Like all trusts, a land trust is an agreement by which the managing beneficiary directs the trustee in how to handle the benefits of that trust (in this case, real estate). While the managing beneficiary remains the liable party in land trusts, the deed which conveys the property to the trust doesn’t identify any of the parties involved; only the beneficial interest is assigned. But what are the benefits of this, and why should you consider a land trust? Below you will find four benefits of a land trust.
1. Facilitate Estate Planning and Avoid Probate
By its nature, the trust is capable of assigning what happens to the real estate upon the managing beneficiary’s death. This transfer is instant, completely avoiding probate, and unlike a trust, it cannot be contested by any potential heirs that are not beneficiaries. It also avoids ancillary probate for any property owned in another state. A land trust can either work in conjunction with your your other estate planning, or it can actually name the existing asset protection entity (such as a living trust) as the beneficiary, neatly folding it into that entity’s control upon the managing beneficiary’s death. What’s more, because it’s a trust, the change of ownership is private, and it’s protected from both judgments and liens held against beneficiaries.
2. Prevent Partition of the Land and Avoid Marital Interest in Title
Partition is a legal process by which one or more (but not all) of the owners of a particular property are forced to sell their property in order to liquidate their interests. Of course, this process puts all the owners at risk. However, property that’s held in a land trust is not owned by the managing beneficiaries; it’s owned by the trust itself. That means it’s not subject to partition proceedings, and none of the beneficiaries are at risk.
Similarly, real property can be subject to marital rights, and marital strife can involve entitlement to that property. But again, the property held in trust is owned by the trust itself. The trustee executes all instruments dealing with the property itself, which means that in marital strife, the spouse is only entitled to certificates of beneficial interest and never the property itself.
3. Limit Exposure to Judgments and Liens
We mentioned above that land trusts are protected by judgments and liens. Because the trust is in control of the property, rather than the beneficiary, it’s not considered subject to any liens, judgments, or litigation against beneficiaries. For instance, a lien is put on a property to force the owner to pay off a debt before the property can be sold and a clear title can be given to the buyer. A lien can only be applied to actual property, so the real estate isn’t subject to the lien against a beneficiary, but it can be used against the beneficial interest of that beneficiary.
4. Transfer Beneficial Interest
The beneficial interest for a property held in a land trust is owned as personal property by the beneficiary, rather than as interest in real property. That makes it easy to gift to another party simply by executing an assignment of all or part of the beneficial interest in the property held in trust. This process is also relatively quick, since no title policies or recorded deed is required. It’s also completely private.