A land trust is a legal entity that takes ownership or authority over a piece of property at the owner’s request. Land trusts allow for property management while the owner is alive. Each land trust’s terms can be tailored to individual needs.
The main advantages of land trusts include protecting landowner anonymity and keeping property out of probate. However, these protections are not always guaranteed, and there are risks such as losing redemption rights and being disqualified from secondary market loans.
Land trusts are similar to other trusts but are intended exclusively for real estate. They can also hold other property-related assets like mortgages and notes. Any land can be used for a land trust, though they’re commonly used for land conservation or developmental property.
Key Takeaways
- Land trusts are organizations that take legal ownership, stewardship, or control over property at the landowner’s request.
- Title-holding land trusts, often known as Illinois land trusts, protect landowner anonymity and avoid probate.
- However, liability and privacy protections aren’t foolproof. There are potential risks such as losing redemption rights and qualifying for secondary market loans.
- Commonly used by real estate investors and estate planning property owners.
- Conservation land trusts are used for managing undeveloped land, maintaining natural resources, historical sites, and public recreational areas.
How Land Trusts Work
Land trusts, tied to real estate, are often used for estate planning. They are revocable trusts, meaning they can be terminated or changed and are intended for use during the grantor’s lifetime.
Land trusts can include real estate, property notes, and mortgages. They’re typically used for conservation, wildlife purposes, or real estate development.
Land trusts have three main components: the grantor, the trustee, and the beneficiary. The grantor creates the trust and transfers property, the trustee manages the trust, and the beneficiary benefits from it.
The grantor handles transferring assets into the trust and sets the trust’s terms. Trustees deal with the property’s intimate details. For instance, if a rental property is held in a land trust, a trustee might handle maintenance and rent collection.
Types of Land Trusts
Two key types of land trusts are title-holding and conservation land trusts:
Title-Holding Land Trust
This type allows the property owner to anonymously maintain all rights over the property and direct the land trust’s actions. Commonly referred to as “Illinois land trusts”, they were popularized in Chicago during the 1800s to protect anonymity and voting rights.
- In a title-holding land trust, the landowner signs a Deed in Trust, transferring legal ownership. The landowner maintains complete control over property management and income distribution.
- Useful for keeping assets out of probate and providing anonymity and liability protections.
Conservation Land Trust
In this type, the property owner gives up certain land use and development rights to protect wildlife, historical sites, and natural resources from commercial development.
- The trust doesn’t necessarily take over the land title unless the property is fully donated. Instead, a landowner can agree to a conservation easement, “donating” development rights to the trust.
- Easements can be tailored so the landowner retains ownership and certain usage rights while ensuring the land remains undeveloped.
Facts:
- Approximately 61 million acres of undeveloped land are managed by private conservation land trusts in the U.S.
Examples of Land Trusts
- Title-Holding Trust: The Walt Disney World Resort in Orlando was initially purchased in 1965 using a title-holding land trust. The original landowners were unaware Disney was the buyer, preventing them from increasing prices.
- Conservation Trust: Ozark Land Trust, a non-profit organization, manages dozens of projects across 28,000 acres to preserve the land from urban development using nature preserves and conservation easements.
Advantages and Disadvantages of Land Trusts
Pros:
- Separate personal finances from real estate
- Maintain anonymous property ownership and privacy
- Certain liability protections
- Ease the probate process
Cons:
- Lose redemption rights
- May not qualify for secondary market loans
- No foolproof liability protections
- Privacy veil can be pierced by court orders
What’s Unique About Land Trusts?
Tax Breaks for Conservation Donations: Grantors who donate their development rights to a conservation trust can receive a tax deduction equal to the land’s encumbered value vs. its potential value developed for its “highest and best use”. This is a significant financial benefit.
Investing in Conservation Easements
Multi-member partnerships or syndicates allow accredited investors to pool funds for purchasing conservation land. Donations earned through conservation easements yield tax deductions. Thanks to these partnerships, land conservation increased by 58% from 2010 to 2020.
Conservation Easement Controversy
Some abuse the system, claiming large deductions for donating land with little ecological value. This has led to backlash against syndicated investments, emphasizing the need to refine laws to prevent system abuse without removing conservation incentives.
FAQs about Land Trusts
How Does a Land Trust Work?
Land trusts work like other trusts, allowing grantors to set unique terms and conditions that fit their needs. They consist of three key parts: the grantor, trustee, and beneficiary. Grantors create the trust, trustees manage it, and beneficiaries benefit from it.
What Is the Purpose of a Land Trust?
land trusts are meant to create liability and privacy protections for landowners. Real estate investors, individuals, and entities use them to separate personal finances from property holdings.
Who Purchases the Land in a Land Trust?
The land is generally purchased by an individual or business that then transfers the property into a land trust. The land trust’s grantor is the individual or entity that creates the trust and completes this transfer.
How Long Does a Land Trust Last?
Typically, land trusts last for a set period, such as 20 years. Beneficiaries can extend the trust term upon expiration; otherwise, the property is sold.
Related Terms: estate planning, probate, trusts and estates, property anonymization, asset protection.
References
- Cornell Law School, Legal Information Institute. “Land Trust”.
- Anderson Advisors. “Should I Have a Land Trust?”
- Anderson Advisors. “What is, and How To Set Up a Land Trust”.
- Exeter 1031 Exchange Services, LLC. “The History of the Land Trust”.
- Royal Legal Solutions. “Find Out If a Land Trust Is Legal in Your State”.
- Exeter 1031 Exchange Services, LLC. “The Advantages and Benefits of Using a Title Holding Trust or Land Trust”.
- Land Trust Alliance. “What is a Land Trust?”
- Land Trust Alliance. “How to Conserve Your Land”.
- Land Trust Alliance. “Find a Land Trust”.
- Presser Law Firm, P.A. “How Walt Disney Used Land Trusts to Purchase and Build Disney World”.
- Ozark Land Trust. “Ozark Land Trust”.
- Royal Legal Solutions. “Land Trust Disadvantages? Here Are Three Reasons NOT to Use Them”.
- Land Trust Alliance. “Income Tax Incentives for Land Conservation”.
- Land Trust Alliance. “Gaining Ground: United States”.
- Internal Revenue Service. “Conservation Easements”.
- Looney, Adam. “Charitable Contributions of Conservation Easements”. The Brookings Institution, Economic Studies at Brookings, May 2017, pp. 1-39.
- Virtual Underwriter. “Land Trusts”.
