Is there a Land Trust in Your Investing Future?

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I’ve had a couple of land trust questions come in recently, so I thought I’d give you a primer of what a land trust does (and doesn’t) do.

Here’s what it is: it’s a legal agreement whereby a Trustee agrees to hold ownership of a piece of real property for the benefit of one or more beneficiaries. Because the Trustee holds the title to the property it’s easy to change the beneficiaries and ultimate ownership of the land trust, because nothing needs to be recorded. It also avoids probate issues, as the land trust can be set up to pass along beneficial ownership to someone else immediately upon a beneficiary’s death. It’s most often called an “Illinois” Land Trust, after an Illinois court ruling that confirmed this was a legitimate asset protection and privacy strategy.

Here’s what it isn’t: it’s NOT a living trust or revocable trust. These trusts are much more flexible, and usually more complex, containing additional terms and provisions and holding title to property other than land. Living trusts are usually much more costly because of their increased scope. In addition, living trusts may contain various provisions dealing with estate tax minimization and other estate, gift, and property tax issues.

An Illinois land trust is a great estate planning vehicle for the transfer of land outside of probate where you have a relatively minimal estate. Here are some of the great advantages of land trusts for individuals:

  • 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

Once you’re worth more than a few million though it may not be your best bet. Also bear in mind that an Illinois land trust may not be recognized in your home state. What that means most often is that you won’t be able to transfer beneficial ownership under the radar – it will need to be disclosed somewhere.

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