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What is a Land Trust

What is a Land Trust

Generally speaking, land trusts are legal entities that acquire ownership or supervision for a particular piece of property at the request of the owner of said property. Like any other type of trust, all land trusts have language and stipulations that are specific and unique to them, and each one will lay out its own terms.

One of the great benefits of a land trust is its effectiveness at providing robust privacy and keeping property out of probate court upon an owner’s death. Additionally, they are also straightforward and usually require very little in the way of supervision or maintenance.

As it turns out, however, many people get land trusts confused with irrevocable asset protection trusts. Land trusts are typically revocable, while irrevocable asset protection trusts (as the name implies) are not revocable.

While a land trust may not offer direct protection for one’s assets, they can in fact make it much more difficult for parties to pursue one’s property by virtue of their private nature, and the simple fact that they can be held out of state.

The Purpose and Function of a Land Trust

Fundamentally, a land trust is a private agreement in which one entity (a trustee) agrees to hold the title to a particular piece of property on behalf of another entity (the beneficiaries).

In doing so, there are four main steps: choose a name for all the properties held within the land trust; hire a land trust lawyer to draft all of the appropriate documents; sign all pieces of documentation; and, finally, record the trustee deed.

Of course, the specific language and stipulations of each land trust will be more complex than that, but at root that is the basic formulation. Moreover, the trustee and beneficiary in these arrangements has no other responsibility than to follow the instructions laid out in the trust deed.

All of this can be handled with a land trust attorney. It is not advisable to attempt to enact any trust without the direction of a lawyer with extensive experience in the area of trusts. While you may save some money on the front end with certain trusts, you run the extreme risk of serious loss and litigation on the other side, if not executed and recorded properly and in accordance with federal, state, and local laws and regulations.

How Does a Land Trust Protect You?

As mentioned above, there are a number of benefits to land trusts. In fact, land trusts provide a certain amount of protection for the beneficiaries of the property.

In particular, land trusts have one key protection element: they protect the landowner from liability.

Land trusts do this by making the property itself (or properties) and its value private knowledge. This means that the sale value is out of the public record. Therefore, people cannot see your sale price and estimate your net work, making unfounded and frivolous lawsuits much less likely in the long run.

Advantages & Disadvantages of Land Trusts

Advantages of Land Trusts

In addition to providing asset protection by means of privacy, land trusts offer a number of other advantages:

  • Mitigates an Individual’s Tax Burden
  • Ensures Anonymity and Privacy
  • Provides Protection from Potential Liability
  • Helps to Prevent Due-on-Sale Clauses by Lenders
  • Ensure the Privacy of a Property’s Sale Price
  • Forestalls Property Liens or Judgments
  • Assists in Minimizing Probate Court Difficulties
  • Offers Ease in Transferring the Property
Disadvantages of Land Trusts

All that being said, like any other type of trust, land trusts also have a few disadvantages for landowners. There are three primary downsides to land trusts: loss of redemption rights, loss of homestead exemptions, and the loss of secondary market loans.

LOSS OF REDEMPTION RIGHTS

Redemption rights give homeowners the ability to reclaim their property in advance of foreclosure (and, in some cases, even afterward). In these cases, homeowners would need to provide an agreed-upon payment, typically consisting of total debt and other additional costs.

This sum is required within a specified amount of time. In some US states, property owners are given a full twelve months. When utilizing a land trust, redemption rights can be lost if the property is sold.

LOSS OF HOMESTEAD EXEMPTIONS

A homestead exemption provides protection for a property’s value from taxes and creditors in the event of the death of one of the property owning spouses. Within the use of a land trust, homestead exemptions are surrendered.

LOSS OF SECONDARY MARKET LOANS

In the secondary mortgage market, loans get bundled in order to be resold to other investors. This gives the initial loan lending entity the ability to recoup their full investment. With a land trust, landowners become disqualified from receiving loans on this secondary market.

Different Types of Land Trusts

As one might expect, a couple of varieties of land trust exist, as with other types of trust. Specifically, there are two main types of land trust.

Conservation Land Trust

A conservation land trust necessitates that property owners relinquish some of their rights over the use and development of their land for the purposes of conservation and/or public benefit.

Title Holding Trust

Title holding trusts allow landowners to retain private (i.e., anonymous) control over their property and manage their land trust’s activity and direction. A title holding trust is also often referred to as an “'Illinois land trust”.

Land Trusts — Frequently Asked Questions

Why Do You Put Land in a Trust? Land trusts have the ability to offer asset protection benefits. In large part, they do this by providing ownership privacy for real estate and other properties. In fact, each individual piece of property can be set up within a different land trust. In other words: a land trust is a private document that can hold title to real estate property.

What is the purpose of a land trust? Land trusts are often utilized for their strong privacy protection and their ability to help keep property assets out of probate court.

How does a land trust work? Essentially, a land trust works by having a particular party, the trustee, establish an agreement to hold title to a given piece of property for the benefit of the landowning party, the beneficiaries.