not culpable of actual fraud. By contrast, a trust and its trustee are fully exposed. Property Code Section 114.087 makes it clear that “the trustee of a trust is considered for all purposes to be the named party [i.e., the true party in interest] to an instrument [a deed, for instance] that names the trust as a party. . . .” This would include being named as the defendant in a lawsuit.

The underlying basis for this distinction is the legal entity theory. An LLC is a distinct legal entity, a legal person with its own rights, duties, and remedies. “An LLC is considered a separate legal entity from its members.” Spates v. Office of Atty. Gen., 485 S.W.3d 546, 550-51 (Tex.App.—Houston [14th Dist.] 2016, no pet.). This is not the case with a trust, which is a contractual relationship among its participants, not a legal entity.

The absence of a liability barrier in a pure holding trust is a near-fatal flaw in terms of asset protection. For this reason, a land trust (standing alone) is not the vehicle of choice for holding investment real estate for any substantial length of time.

Utilizing an LLC as beneficiary (and as assignor if a beneficial interest is transferred to an end user) can mitigate liability by inserting a valuable layer of liability protection. Asset protection is often about the combination and layering of incremental measures. Inserting an LLC into the transactional mix can be helpful (but not a panacea) in the context of an investor land trust.


Entry Trusts (Investor Acquisition in Preparation for a Flip)

In the case of an entry trust, an investor coaxes a (usually) distressed seller into transferring property by recorded deed into an irrevocable trust. This is often done with a foreclosure looming. However, such trusts do not delay or stop foreclosure unless the investor is willing to promptly reinstate the loan and then take over the payments until the property can be sold.

As for the trust itself, it has either been previously established by the investor or is created just for the specific transaction. In the latter case, there are two options: one names the seller as beneficiary, after which the seller immediately executes an unrecorded assignment of beneficial interest to the investor. Another version utilizes the seller as trustor (so the seller actually signs the trust agreement), the investor as trustee, and the investor’s LLC as beneficiary. The latter option is preferable, since it does not allow the seller to ever be in a position of asserting the rights of a beneficiary.

It is better for the investor’s potential liability if the seller is never given a beneficial interest at all. Why? Firstly, because courts tend to be sympathetic to trust beneficiaries and are more likely to go out of their way to preserve a beneficiary’s rights; and secondly, if the seller never holds a beneficial interest, then he or she can never argue that he or she was duped out it by a sly investor. It is always a better plan to arrange for the non-investor seller to be entirely dismissed from the investment equation as soon as possible.

Trusts in this category should be irrevocable, since allowing a seller the opportunity to experience remorse and revoke the trust is never a good idea. Another bad idea is allowing the original seller to retain a beneficial interest that allows the seller to share in profits when the property is flipped. Again, the optimal path is to prevent unnecessary participation by the seller.

Other trust agreements permit the seller to retain a power of direction over the trustee. This is an even worse idea than those mentioned above.

Steps in the Entry Trust Process

The following are the steps involved in an entry trust if there is no trust in existence at the time of the transaction (i.e., if a new trust must be established for the transaction to take place):

(1) the investor-buyer’s LLC enters into an earnest money contract for the purchase of 123 Oak Street;

(2) the contract lists the buyer as the investor’s LLC and/or its assigns;

(3) a trust agreement is executed showing the seller as trustor, the individual investor John Jones as trustee, and the investor’s LLC as beneficiary;

(4) at closing, the seller conveys the property to The 123 Oak Street Trust.

The foregoing should be closed as a stand-alone severable transaction. Subsequent assignment of the beneficial interest to an end-user should also be structured as a separate, stand-alone transaction. Do not attempt to collapse these two transactions into one. The potential liability of the investor (or the investor’s LLC) goes up substantially if this is done. Courts are more inclined to pull apart a complicated collapsed transaction and find that fraud occurred somewhere in the process.

Note that using the investor-buyer’s LLC as trustee is not an option because of the burdensome regulatory requirements that must be complied with in order for a registered entity (corporation, LLC, or limited partnership) to qualify as a trustee.

Assignment of Beneficial Interest to an End-User

Transfer of the beneficial interest in a land trust to an end-user can occur in a couple of ways: (1) by means of an assignment, as discussed above, in which case the trust will continue to exist; or (2) by means of a warranty deed from the trustee to the end-user, after which the investor’s trust may be terminated. Again, this all depends on the circumstances.

