A land trust is a form of title-holding device that can help you avoid many of the problems that come with buying, owning, or selling real estate. It is a trust arrangement in which the beneficiary gives the trustee instructions on all matters concerning the trust property’s title. The trustee is therefore held liability-free by the beneficiary. The managing beneficiary typically prepares the leases, loan documents and instruments, and other papers for trustee inspection and signature. In contrast, the trustee usually prepares the deeds and assignments of beneficial interests. The trust arrangement is normally set up for a fixed amount of time, after which it either expires or is extended. The trust agreement often names an individual or agency to obtain a beneficiary’s interest if he or she dies during the trust period. Since companies do not die, lose interest in their employment, or pass on, the trustee is always a corporate fiduciary.
Land trusts are useful in a variety of situations. For instance, when one wants to maintain the privacy of ownership of a property. Often, a beneficiary prefers to keep personal holdings private, particularly if the beneficiary is a land developer purchasing large tracts of land. Say, for instance, someone is interested in purchasing land in Boulder, Colorado, for construction. If they believe that disclosing their identity would jeopardize their ability to obtain the best price for the property, a land trust can provide the opportunity to buy the land without revealing their true identity to the current owners.
Other benefits have to do with non-resident ownership. A deceased estate is administered in the county where the individual resided at the time of death. The probate estate contains all tangible and personal property in the state of residence. Using a land trust to convert a real property interest to personal property prevents going through another probate administration process in the state where the real property is located.
A land trust also helps avoid issues if the personal trust is situated in another state or region. This works well if the trustee is an entity, and all states accept an individual trustee from another state’s right to hold title to local real property. However, only a few states accept a corporate trustee from another state or region.
A land trust also helps with judgments and liens. For instance, when a land trust has many beneficiaries, there is always the possibility that one or more of them may face a problem that will result in a personal judgment. Since the judgment is not a lien on the real property itself but rather on the interest of the particular beneficiary, it would not affect the rights of the other beneficiaries. As a result, the other beneficiaries (possibly including the one with the judgment) will continue to deal freely with the trust property’s creation, rent, refinancing, and sale without fear of a title dispute. For example, in this case, if a couple is concerned about how their children may interact with each other if they want to keep the inherited properties in the family.
Having a legal land trust has obvious benefits but before you form one, make sure that you follow all the necessary laws required to do so.