What Is a Land Trust?

A LAND TRUST IS:
A simple, inexpensive method for handling ownership of real estate. It is an arrangement by which the recorded title of all or part of your property is held by a trustee. At the same time, however, all the rights and conveniences of ownership are retained by you, as a beneficiary while your interest in the property is not disclosed.

When you establish a land trust, you change your interest in the property from an interest in real estate (the holder of legal title to real property) to personal property (the holder of a beneficial interest in a trust). Even though you retain complete management and control over the property itself, you are not burdened with many of the legal obligations associated with owning real estate. Because your interest in the real estate held in trust is considered to be personal property, it is treated in much the same way as a car, a savings account, or other tangible property. This means that your interest can be sold, pledged, or assigned easily.

WHO MAY CREATE A LAND TRUST?
A land trust may be established by anyone capable of entering into a contract. It may be created by an individual, a partnership, a corporation, or two or more individuals who wish to purchase and own real estate as co-owners.

HOW DOES A LAND TRUST OPERATE?
Under the conditions of a land trust, you retain complete control of the real estate just as if the recorded title were still in your name. You may end the trust whenever you wish, and you may add additional property to your trust at any time. You retain the rents, profits, and proceeds of the sale of the property. This means, however, that it is your responsibility to pay taxes, insurance, and other expenses of the property. The trustee acts only when directed by you to execute deeds, mortgage documents, etc. and will forward to you any correspondence it receives concerning the trust.

HOW DOES A LAND TRUST PROTECT MY PRIVACY?
Creating a land trust means that with limited exceptions your identity as owner never becomes public. This feature can be important in many situations. For example, if you wish to assemble several parcels of real estate for development, the purchases may be accomplished more easily if your objective is not made public. Or, co-owners may simply wish that the interest of each owner be kept confidential. A land trust provides a convenient means of protecting your privacy in these types of instances.

Of course, certain governmental agencies and persons acting under valid and authorized legal process may make inquiries concerning beneficial ownership, and the beneficiaries may have to be disclosed in order for the trust to gain certain governmental benefits such as state grant funds and licenses, building permits, and other authorizations relating to the trust property. As land trust beneficiary, you would be notified promptly in the event of any inquiries regarding your property.

HOW WILL A LAND TRUST PROTECT ME WITH A CO-OWNER?
If you own property in co-ownership with one or more individuals, the title to the property may become faulty or un-merchantable because of death, legal disability, divorce, bankruptcy, or judgments affecting one of the co-owners. If the property is held in a land trust, a judgment against one of the beneficiaries will not constitute a lien upon the property held in trust and ordinary legal proceedings against a beneficiary cannot affect the title.

NOTE: However, although the real estate itself will not be encumbered by a judgment lien, the interests of the beneficiaries of the land trust can be subject to claims of its creditors. If title to the real estate is in the name of a trustee, however, the creditors must take additional steps to file claims against the property.

WHAT ABOUT SUCCESSION OF OWNERSHIP?
With a land trust, you can retain sole control over your property during your lifetime. You have the assurance of knowing that it will pass directly to the beneficiary you designate-in some cases without the delay caused by probate proceedings.

IS IT EASY TO TRANSFER INTEREST?
A land trust allows you to transfer a beneficial interest merely by assignment. As a deed is not necessary, the formal requirements of acknowledgement and recording are eliminated. Furthermore, multiple beneficiaries can designate a representative to direct the trustee in matters concerning the trust property. That can be particularly useful if a parcel of real estate held in a land trust is to be sold or mortgaged and the beneficiaries are located throughout the country.

In addition, because the beneficial interest is considered personal property, the interest can be pledged for a loan according to the same standards as stocks, bonds, or other personal property, without the restrictions and formalities of mortgages, title reports, and policies.

HOW DO I ESTABLISH A LAND TRUST?
A land trust is created by signing a short trust agreement and transferring property to the trustee. Frequently the agreement is signed at the time of purchase, but may take place anytime after the property has been acquired. In a land trust agreement, you direct the trustee to hold the title to real estate for you. You inform the trustee of the persons who have the authority to manage and control the property and you may designate the persons who ultimately will receive it.