If the assignment is for cash, then the document required is an irrevocable assignment of a 100% beneficial interest to the end-user, and that is all. To limit liability, the assignor should be the investor’s LLC. If the assignment to the end-user is financed, then the investor will need to ask the attorney to prepare the assignment plus a secured note for the amount financed and a security agreement that imposes a lien on the assignment, allowing it to be cancelled and revoked in event of default. It is also useful for the investor to require the end-user to execute an assignment back to investor’s LLC, to be held in reserve by the investor as security if the end-user defaults on the secured note. The assignment back should include full release language for the benefit of the investor.

If the assignment is financed, it is advisable that financing be short-term only in order to limit ongoing liability. The note can be amortized over a longer term (even 30 years), but if so then it should balloon (all principal and interest due and payable) in no more than five years. One to three years is better. This pressures the end-user to secure alternative financing.

Assignments of trust beneficial interests should be recorded in the real property records.

Exit Trusts (Transfer to a Trust Pending Credit Repair)

Exit trusts are created for the purpose of selling specific property to an end-user. They involve a calculation on the part of the investor that it is better to utilize a trust than a wraparound, usually because there is some hesitation about giving the end-user a deed and fee simple title. Accordingly, the property is conveyed into trust by general warranty deed (with the trust as grantee) and the non-investor/end-user buyer takes immediate possession pursuant to a lease or similar document.

The end-user buyer is given either a beneficial interest (in some percentage, not necessarily 100%) or an option to purchase a beneficial interest when certain minimum requirements (often credit repair) are completed. Upon becoming beneficiary of the trust, the buyer can decide if he or she wants to keep the trust in place or take a fee-simple deed outright.

What is the purpose of such a trust? To act as a temporary parking place for title to the property while the end-user buyer works to obtain financing in order to purchase the property at a previously-specified price. Sound similar to an ordinary lease-option? It is, except that beneficial interests in a trust are personal property, not real property; and one can therefor plausibly argue that trust beneficial interests do not fall under the executory contract provisions of the Property Code.

In the exit trust scenario, there is no deed, recorded or unrecorded, into the name of the buyer, since the buyer is not acquiring actual title to the property at the time the trust is created—only the option to buy a beneficial interest later at a specific price. The only warranty deed being executed is the deed into the trustee acting on behalf of the trust.

Creation of an exit trust is a private transaction except for the recording of the warranty deed into the trust. The trust agreement is not recorded of course. In order to achieve maximum anonymity, the name of the trust is usually generic—e.g., “The 123 Oak Street Trust.”

The Big Risk

Even if a trust is meticulously and correctly written, if it is: (1) premised on changing possession (and future entitlement to title) (2) by means of an assignment of beneficial interest (3) that is tied to an obligation on the part of an end-user to pay money over time (4) in order to “buy” a home, there is an obvious and significant risk that a judge could use the sword of justice to slice through the trust device and find a de facto executory land contract that fails to comply with Property Code Section 5.061 et seq.

The investor (the purveyor of the trust) would need to argue that trust beneficial interests are personal and not real property; and the end-user is merely being given the opportunity to purchase a trust beneficial interest and not the real property itself. The goal of this argument would be to assert that the trust transaction is principally a personal-property transaction that only peripherally involves real estate.

We make no prediction as to how that argument will fare before a discerning or populist judge—who could easily decide that this arrangement was intended to be a sale of real estate, regardless of any fancy trust language. The judge could apply a version of the “if it quacks like a duck” rule.

There is also the open question of whether exit trusts are a form of seller financing that makes them subject to the SAFE Act and Dodd-Frank.

Decline in Use of Exit Trusts

Entry and exit trusts still appear from time to time (in one form or another) but their use has been in decline for over a decade, primarily due to the growth of law and regulation surrounding seller financing. Getting it wrong in this area can involve significant risks and penalties. The only prudent conclusion is that real estate investors should be cautious when it comes to any trust transaction that relies on monthly payments followed by an assignment of beneficial interest in order to achieve its objectives.


Avoiding One’s Personal Name in the Public Record

Use of a trust device to achieve anonymity in the real property records is an edgy technique that must be implemented carefully and by planning ahead. The scenario goes like this: a trust agreement is executed along with a warranty deed conveying real property into the trust. The traditional way for a trust to hold property is by expressly stating the name of the trustee, e.g., “John Jones, Trustee of the 123 Oak Street Trust;” however, it is possible to list the grantee in a deed as only the trust—e.g., the “123 Oak Street Trust”—with no reference to a trustee. Anyone seeking to know who the principals are and what assets they have has their work cut out for them since trust agreements are generally private, unrecorded documents.

County clerks will accept such a deed for filing in the real property records so long as it is properly executed and acknowledged by the person conveying the property into the trust. But recording of the deed is not the problem. Issues arise later when the investor decides to transfer the property out of trust, since no trustee was named in the deed who can now sign as grantor.

