Describe a land trust

At the property owner’s desire, a land trust is a legal body that assumes ownership or responsibility over a parcel of land. Living trusts that permit property administration while the owner is still alive are called land trusts. But much like other kinds of trusts, the conditions of every land trust are different and can be customized to meet specific requirements.

Land trusts have two key benefits: they usually shield the privacy of landowners and prevent property from going through probate. It’s possible to lose redemption rights and your eligibility for secondary market loans, although these protections aren’t usually guaranteed.

Functions of a Land Trust

Estate planning frequently makes use of land trusts, which are trusts backed by real estate. Revocable trusts are designed for property management over your lifetime and can be altered or dissolved over time.

Real estate (such as houses or structures), property notes, and mortgages can all be included in land trusts. In most cases, they are utilized for land devoted to real estate development or the conservation of animals.

Three essential components make up a land trust: the grantor, trustee, and beneficiary. The individual who transfers the property and establishes the trust is known as the grantor. The beneficiary is the person who gains from the land trust, while the trustee is the one who oversees its management.

While trustees are in charge of the property’s minute details, grantors manage the transfer of assets into the trust and establish its terms. For instance, if a land trust owns a rental property, managing upkeep and collecting rent may fall under the purview of a trustee.

Types of Trusts for Land

Land trusts fall into two main categories: conservation land trusts and title-holding land trusts. Anonymous land ownership is possible through title-holding trusts. A conservation land trust differs significantly in that the owner forfeits some rights related to property use and development.

Land Trust with Title Holding

A title-holding trust allows the landowner to control the land trust’s operations while maintaining complete anonymity over their property. Because of their initial popularity in Chicago during the 1800s, these trusts are often called “Illinois land trusts.”. Property owners were not permitted to vote on municipal projects in the areas where they held land at the time. To get around this prohibition, powerful politicians and businesspeople would buy land covertly through land trusts, preserving their ability to vote.

Not every state in the union has established a legislative framework for land trusts that hold title. But in the absence of their own, most states follow the Illinois land trust statutes.

A deed in trust, a legal instrument that transfers property ownership, is signed by the landowner in a title-holding land trust. In establishing the trust, the landowner—who serves as both the grantor and the beneficiary—may choose who will be in charge of the land, how it will be administered, and how any profits it generates will be allocated. Thus, even though the trust has the paper title, the landowner still has total authority over the property.

Property owners employ title-holding trusts to preserve their privacy and shield significant assets from probate. In addition, they offer several other advantages for estate planning and shield assets from liens or judgments. This can be helpful for the wealthy, famous people, and big businesses wanting to keep development plans confidential.

Preservation of Land Trust

The creation of conservation land trusts entails some rights relinquished by the landowner regarding land use and development. A conservation land trust’s mission is to save natural resources, historical or cultural landmarks, and wildlife against development that could disrupt or pollute the area.

If a piece of land is donated, the trust may not automatically acquire the title to the land. As an alternative, a landowner may “donate” their development rights to the trust by signing a binding contract known as a conservation easement. The trust is responsible for overseeing the property and, in some situations, ensuring the easement is upheld.

Conservation easements can guarantee the land’s perpetual undeveloped state while preserving the landowner’s ownership and usage rights, such as the ability to carry on farming or cattle rearing. Conservation easements “follow the land,” meaning that if the land is sold or given to heirs, the stipulations of the easement will still apply.

Land Trust Examples

The Walt Disney Company’s (DIS) Florida resort illustrates a title-holding land trust. A title-holding land trust was initially used in 1965 to finance the Walt Disney World Resort acquisition in Orlando, Florida. The original proprietors of the Florida swamplands on which the resort was constructed were unaware that Disney, a well-known brand at the time, was financing the acquisition. They probably would have raised their asking price if they had known who the customer was.

Conversely, the United States is home to numerous examples of conservation land trusts, such as the Ozark Land Trust, which manages dozens of projects across 28,000 acres in the Ozark region. The Ozark Land Trust is a nonprofit organization that assists landowners in protecting and preserving their property from urban development. Conservation easements and nature preserves are two ways that the Ozark Land Trust contributes to this.

Land trusts: Benefits and Drawbacks

Land trusts are primarily advantageous because they offer privacy and liability protections, enabling real estate investors to keep their assets segregated from their personal affairs. The specifics of net worth can be kept secret by using a land trust. Land trusts are a popular tool for separating property from other assets among real estate investors.

A property trust does have certain drawbacks, though. Initially, any redemption rights—the ability to reclaim the property shortly before (or after) foreclosure—are forfeited if you buy the property under a land trust. Second, most land trusts are automatically denied loans on the secondary market.

Another problem with land trusts is that they give the appearance of being completely liable. Even in Illinois, land trusts are nonetheless subject to liability. The real estate owner, not the trustee or trust, may be held accountable for specific actions. Court orders can breach the privacy veil; therefore, privacy isn’t always protected.

Benefits

• Keep personal and real estate money separate.
• Anonymity in property ownership and privacy
• Some safeguards against liability

Probate process simplicity Cons

• Redeemable rights are lost
• Possible exclusion from secondary market lending
• Inadequate liability safeguards
• One can pierce the privacy barrier.

Why are land trusts special?

Title-holding and conservation land trusts differ in another significant way: donating to the latter may qualify you for a sizable tax benefit. Landowners can claim a tax credit for donating their development rights to a conservation trust. This deduction is based on the difference between the land’s value when burdened (with the easement in place) and its potential value when developed for its “highest and best use.” Millions of dollars may be at stake in certain situations with this deduction.

Landowners are usually wealthy people, families, or companies that can afford to purchase tracts outright or are farmers and ranchers who have owned the property for generations. But more recently, a niche in investments has emerged to make conservation tax benefits more accessible to a broader range of people.

Allocating Funds for Conservation Easements

These investment businesses enable several qualified investors to pool their funds to buy land for conservation through a multi-member partnership (sometimes known as a “syndicate”). The partnership members divided the tax deduction pro rata upon donating the property development rights to a land trust through a conservation easement. It is projected that between 2005 and 2015, land conservation rose by 175%, in part because of these conservation collaborations.

Debate over Conservation Easements

Naturally, system abuse occurs whenever there is a chance to make money. There are well-known examples of people deducting enormous amounts of money for giving easements on sites that aren’t particularly valuable ecologically or culturally. These properties include housing projects, golf courses, and other properties.

An intense backlash has resulted against land trusts accepting easement donations, specifically against syndicated investments. However, this narrow emphasis might not exhaustively illustrate the problems at hand. It is evident that regulations governing conservation easement donations—whether made by syndicated investors, billionaires, or farmers—need to be closely examined to guarantee that the possibility of misuse is reduced without lessening the incentive to conserve.

How Do You Operate a Land Trust?

Land trusts function similarly to other trusts, enabling grantors to establish parameters that meet their requirements. Three essential components make up a land trust: the grantor, trustee, and beneficiary. The beneficiaries of a trust receive benefits from it; trustees oversee its administration; and grantors establish and transfer property into it.

What Does a Land Trust Serve As?

Landowners are intended to have liability and privacy safeguards through land trusts. Land trusts are valuable for individuals, companies, and real estate investors to better separate personal funds and property.

In a land trust, who buys the land?

A person or company often buys the land, which transfers asset ownership into a land trust. The person or organization that establishes and transmits the land trust is known as the grantor of the land trust.

How much time does a land trust have?

Land trusts often have a defined duration, like 20 years. When the trust term runs out, it is up to the beneficiary to renew it. The property is sold if they don’t.