Land Trust

Aug 30, 2022 By Triston Martin

The term "land trust" refers to a legal entity that acquires control of or claims over a particular property at the direction of the owner. They are also living trusts which allow the management of properties while alive. Like other kinds of trusts, every land trust's terms are different and can be customized to the specific needs of each individual.

How a Land Trust Works

Land trusts, also linked to the real estate market, are typically utilized to plan your estate. It is designed to be used throughout your life to manage the property. They're revocable trusts, which means they can be canceled or modified. Trusts for land can comprise real property (e.g., houses or buildings), property notes, and mortgages. They are usually used to finance the land used for conservation, wildlife-related purposes, or development.

Land trusts have three main components: the grantor, trustee, and beneficiary. The grantor establishes the trust and then transfers the trust's property. The trustee is responsible for the trust, while beneficiaries are the person who receives the benefits of the trust. Grantors oversee the transfer of assets into a trust will be handled, and decides the terms of the trust. Trustees handle the details regarding the house. For instance, when a rental property is in an estate trust, trustees may be accountable for monitoring, maintaining the building, and collecting rent.

Types of Land Trusts

There are two key types of land trusts. Title-holding trusts permit the owners or entities to hold land in a private manner. The major difference with the conservation land trust is that the property owner has to surrender some land use and development rights.

Title-Holding Land Trust

A title-holding trust permits the owner to remain anonymously in control of all property rights and direct any actions taken by the trust. They are also called Illinois land trusts because they were first developed in Chicago in the 1800s. In the past, property owners weren't permitted to vote on city-related projects within the same area they owned property. To avoid this restriction, wealthy politicians and businessmen used land trusts to purchase land secretly and thus protect their voting rights.

The 50 states don't have a legal framework for the title-holding trust. But most states adhere to the Illinois laws on land trusts if they do not have their own, which means that anyone can create an Illinois-style property trust within any state, provided they have appropriate legal guidelines.

Conservation Land Trust

Conservation land trusts require the landowner to give up certain land use and development rights. Conservation land trusts protect wildlife, historic and cultural places, and natural resources against commercialization and other activities that could cause destruction or environmental damage.

Requirements for a Title-Holding Land Trust

In a title-holding trust, the landowner signs an instrument known as the Deed in Trust, which gives legal title to the property. When establishing the trust, the land owner (both the trust grantor and the beneficiary) can specify how the property is to be administered and who is in charge of it. The way income it generates is dispersed. That means that, while the trust holds the title for the land, on paper, the landowner has total control over the property.

Trusts that hold the title are an opportunity for property owners to protect their privacy and shield valuable assets from the rigors of probate. They also offer various other benefits to estate planning and shield assets from judgments or liens. This is especially beneficial for those extremely wealthy or famous, as well as large corporations who might wish to keep their plans for development hidden from the public.

Requirements for a Conservation Land Trust

A conservation trust, however, won't necessarily assume the land's title in the event it is given in its entirety. Instead, the landowner could sign an agreement legally binding called an easement for conservation, essentially "donating" their development rights to the trust. The trust is charged with keeping the easement in force and, in some instances taking care of the property.

Conservation easements can be customized so that the landowner maintains ownership and rights to use the land, for example, the rights to continue to farm or raise livestock while ensuring the land remains undeveloped for the rest of its life. Conservation easements "follow the land," meaning the easement conditions will remain in effect even if the property is sold or handed over to descendants.

Special Considerations

There's a second crucial distinction between title-holding and conservation land trusts. The donation to the latter can provide you with a substantial tax benefit. If a landowner gives the rights to develop to an environmental trust, they will get a tax deduction equivalent to the difference between the worth of the land in its current condition (with an easement still in effect) in comparison to what it would be worth if designed to it's "highest and best use." In some instances, the deduction could make millions.

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