A land trust is a revocable, living trust used exclusively for holding real estate. In a land trust, a grantor deeds real estate to the trust and the trustee owns both legal and equitable title to real estate for the beneficial interest of the beneficiary or beneficiaries. The trustee must make distributions of rental income and proceeds from the sale of the property based on the grantor’s written direction. The land trust is created through two documents: a deed into land trust and the trust agreement. Often times the lifetime beneficiary of the land trust is the grantor himself and he directs distributions to himself or other beneficiaries as needed, with the interest going to one or more beneficiaries after his death. A person, several people, a business or even another trust may own beneficial interest to a land trust. Debts are collectible against the beneficiary’s beneficial interest, but there are additional steps the creditor must go through to attach the trust property.
There are many benefits to using a land trust.
1. The land trust avoids the expense and delay of probate proceedings. Upon the grantor’s death, the beneficial interest in the trust property automatically transfers to the beneficiary or other person, removing it from the decedent’s estate so it is not probated. Holding property in joint tenancy also accomplishes this automatic succession in ownership, but it requires the former owner to give up control of who receives rental income and proceeds from the sale of the property. Instead, the former owner needs the written consent of the other joint owner and her spouse. With a land trust, the former owner can retain sole control over the trust property and the beneficial interest during and after her lifetime.
2. The land trust affords privacy by protecting the identity of the beneficial owner of real estate. If you own real estate in your name, your ownership of property is searchable on the Internet and at public offices like the county recorder of deeds and tax assessor’s offices. However, the identity of the beneficial owner of a land trust is not generally available to the public. This may be advantageous for the owner for a number of reasons, including: prospective litigants may not recognize you as having assets and may shy away from suit as a result, creditors cannot as easily find the trust property for attachment, and multiple parcels may be bought with minimal public scrutiny.
3. The land trust makes it easier to transfer ownership in the property or pledge it as security. A land trust allows the trustee to mortgage and sell the trust property without having to obtain signed deeds from all the owners or having to obtain homestead waivers from their spouses. Instead, only the trustee’s signature is required to transfer the beneficiary’s beneficial interest, which must be done in accordance with the grantor’s expressed wishes. Similarly, the beneficiary’s beneficial interest can be pledged as personal property for a loan without the signatures of the owners and their spouses and without the restrictions and formalities involved with mortgages, title reports, and title policies. It should be noted that such assignments can produce gift tax and transfer tax consequences.
4. The land trust compartmentalizes claims arising from the property to the value of the property. For example, title claims and homeowner association dues claims are collectible only against land trust property and cannot be personally assessed against you as they would be if you owned the property in your name.
5. A land trust offers particular benefits in those cases where the real estate is held by two or more persons. In such a case, the title to the property might become faulty and unmerchantable because of death, legal disability, divorce, judgements, and many other types of litigation affecting one of the co-owners. When the property is held in a land trust, a judgment against one of the beneficiaries does not constitute a lien upon the real estate held in trust; neither do the ordinary legal proceedings against any of the beneficiaries muddle the title. The interest of the beneficiary in a land trust is, however, subject to the claims of creditors.
A disadvantage of a land trust is that only real estate can be held in trust, so if the owner wants other property held in trust, an additional trust will be required, adding expense.
Call Schaeve Law Office today to discuss whether a land trust is right for you.