Keeping Real Estate Purchases Private

For reasons of privacy and asset protection, clients sometimes seek to conceal or obscure their ownership of real property. Tennessee law, however, does not make it easy to do so.

One technique is to purchase real estate through an entity, such as a limited liability company (LLC) or limited partnership (LP). The deed would show the company as purchaser, rather than the entity’s members or partners.  However, a representative of the entity (typically the “Chief Manager” or “President”) must still sign the the deed under the affidavit of value.  Likewise, if financing is involved, the representative would sign the deed of trust/mortgage. Both the deed and deed of trust are public records. Thus, the representative would need to be a third party.

Keep in mind that limited liability entities are subject to the Tennessee franchise and excise taxes unless an exemption applies. Where privacy is a concern, the commonly-used obligated member entity (OME) exemption is not an option, since it requires all the owners to sign the entity’s formation document (e.g., articles of organization or certificate of limited partnership), which is a public record. Instead, some viable alternative exemptions may be the family owned non-corporate entity (FONCE) exemption (T.C.A. § 67-4-2008(a)(11)) or the farming exemption (T.C.A. § 67-4-2008(a)(6)). Notably, the farming exemption covers entities that hold one or more personal residences.

Another technique is to purchase the property through a non-descript trust with a third party as trustee. A Tennessee Investment Services Trust (TIST) fits this description, but note the special TIST rules regarding ownership of a principal residence. A revocable trust with a third party trustee may work as well.

If you are using the trust approach, beware of certifications of trust. A certification of trust provides evidence of the existence of a trust and its administrative provisions without disclosing the trust’s dispositive terms. Clients generally prefer to provide trust certifications to lenders and other parties dealing with a trust in lieu of providing a copy of the trust itself. By statute, the “identity of the settlor or settlors” is a required element of a valid trust certification. Therefore, care should be taken that the certification is not recorded.

Posted by Joel D. Roettger, JD, LLM, EPLS

 

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