Property ownership can be a great thing, but it also comes with a number of stressors and risks, particularly when it comes to liability. Many people look into land trusts to protect both themselves and to protect their property from overdevelopment, pollution, and other external risks over long spans of time.
What is a Land Trust?
In a nutshell, a land trust is a type of legal entity that takes control or ownership of a piece of property by order of the property owner. The trust acts as a separate legal entity from the owner, which can serve numerous legal purposes.
How Does It Work?
Regardless of the type of land trust, each trust works in essentially the same way.
To create a trust, the owner of a piece of property signs a "Deed in Trust". This is a legal document that transfers the ownership of the property in question to the new legal entity, the trust itself.
As the document is created, the landowner, who serves as both the beneficiary and the trust grantor, can make rules about how the land is to be used, who is allowed control over the land, how the income that comes from the land is distributed, and more.
For certain trusts (title-holding land trusts, detailed below), the owner is still allowed to effectively control the property but can maintain anonymity while doing so.
For other types of land trusts, the rules are more specific and may even exclude the original landowner from using or developing the property according to certain guidelines. In most cases, these trusts are used when the landowner wants to preserve the property for conservation reasons.
How Does a Land Trust Protect You?
A land trust can protect a property's owner in several ways:
- For starters, property owners can create land trusts for the anonymity benefit. This allows property owners to maintain control over their property without family, friends, creditors, or other entities knowing what they own and pursuing them for their own gain
- Furthermore, some property owners may decide to use trusts to move property into LLCs or other company types. For example, moving property into an LLC will prevent a property owner from being liable for any issues that may take place on the property or for debt. Some property owners move their property into LLCs to take advantage of lower taxes, as well
Advantages & Disadvantages of Land Trusts
There are many great reasons to utilize land trusts to secure your property to protect yourself from creditors or family members. But there are also reasons why you might decide to go another route.
- A land trust can significantly lower your tax burden, even though it can't prevent you from paying taxes on property entirely. This specifically applies when you transfer your property into an LLC or similar company
- Land trusts can help you remain anonymous, thus protecting your identity from other groups that may wish to take control of your property or harass you for credit-related reasons
- Land trusts, when placed into an LLC, can protect you from liability, such as if someone tries to sue you for an injury they received on your land
- A land trust can specifically prevent the "due-on-sale" clause from affecting you. This clause is often invoked by lenders that may want to collect the full balance of your outstanding debt if you choose to sell your property
- You can also use land trusts to keep the sale price of any land you sell a secret, which can protect you from grifters or opportunists
- For asset transferring reasons, land trusts are useful since they minimize probate difficulties. A land trust can allow you to control your assets and make it easier to transfer your land to your intended beneficiary without needless complexity
- The above ease of property transfer extends to regular property transfer instances as well, such as if you wish to give your property to a family member before moving into a smaller, more manageable home
- Land trusts can be costly or expensive to start, particularly for larger pieces of land. Expect to pay at least several hundred dollars at minimum to draw up the official paperwork and to have an attorney or land trust legal expert look over your documents before filing for the trust
Different Types of Land Trusts
There are two types of land trusts that may be created by property owners.
Title Holding Trust
A title-holding land trust enables the original owner of the property to keep their rights over the property in question, as well as control any of the actions of the land trust, anonymously. These trusts were originally called Illinois land trusts, as they were first utilized successfully in Chicago in the 19th century.
Even today, some states don't have legal structures that allow for title-holding land trusts. In the majority of cases, however, states will defer to the Illinois land trust model if a person requests it. This allows individuals to create these trusts in all 50 states even if there aren't state-specific guidelines for their property.
Conservation Land Trust
The other type of land trust is a conservation land trust. This type of trust involves the property owner surrendering some rights over the development or use of their land. As the name suggests, these trusts are normally created to protect the land itself, the wildlife on it, or to preserve historical and cultural sites.
In some cases, people may start conservation land trusts to protect natural resources from being developed or from being exposed to pollutants.
Some landowners opt instead for conservation "easements". These effectively donate the property's development rights to the trust, and the trust manager or overseer is entrusted with the task of managing the property and making sure that the rules in the easement are enforced.
Lastly, conservation easements are maintained even when the land is passed to heirs, sold, or otherwise comes into new ownership. This allows the conservation measures included to remain in effect in perpetuity.
Why Do You Put Land in a Trust?
All in all, most people put their land in trusts to either protect the land itself or to protect themselves from the myriad risks or liabilities that come with owning valuable property. Consider the different types of land trusts carefully before drawing one up for yourself, and be sure to hire an excellent land trust lawyer to look over your documents to make sure everything is airtight.