While land trusts can sometimes be a very confusing topic for business owners, they don’t need to be. Simply put, land trusts are legal entities that take ownership of–or authority over–a piece of property at the request of the property owner. Land trusts act as living trusts, which allow for the management of property, and can be tailored to individual needs. Let’s take a closer look:
How do Land Trusts Work?
Land trusts, which are trusts connected to real estate, are typically used for estate planning. These trusts are revocable trusts and can be terminated or changed. They are often used for the land involved in conservation or wildlife purposes—or sometimes for the purpose of real estate development.
There are three different roles connected to land trusts. These include the grantor, trustee, and beneficiary. Grantors create the trust and transfer the property. These individuals manage the transferring of assets into the trust and develop all of the terms of the trust. Trustees manage the trust, including every detail of the property, such as overseeing maintenance and collecting rent payments if a rental property is held in a land trust. The beneficiary is the individual who benefits from the land trust.
What are the Different Types of Land Trusts?
There are two main kinds of land trusts: title holding and conservation land trusts. Title holding trusts enable individuals (or entities) to anonymously hold land. In a conservation land trust, the owner is mandated to give up some land use and development rights.
Title-Holding Land Trusts
According to the rules of a title holding trust, the property owner anonymously maintains all rights over the property and controls the actions of the land trust. These trusts are also called “Illinois land trusts” because they became popular during the 1800s in the city of Chicago. It was at that time that property owners were not permitted to vote on city projects in the same exact places where they owned land. To avoid this very strict law, wealthy businessmen and politicians figured out how to use land trusts in order to buy land in secret, which successfully protected their voting rights.
While not every state has rules designated for title holding land trusts, most states refer to the Illinois land trust laws if they don’t have their own rules. This means that an individual can develop an Illinois-style land trust in any state with legal guidance.
Conservation Land Trusts
According to conservation land trusts, property owners forfeit some of their rights over land use and development. The main purpose of a conservation land trust is to protect wildlife, historical, cultural sites, and natural resources from development or activities that could potentially lead to disruption or pollution.
It is extremely important to note that a donation to a conservation land trust could equal a large tax break. For example, if landowners donate their development rights to a conservation trust, they can receive a tax deduction that is equal to the difference between the value of the land and what it could be worth if it were developed. In fact, sometimes, this deduction is worth millions of dollars.
What are the Pros and Cons of Land Trusts?
Land trusts are very helpful in that they provide liability and privacy protections. These trusts enable real estate investors to keep property completely separate from personal finances, which can help maintain the details of net worth private. Trusts also have liability protections, as well as a simple probate process.
But land trusts also have several disadvantages. For example, if property is purchased under a land trust, the right to reclaim the property before or after foreclosure (also called redemption rights) is lost. In addition, most land trusts are commonly disqualified from secondary market loans.
In addition, land trusts have liability although they mistakenly give the illusion that there is no liability. In fact, property owners, as well as the trust or trustee, can be found liable. Another disadvantage is that privacy is never guaranteed.
How Long Do Land Trusts Last?
Land trusts commonly last for a specific period of time. The beneficiary can extend the trust term when it expires, unless the property is sold.
While land trusts are comparable to other types of trusts, they are typically geared toward the specific purpose of real estate. In fact, trusts are a very important part of estate planning—especially as they relate to the protection of assets and providing property owners with complete anonymity and privacy.
But in order for land trusts to successfully secure assets and keep property ownership totally private, they must be developed by experienced, knowledgeable, and skilled individuals. And that’s where NCH’s services come into play. We have an in-house legal team that will asses your needs and work with you to ensure your most valuable assets and investments are protected. Call us today at 1-800-508-1729!