The Facts About Land Trusts*
A land trust is a simple, inexpensive
method for handling the ownership of real estate. It is an arrangement
by which the recorded title to the real estate is held by a trustee, but
all the rights and conveniences of ownership are exercised by the beneficial
owner (beneficiary) whose interest is not disclosed. This method of owning
real estate eliminates many of the difficulties that otherwise may be
encountered in acquiring, owning, or selling real estate.
The beneficiary of a land trust
changes his or her interest in the property from real estate (title to
the property) to personal property (ownership of the beneficial interest).
Even though the beneficiary retains complete management and control over
the property itself, he or she is not burdened with the legal characteristics
of real estate when he or she deals with the property.
Since the beneficial interest
is considered to be personal property, it is treated in much the same
manner as a car, a savings account, or other tangible property. Consequently,
the beneficial interest can be sold, pledged, or assigned in a simpler
fashion than a conveyance of realty.
How Does a Land Trust
A land trust may be created
by anyone capable of entering into a contract--an individual; a group
of persons such as a partnership, syndicate, or business association;
or two or more private individuals who desire to purchase and own the
real estate as a joint venture.
Under a land trust agreement,
the beneficiary retains complete control of the real estate in the same
manner as if the recorded title were in his or her name. He or she may
end the trust whenever desired and may add additional property to the
trust at any time. At all times the beneficiary deals with the property
as though he or she were the record title owner, for, as a matter of fact,
he or she is the owner. The trustee executes deeds and mortgages
and deals with the property only if directed in writing by the beneficiary.
When title to real estate is
held in a land trust, the interest of the beneficiary, under terms of
the trust agreement, is personal property. Since the beneficiary's interest
is personal property, he or she may transfer it by assigning that interest
without the formality of executing and acknowledging a deed; the wife
or husband need not join in such assignment for the purpose of releasing
the spouse's homestead rights.
What Are The Benefits
of a Land Trust?
There are many benefits derived
from the use of a land trust.
1. Privacy of Ownership.
Under a land trust, the identity
of the real owner is never disclosed to the public. This feature can be
important for many reasons. For example, a number of persons may be purchasing
several parcels of real estate for some special purpose, and it may be
that the desired result can be best accomplished if the objective is not
made public; co-owners may desire that the interest of each member must
be kept confidential; or an individual owner may not want to be burdened
Whatever the reason may be
for not disclosing the identity of the real owner, a land trust provides
the answer. Of course, certain governmental agencies and others, following
valid and authorized legal processes, can ask about the beneficial ownership.
2. Protection for
A land trust offers particular
benefits in those cases where the real estate is held by two or more persons.
If the property is owned by two or more persons, 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.
Although the real estate itself
is not encumbered by a judgment lien, the interest of the beneficiary
in a land trust can be subject to the claims of creditors. If the title
to the real estate is in the name of a trustee, the creditors must take
additional steps to assert claims against the property.
3. Succession and
It has been a common practice
to create joint tenancy in real estate holdings solely for the purpose
of providing a succession of ownership upon death without the expense
and delay of probate proceedings. Under joint ownership, however, either
of the joint tenants is given an immediate interest in the ownership and
management of that property, and in many cases, it handicaps the real
owner as he or she cannot deal with the property without the written consent
of the joint owner and the other spouse.
Under a land trust agreement,
the party creating the trust can retain sole control over the property
during his or her lifetime, with the desired succession in ownership becoming
effective upon death without, under certain conditions, the expense of
going through probate proceedings. This can be especially helpful to those
who live out of state but own real estate in this state. They will not
need to institute separate probate proceedings here but can have the land
trust property administered in their home states.
4. Ease of Conveyance.
A land trust affords a convenient
means of mortgaging and selling a trust property without having to obtain
deeds from all the beneficiaries and their spouses. It dispenses with
the necessity of obtaining the release and waiver of homestead from the
spouses of the parties interested in the trust real estate. These are
noteworthy features if many individuals are interested in the property
and are scattered throughout the United States.
Also since the beneficial interest
is considered to have the legal characteristics of personal property,
it can be pledged for a loan according to the same standards as stocks,
bonds, automobiles, or other personal property without the restrictions
and formalities of mortgages, title reports, and policies. Such assignments,
although substantially easier than conveyances of realty, can produce
a gift and transfer tax consequences.
5. Disposing of Part
A land trust simplifies the
practical problem of disposing of a part interest in a property since
the beneficial interest under a land trust can be transferred by assignment;
no deed is needed. This avoids a deed's formal requirements concerning
acknowledgment, recording, and joinder by the grantor's spouse, although
it may trigger a transfer tax. This aspect of the adaptability of a land
trust becomes important when real estate is held by a number of persons,
such as a group of heirs, or if the owners have disproportionate shares
of the property.
How Do You Create
a Land Trust?
You create a land trust by
signing a short trust agreement at the time the real estate is purchased
or after it has been acquired. Under the agreement, you, the owner (called
the beneficiary), direct a corporate fiduciary to hold title to the real
estate for you, and you direct and instruct the corporate fiduciary as
to the persons who will have the authority to manage and control, whether
and when it should be sold and to whom, and who will become the owner
upon your death.
You, too, can protect your
real property by creating a land trust and thereby assure an orderly distribution
to your beneficiaries and heirs.
* Courtesy of Megna Trust Company.
The information in this brochure is not intended as legal advice.
For legal advice please consult an attorney.