Texas subscribes to the entity theory of transactions, meaning that the grantee in a deed must be a legal entity or the conveyance is void. Accordingly, users of anonymity trusts should anticipate legitimate objections from a future title company based on the proposition that a trust is not a legal entity—which it technically is not, even though trusts often act as if they are in the real world.

Deed in the Drawer Technique

When using an anonymity trust, one should anticipate objections by a future title company and have such a deed already signed and notarized (a version of the deed-in-the-drawer technique) ready to hand to the title company when objections are presented. Recording this second deed cures the title company’s trust-is-not-an-entity objection while having preserved anonymity in the interim.

Again, an anonymity trust of this type is edgy technique. In using it, one must be prepared for significant pushback and to respond promptly to title-company objections with a curative deed that properly names the trustee.

Delegation to a Trust Agent

A development in favor of anonymity is Property Code Section 113.018, added in 2017, which permits a trustee to appoint an agent and delegate certain powers to that agent “to act for the trustee in any lawful manner for purposes of real property transactions.” The agent can be anyone so long as the appointment is in writing and notarized (there is no requirement that it be recorded). The appointment—or “delegation” as the statute puts it—can be supplied on demand to third parties as evidence of authority. It is valid for six months.

Corporate Transparency Act and FinCEN

FinCEN’s expanded beneficial ownership rules went into effect January 1, 2024 (see chapter 13 for details). The rules apply to registered entities (such as LLCs and corporations) and require that all beneficial owners (persons who exercise substantial control or own 25% or more of the entity) be disclosed and reported to the federal government, where that information resides in a (supposedly) confidential law enforcement database.

Beneficial ownership rules do not currently apply to trusts (except, of course, when a trust is itself a beneficial owner of a registered entity), but one should be mindful of a clear trendline here. This trendline is toward more disclosure, not less; it is toward bringing more entities and investment vehicles under the disclosure rules, not fewer. It is perhaps inevitable that FinCEN’s beneficial ownership rules will one day be expanded to cover land trusts that are established under state law. Trustors, trustees, and beneficiaries may need to be disclosed. This could effectively spell the end of any legitimate use of trusts for anonymity purposes in the U.S.


Investor Land Trusts and Due-on-Sale

It is widely advertised by some seminar gurus that a land trust can prevent a lender from exercising the due-on-sale clause in a deeds of trust. This is false. The federal living trust exception (the Garn-St. Germain Depository Institutions Act, 12 U.S.C. Sec. 1701j-3) was intended to create an exception for transfers of the homestead to family living trusts that are designed to avoid probate. The exception was not intended to provide a safe haven for investors seeking to use trusts as part of their business plan. An investor land trust does not defeat due-on-sale because it invariably contemplates a transfer of rights of occupancy away from the owner-occupant—so Garn-St. Germain does not apply. Due-on-sale provisions remain effective and enforceable. No amount of tricky trust wording changes this basic fact.

Abusive Tax Trusts

Many trusts are established to further real estate transactions, avoid probate, or as part of a larger asset protection structure. There are a whole category of trusts, however, that purport to achieve all sorts of tax benefits. Great care and caution need to be exercised in this area.

Such trusts are often sold by guru seminar promoters who allege that their trust structure can avoid taxable income and achieve the deductibility of personal expenses. This is (allegedly) achieved by means of vertically-layered trusts that lease assets back and forth to one another. All of these seminar trust packages are scams that can get one sent to prison. The IRS calls them abusive tax trusts and devotes part of its website ( to explaining how they work:

Abusive trust arrangements are promoted by the promise of such benefits as:

(1) reduction or elimination of income subject to tax;
(2) deductions for personal expenses paid by the trust;
(3) depreciation deductions for an owner’s personal expenses paid by the trust;
(4) depreciation deductions for an owner’s personal residence and furnishings;
(5) a stepped-up basis for property transferred to the trust;
(6) the reduction or elimination of self-employment taxes; or
(7) the reduction or elimination of give and estate taxes.

Abusive trust arrangements often use trusts to hide the true ownership of assets and income or to disguise the substance of transactions. . . . These arrangements frequently involve more than one trust, each holding different assets of the taxpayer. . . . [They] are vertically layered, with each trust distributing income to the next layer. . . . These schemes are often promoted by an [MLM] network of promoters and sub-promoters who have charged $5,000 to $70,000 for their packages. . . . Taxpayers should be aware that abusive trust arrangements will not produce the tax benefits advertised [and may subject the promoters] to civil and/or criminal penalties.

