Land Trusts

Land Trusts

Today's legal term is “land trust.” While not as sexy-sounding as “crushed velvet” or “rich chocolate,” a land trust will definitely make for a better inheritance to a loved one than an old purple vest or a half-eaten Whitman's Sampler. This article will give an overview on revocable land trusts and some of the benefits and disadvantages associated with them. We will also briefly touch upon irrevocable land trusts and some of their noteworthy features.

The concept of a trust is simple enough: an asset's owner (known as the grantor or settlor) assigns a second party (the trustee) the responsibility of holding and/or managing the asset, with a beneficiary being anyone who benefits from the asset. The property owner does not relinquish true ownership of the asset and the arrangement is completely revocable at any time by said owner. However, in the eyes of most jurisdictions, the trustee then becomes the legal owner of the trust. Among the different types of assets that can go into a land trust are homes, cleared/undeveloped lands, and income properties.

There are a variety of reasons why using a trust with regard to land or real estate may be to someone's liking or advantage. While nuances may emerge when looking at how land trusts are treated from state to state, some positive aspects ring true in general. Let's look a couple of the bigger benefits.

1. Privacy

A major advantage of putting real estate into a trust is that the trustee will generally be deemed to be the legal owner of the trust and the grantor's name will remain off public real estate records in relationship to it. This often makes a land trust a worthy shield against more than just nosy people Googling your assets – in some jurisdictions it may also effectively take your property off the table if you are ever personally sued. Most jurisdictions require a court order in order to ascertain the individuals behind a land trust, and this is often proves to be enough of an impediment to potential actions. However, it is important to note that jurisdictions differ in the extent that they protect grantors' identities with regard to criminal and civil matters, so it is important to consult an attorney knowledgeable in the laws of your particular jurisdiction to guide you in these matters.

2. Avoiding probate

By placing property into a land trust, it is essentially taken out of the realm of a contested proceeding because of the conditions set forth by the grantor. Beneficiaries are named, creating a line of succession to the property upon the grantor's death. Since the trust continues in perpetuity – and does not die with the grantor – it will avoid ending up in probate court.

Now the flip side...

There are some disadvantages with land trusts, as well. First: the costs. To properly set up a land trust, you will most certainly need to secure the services of a legal professional to prepare the appropriate documents. In addition, the trustee administering the trust is entitled to reasonable payments, which could amount to hundreds of dollars a year or more.

Oh, and you will still have to pay taxes on any income derived from the property in the trust. If, for example, the real estate in question is a rental property, income received from any tenants must be reported. A tax professional familiar with your state's current reporting requirements will be able to answer any questions that you have in this area.

It bears repeating that the above-described qualities deal with revocable trusts. An irrevocable trust is, as it sounds, one that cannot be changed or revoked absent the permission of the trust's beneficiary. This is due to the fact that, in this instance, the grantor relinquishes all legal rights to the property and the trust. The irrevocable trust comes with its own set of advantages, namely in the tax arena. However, giving up all legal rights in the trust's assets underscores the magnitude of taking this step and the consideration one must be sure to give in determining if this is the best method to accomplish his or her goals.

Conclusion

As tax laws evolve and differ from state to state, so do their treatments of land trusts. If you are considering setting up a land trust for your needs, be sure to consult a legal professional who is especially experienced with the formalities and technicalities involved with meeting your specific goals. Each trust is different, so beware of boilerplate language. You have spent many years accumulating your assets and you deserve the care involved with correctly executing your plans to hold and distribute it.

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