Answers to Frequently Asked Questions about the Trust Sandwich


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Leverage your equity … or preserve your assets? That seems to be the choice investors are being asked to make as a result of new Freddie Mac lending guidelines coming into effect on August 1st. When Diane and I learned of the upcoming changes we immediately began brainstorming to find a solution. And, as many of you already know, what we came up with was the Trust Sandwich™.

In the past week I know that over a thousand people downloaded and listened to the free teleseminar at www.trustsandwich.com. As of today over 500 people have contacted me, looking for additional information or wanting to get started on their Trust Sandwich plans. My partner, Myra and I, have answered a lot of questions in the past week. So, I thought I’d share 10 of the most popular questions (and answers) that we’ve heard from you.

1) I already have an LLC, or some other kind of entity holding my investment property. Can I use it in a Trust Sandwich?

Yes! We’ll just need to rearrange things a bit to move the properties out of your LLC (or whatever entity they’re in) and into the Single-Purpose Trust. But if you’re paying more than $350 per year to maintain your existing business structure(s), consider switching to a Nevada LLC.

2) I already have a Family Living Trust. Can I use it in a Trust Sandwich?

Yes! If you’re holding your investment properties directly in your existing trust, we’ll just need to rearrange things a bit to move the properties out into the Single-Purpose Trust, and then slip the LLC in between the two.

3) How is this different from just using a Trust owned by an LLC?

The biggest difference is to facilitate estate planning. If you have a trust owned by an LLC, then the LLC becomes an asset that must be dealt with in your estate, or it will get hung up in probate (along with all of its underlying assets). If you go the other way and have your investment property owned by an LLC which is a trust asset, then you’ve got the refinancing and due-on-sale difficulties we talked about above. The Trust Sandwich takes care of both issues.

4) My loan is non-conforming. Can a Trust Sandwich help me?

Sure! Whether or not you’re looking to Freddie Mac for refinancing, you’ll still be facing the same issues with refinancing as a conforming loan – i.e., lenders being unwilling to refinance a property held in a business structure, or disallowing a transfer of property into a business structure. The Trust Sandwich will help you to move through those issues.

5) I have a Jumbo loan. How can a Trust Sandwich help me?

Just like other non-conforming loans, there will be the same refinancing issues with refinancing as a conforming loan – i.e., lenders being unwilling to refinance a property held in a business structure, or disallowing a transfer of property into a business structure. The Trust Sandwich will help you to move through those issues.

6) No-one else I’ve talked to has heard about the Freddie Mac guidelines. How come?

Tax law changes daily and our lending markets are extremely volatile. New things happen all the time, many of which are not widely publicized. We learned of the changes to Freddie Mac through industry insiders, and confirmed it when Freddie Mac issued a recent news release stating, in part:

“We are revising our requirements for Investment Property Mortgages to reduce the number of financed properties in which a Borrower who owns more than one financed Investment Property may have an individual or joint ownership interest (including the subject property) from 10 to 4. Also, effective for Mortgages with Freddie Mac Settlement Dates on or after August 1, 2008, the Borrower on a cash-out refinance Mortgage must have owned the subject property for at least six months prior to the Note Date of the new refinance Mortgage.”

The last statement is the key – transferring title into your name before applying for a cash-out refinance will be considered a change in ownership and the 6-month trigger will apply.

7) Can I use a Land Trust in a Trust Sandwich?

You could, although there may be some complications. With a land trust, typically the Trustee is named as the titled owner of the properties, which could lead to issues with refinancing. There may also be complications if the Land Trust is not recognized in the state where the property is located. We’d suggest you check with your local attorney on that issue before proceeding.

8 Can I put all my properties into one LLC and one Trust?

Yes, but bear in mind that as your equity in the properties increases, so does your risk. Our rule of thumb is “Put only so many properties into a Single-Purpose Trust/LLC combination as you’re prepared to have tangled up in litigation at the same time.” You may want to consider separating out higher-risk properties, such as commercial buildings, apartment complexes, trailer parks, Section 8 housing, etc., from single-family homes. Or, if you have properties you hold free-and-clear, definitely consider splitting them up into separate Single-Purpose Trust/LLC combinations.

9) I own a property with my brother-in-law. How can we use a Trust Sandwich to benefit us both?

The Single-Purpose Trust that holds title to the property may have more than one beneficiary. You can name your LLC as one beneficiary and your brother-in-law (or his entity) as another beneficiary. Remember, with a trust you can designate the percentage of distributions going to each beneficiary, so you aren’t stuck with 50:50 if you don’t want to be.

10) How would I deal with the Trust Sandwich at tax time?

Trusts don’t need to file tax returns or obtain Employer Identification Numbers. They are considered to be “disregarded” entities by the IRS, meaning the income will roll through to the next level. The LLC will also be considered a disregarded entity, as will the Main Trust. You’ll wind up reporting the income or loss on a Schedule E to your personal return (for real property), or if you’re using your Trust Sandwich to invest in a business, through a Schedule C to your personal return.

Bonus Free Handout

Click the link to download a free PDF handout with more details on the Trust Sandwich, pictures to show you how it works, additional FAQs … and a special new refinement that could save you thousands on entity setup and maintenance costs.



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