Land Trust Article

Lately I’ve been getting a lot of questions about land trusts and it seems there is a lot of confusion. So today I thought I would cover the subject in detail.

Land trust

A land trust is an agreement whereby one party (the trustee) agrees to hold ownership of a piece of real property for the benefit of another party (the beneficiary). Land trusts are used by nonprofit organizations to hold conservation easements, by corporations and investment groups to compile large tracts of land, and by individuals to keep their real estate ownership private, avoid probate and provide several other benefits.

A community or conservation land trust is an organization established to hold land and to administer use of the land according to the charter of the organization. A land trust is a useful way to manage complex divisions of the Bundle of Rights that people can own in real estate, and can be used to manage something as large and complex as a multi-state REIT, or as common and small as a single-family home.

Corporations sometimes set up land trusts when they want to compile large tracts of land without arousing suspicion or alerting people to their plans (which would cause the asking price to rise). For example, the land for Disney World near Orlando Florida was put together by using many land trusts to buy smaller tracts of land.

Individuals use land trusts mainly for privacy and to avoid probate. No one knows what one's bank balance or stock investments are, yet anyone with an internet connection can look up a person's real estate holdings. A person who has an auto accident or a doctor who accidentally injures a patient is a much better target for a lawsuit if he or she owns real estate investments. So some investors buy their properties in land trusts so their name does not appear in the public records. The land trust also allows the property to immediately pass to their heirs at the moment of death, rather than go through a long probate process.

Some of the other advantages of land trusts for individuals are:

• Sales price of the property can be kept off the public records
• Property taxes are lower if the purchase price is kept private
• Judgments or liens (such as IRS liens) against an individual's name are not a lien against their land trust property
• Partners can more easily continue a project if one dies or is divorced
• Interests can be transferred quickly without recording a deed
• Managing a rental property is easier when the trustee can be blamed
• Negotiating a purchase or sale can be easier when the trustee can be blamed
• Liability on financing can be limited to the assets of the trust

Investment trust companies hold property for investment purposes and non-citizens who want long-term access to land in Mexico often enter real-estate trust agreements, called fideicomiso, with Mexican citizens, but land trust more often refers to a community scale organization. Community land trusts are established to provide low- and middle-income families access to affordable housing while conservation trusts protect environmentally, historically or culturally valuable places. Land trusts are also in place to protect farmland and ranchland. Despite the use of the term "trust," many if not most land trusts are not technically trusts, but rather non-profit organizations that hold simple title to land and/or other property and manage it in a manner consistent with their non-profit mission.

Land Trust History

Land trusts have been around at least since Roman times but their clearest history is from the time of King Henry VIII in England. At that time people used land trusts to hide their ownership of land so they would not have to serve in the military or suffer the other burdens of land ownership. For example an elder uncle would hold his nephew’s land so they would not have to join the king’s army. To put an end to this King Henry in 1536 passed the Statute of Uses. The statute declares that if one party holds land "to the use of" or in trust for another ("beneficiary"), legal title is vested in the beneficiary. Obviously, if the statute had been given literal effect, there would be no trust law. Shortly after the statute was enacted, however, English courts declared that the statute only applied if the trust was passive, that is the trustee didn’t do anything but hold the land.

In the late 19th century in Chicago some people figured out that land trusts would be good things for buying property for investors to build skyscrapers on, and city aldermen figured they would be a good way to hide their ownership in land since they were forbidden to vote on city building projects when they owned land nearby. Since the law of England including the Statute of Uses was the law of America the question arose whether a land trust would be valid. This question went to the Illinois Supreme Court which ruled that if a land trust was set up with some minor duty on the trustee (such as to deed the property to the beneficiaries 20 years later), then the trust would not be considered passive and would be valid. Thus the land trust in America today is often called an “Illinois-type” land trust.

Land trusts have been actively used in Illinois for over a hundred years and in recent decades have begun to be used in other states. The creation of land trusts is not a recorded document, however the declaration of a trust is through a "deed to trustee". Many believe that the trust is to be filed as a public document, however this removes all of the asset protection provided by the formation of the land trust. Also anyone can create a land trust.

How To Set Up A Land Trust.

Land trusts are not difficult to use or understand but having the right land trust is essential. It is my opinion that ALL of your real estate should be held in land trusts as a way of keeping your name off public records and as the first step in asset protection.

For more information on land trusts mouse here.