What is a Land Trust?

Land Trusts Explained

As you consider your estate planning goals, trusts can be an important tool to protect your assets and your loved ones. A land trust is a trust that holds real estate, and it is a typical trust type that investors or high-net-worth individuals use. It is a form of a living trust and can be a valuable way to protect real estate from the probate process.

Land trusts benefit two distinct types of people. First, they help people who own property that they need to keep separate from other aspects of their estate plan. Second, they may benefit real estate investors who want to keep their business property apart from their personal assets. Either way, understanding the purpose of these trusts, how they work, and the benefits and drawbacks is important before considering one of your own.

How Does a Land Trust Work?

When establishing a land trust, a property owner creates a legal entity that takes ownership of a property on the owner’s behalf. Because this is a living trust, the property owner can set it up while they are still alive, and it is usually revocable. This means the property’s owner can change the trust’s terms at any time, or they can cancel it.

Land trusts are also a tool used for property development projects. For example, a real estate developer can place large pieces of property into a trust as they develop it. This protects them from having the asset in their personal possession.

What Types of Property Can a Land Trust Hold?

Land trusts only apply to real estate, but that real estate doesn’t have to be just land. These trusts can hold someone’s physical property, such as a home or commercial building, any notes on the property, or a mortgage.

Common Types of Land Trusts

When protecting assets using a land trust, you have several types to choose from, including these:

1. Title-holding land trust – This type of land trust allows the property’s owner to maintain the rights to the property anonymously, giving them the full right to direct the land trust’s action without having the property in the owner’s name.
2. Conservation land trust – Through this type of trust, the property owner can protect the land or the wildlife and historic sites it contains. However, they give up some of the rights to use the land for development in a way that will disturb the protected item. Some conservation land trusts are set up so that the land’s owner can continue to use and own the property while protecting it from full development.
3. Community land trusts – These trusts are set up as nonprofit organizations that strive to keep housing within a community affordable. The trust owns the land, and the homeowners who live on it lease the land their homes are on from the trust. When someone sells, part of the property value returns to the trust, which helps keep the housing costs low.

The conservation land trust and the title-holding land trust are the most commonly used, but the community land trust does have its place. The type of trust you choose will depend on both your long-term and your short-term goals.

Advantages and Disadvantages of Land Trusts

Land trusts protect property owners from invasions of privacy and overall liability. This makes them popular with real estate investors who want to separate their business and personal finances. They can also help prominent net-worth individuals with many real estate investments by protecting their privacy. In addition, with a trust, total net worth is not public knowledge. Finally, like most living trusts, a land trust reduces the number of challenges the estate will have during the probate process.

They aren’t perfect, however. For example, if someone purchases a property under a land trust, they lose redemption rights to it. Redemption rights protect property owners by allowing them to reclaim the property right before a foreclosure is final. Land trusts also usually cannot qualify for secondary market mortgages and loans. Finally, they may not provide complete liability protection, even though that is an advertised benefit. Some items can be the responsibility of the property’s actual owner, not the trust, even with the trust’s protection in place.

If you think a land trust would fit your needs well, talk to an estate planning attorney from Heban, Murphree Lewandowski. We will help you determine if a land trust will help you meet your investment and estate planning goals, help you set one up and then help you manage it effectively. Reach out today to discuss the benefits of a land trust as an investment and asset protection tool. (419) 662-3100