Updated October 6, 2020
Land trusts protect the landowner’s privacy by holding real property in a trust agreement. This trust agreement will allow the beneficiary (owner) to direct an appointed trustee to make all discretionary decisions related to the property. There are many ways in which a land trust operates and works to the benefit of a property owner. Understanding how land trusts work will help you determine if this type of real estate investing tool is right for your specific situation.
Why Land Trusts Are Formed
There are several reasons that land trusts may appeal to an owner of a property. This type of trust agreement is not recorded and not available to the public. This is a substantial benefit for any beneficiary or owner of property who wants to keep their identity private for any number of reasons.
Additionally, the deed that conveys the property from the owner to the trustee is also not recorded. The beneficiary has an interest in the property similar to how a shareholder would own shares of stock in a company. This legal tool can help avoid the probate process for asset protection purposes. Additionally, a land trust is only formed for a specific period of time, after which the owner of the property can decide to extend the trust or take back ownership of the property on public records.
How Land Trusts Work
Land trusts can be created for numerous reasons. The way they work or operate will depend largely on the reason they were created in the first place. Some of the benefits of a land trust include the following:
- Limited Exposure – In many cases, an owner of a property wants to limit their legal exposure to any potential judgments or liens that may occur. While a land trust is not strictly an asset protection tool, the fact that they hide the identity of the owner of a property means that those who would seek to file lawsuits would find it more difficult to discover this asset.
- Enhanced Privacy – There may be other reasons aside from legal liability and exposure to lawsuits that a person would want to avoid the disclosure of their personal property holdings.
- Bypassed Probate – Any property in a land trust will avoid the probate process as the property is held in trust by a different trustee.
- Minimized Marital Challenges – Land trusts place a property under the discretionary control of the trustee, which means that the real property can continue business operations (if applicable) apart from any possible marital challenges.
- Transferrable Beneficial Interest – When the conversion of the beneficial interest in the trust estate from real property to personal property occurs, it may be done with a simple written document. This allows the owner to sell the property or gift the property to another person without a public recording of that transfer.
- Continuity with Partnerships – A land trust can hold a property for both general and limited liability partnerships. This can ensure continuity if there are multiple beneficiaries and disputes between partners.
- Generational Family Farms – One of the benefits of a land trust is that it will work to allow families with agricultural land to pass that farming property on to future generations without risking partition of the property by frustrated heirs who may want to cash out their share of the property.
There are other ways that land trusts can work to benefit an owner or beneficiary of real property, including using the beneficial interest as collateral, protecting the acquisition, operation or development of condominiums or apartments, and facilitating estate planning for an individual owner of property.
Land trusts work to ensure and protect real property from division and partition, and allow the beneficiary (owner) rights of privacy and legal protection. When this additional privacy is coupled with asset protection strategies, many real estate investors or property owners can find that a land trust will work to their financial and personal benefits.
Seek Expert Guidance
If you have a property that you are considering placing in a land trust, you may wonder how the land trust will work to your benefit to help you achieve your financial goals. Our legal team and experienced attorneys at Anderson Advisors would welcome the opportunity to visit with you regarding how you can achieve your estate planning and financial goals, including protecting your identity, avoiding the probate process, and protecting your family farm, partnerships, or other assets through a land trust. Let us help you ensure that your legal and financial rights are protected by registering for a complimentary Strategy Session today. On the call, you and a Senior Advisor will discuss your individual situation and goals, and break down the best strategy for integrating a land trust into your overall asset protection plan. You can schedule online or by calling 888.871.8535.