The Aldridge Case

The Aldridge case is required reading for anyone interested in crooked trust schemes (Aldridge v. Comm’r of Internal Revenue, No. 13742-10, U.S. Tax Court (2024)). The court’s lengthy opinion goes into meticulous detail about how the Aldridges violated every single item on the IRS’ abusive tax trust webpage.

The Aldridges made things worse by being non-cooperative with government investigators and refusing to hand over subpoenaed material. It is astonishing how some tax-evasion promoters (and others like citizen constitutionalists) continue to believe they can avoid culpability by simply refusing to disclose information, documents, and records. Federal judges have something called contempt power; if you refuse to supply such materials as ordered, the judge will simply put you in jail until you do. This is what happened to the Aldridges.

Aldridge is of course a federal tax case, not a Texas state-court opinion. But in the real world of interdependent jurisprudence, theories and standards espoused in federal opinions have a way of migrating over to the state side. Aldridge is now part of the general body of law that all courts, both federal and state, will look to for guidance when it comes to shady trusts.

Of particular interest is the Aldridge court’s view of sham trusts that lack economic substance. Although taxpayers may legitimately arrange their affairs in order to minimize taxes (Gregory v. Helvering, 293 U.S. 465 (1935)), a trust may be disregarded for tax purposes if it lacks any economic substance or valid purpose but acts simply as a tax-avoidance device (Zmuda v. Commissioner, 79 U.S. Tax Court 714, 719-20 (1982)).

The Aldridge court summarizes:

In deciding whether to disregard a trust for federal income tax purposes, the Court considers four factors relating to the trust to determine whether a trust lacks economic substance: (1) whether the taxpayer’s relationship to the property transferred to the trust materially changed after the trust’s creation; (2) whether the trust has an independent trustee; (3) whether an economic interest passed to other trust beneficiaries; and (4) whether the taxpayer feels bound by the restrictions imposed by the trust agreement or the law of trusts. Markosian, 73 T.C. at 1243-44; Wegbreit v. Commissioner, T.C. Memo. 2019-82, at *52, aff’d, 21 F.4th 959 (7th Cir. 2021). If a trust lacks economic substance apart from tax considerations, the trust is a sham and is not recognized for federal tax purposes. See Zmuda, 79 T.C. at 720-22; Markosian, 73 T.C. at 1241; Wegbreit, T.C. Memo. 2019-82, at *52. Consideration of each of these four factors supports a conclusion that the trusts constituting the Aldridge Family Trust System lack economic substance and are shams.

We repeatedly caution real estate investors against getting involved with seminar-promoted schemes that offer slick and tricky ways of avoiding legal obligations. The promoters are almost always non-lawyers who have never spent a day in a real court in front of a real judge. Generally, if a scheme is too complex and convoluted to truly understand, or offers unrealistic benefits, or costs $70,000, it is a scam—full stop.

Title Company View of Investor Land Trusts

Expect skepticism from a title company when using an investor land trust. It is certain that the title company will want to see the trust agreement, so a written trust agreement must therefore exist. It must also be properly drafted and executed so that it will be accepted as valid. Otherwise, the title company may choose to ignore the trust altogether (act as if it never existed in the chain of title) and require signatures from all persons having an actual or potential interest in the property before insuring a new owner.

One should also anticipate a title company requirement that any assignments of beneficial interest executed along the way will have been recorded in the real property records.

Since the 2008 real estate crash (when land trusts were prominent), title companies have become suspicious, if not outright hostile, to investor land trust transactions. This factor must be considered when using any kind of land trust as a principal feature of an investment business model.


It should be clear by now that not all land trusts are created equal. There are a myriad of trusts available on the Internet that purport to be good in all fifty states. This is false. A principal defect of trusts marketed over the Internet is failure to consider or comply with Texas Property Code Section 5.061 et seq. pertaining to executory contracts—and that is just one of many common defects. The place to get a valid Texas land trust is from an experienced Texas lawyer who knows what he or she is doing in this area. Because trust agreements can be written in so many different ways, the challenge for the attorney is to discover what the client is trying to achieve and then (with asset protection in mind) tailor a legitimate custom document to suit specific needs.


Information in this article is provided for general informational and educational purposes only and is not offered as legal advice upon which anyone may rely. The law changes. No attorney-client relationship is created by the offering of this article. This firm does not represent you unless and until it is expressly retained in writing to do so. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. Consult your tax advisor as well.

Copyright © 2024 by David J. Willis. All rights reserved. Mr. Willis is board certified in both residential and commercial real estate law by the Texas Board of Legal Specialization. More information is available at his website,