What is a Land Trust?
Land trusts are effective tools that help you to manage privacy and avoid probate. Although a land trust can be revocable or irrevocable, land trusts are almost always revocable. Irrevocable trusts typically used for gifting, charitable, or inheritance purposes, while revocable trusts allow the grantor to retain control over the asset as long as they are alive. This facilitates the ability to change or cancel the terms of your land trust at any time.
Oftentimes land trusts are confused with asset protection trusts. These are two different types of trusts, and land trusts are more simple, require no upkeep, and are revocable. Asset protection trusts are irrevocable, but land trusts allow you to stay private and can be formed out of state.
Three Parts of a Land Trust
There are typically three parts of a land trust, the grantor, beneficiary, and trustee. The relationship between the grantor and the beneficiary is connected through the stewardship of a trustee.
The beneficiary and grantor are legally able to be the same person. For example, a landowner or homeowner can appoint a trustee to handle their equity. They can also appoint the landowner’s LLC or corporation as the beneficiary. Despite this, you will need the help of an agent to create your beneficiary, and avoid the paper trail sometimes left by an LLC.
How Does a Land Trust Work?
When a land trust is formed it is a private agreement. In a land trust, there is one party (the trustee) who agrees to hold title to a property for the benefit of someone else, (the beneficiary). Land trusts are simple, there is only one function required, and that is to do as the deed instructs. Despite this, land trusts are often revocable.
How Does a Land Trust Protect You?
Holding a land trust allows you to privately own property. This means that family, friends, and creditors will not know what you own, and cannot pursue you for it.
Additionally, if you own property in your personal name, then you can avoid any negative implications of that. You can also move the property into an LLC, and enjoy liability protection along with potentially lower taxes.
What this means is that you can transfer property into a land trust, but place the LLC as your beneficiary. This allows you to avoid the due on sale clause, and also have the property moved out of your name for liability protections.
Advantages & Disadvantages of Land Trusts
Land Trust Benefits
- Privacy of sale price
- Avoiding due on sale clause
- Liability protection if the beneficiary is an LLC
- Tax reduction
- Prevents property liens and judgments
- Minimizes probate
- Makes property transfer easy
Land Trust Downsides
There is one main disadvantage of a land trust, and that is both the costs and expenses to start a land trust. This begins at a minimum of a few hundred dollars and increases based on your needs.
Different Types of Land Trusts
Title Holding Trust
The title holding trust allows the property owner to anonymously maintain all rights over the property while living. This means they will also be able to direct the actions of the land trust.
The Title Holding Trust is always a revocable grantor trust. This means that similar to a family living trust, it can be terminated or changed at any time. The holding trust is also a pass-through entity so that all revenue, expenses, and losses must be reported on the beneficiary’s personal income tax return. All rights and conveniences of real estate ownership are held by the beneficiary without the disadvantages of non-trust ownership.
- Lack of personal liability for the trustee
- Lack of additional fees
- Private transactions
- Good negotiating advantage
- Collateral for financing needs
Conservation Land Trust
The most common way to protect your land is by a conservation land trust, also known as a conservation easement. This is a voluntary and legal agreement between a landowner and a land trust. It permanently limits the use of the land in order to protect it. This still allows the owner to use the land, pass it on to heirs, or sell it.
Essentially, a conservation land trust requires that the property owner give up some rights over land use and development. It also means that if it is sold or passed on, the restrictions stay in place.
Why Would You Put Land in a Trust?
There are many reasons why you might put land in a trust. The most common reason is to protect your assets, maintain privacy, and avoid additional fees overall. This includes avoiding the due on sale clause or accelerating a mortgage. Finally, allowing a beneficiary to be an LLC allows for limited liability protection. Contact us today to decide if you should put your land into a trust.