One of the essential investments a person can have is property. Something that people take pride in and an investment that will make them happy. Probably, the land is an excellent investment that any person can have. Although it is often risky to invest in, it is still a great thing to have.
However, purchasing land is a long process. Investors need to understand the practicality of having land and using the land for business.
There is a need for them to understand how the process will go. There are also important documents for investors to take note of. When managing an asset, such as land, trusts can help the investors. Trust is a tool that helps you to manage your asset, in this case, land.
A land trust is one of those types of trust which is related to real estate. A land trust is a kind of living trust which means it is effective during your lifetime. The terms included in a land trust will depend on your needs and the kind of real estate you own.
Understanding how land trust works and how it is used will help you decide. Learning about the land trusts will allow you to know if you need to have a land trust. Before you move on to the article, you should watch this YouTube video to avoid land trust mistakes:
What is Land Trust?
A land trust is a legal entity wherein someone takes control of the property. Also, the other real estate assets are at the behest of the property’s owner is included. It means that a land trust gives someone to take the ownership or authority over the property under the owner.
A land trust is also a private agreement between the trustee and beneficiaries. It is an agreement that the trustee will hold the title to the property for the benefit of the beneficiaries.
On the other hand, the one who settles or establishes the trust is called the grantor or settlor. Usually, the settlor is the titleholder of the property before transferring to the trust. Since it is a living trust, it is generally revocable. It is revocable that the terms included in the trust can be terminated or changed anytime.
Each land trust is unique under the different terms of the owner and the trustee. Both parties came up with the terms before signing the agreement. Unlike the other types of living trusts, land trusts are exclusively associated with real estate. The following are the types of assets that you can include with land trust:
- Physical property (commercial buildings, homes, or plots of land)
- Property notes
Although land trusts can be used for any asset, it is usually used for real estate. The usual real estate that uses a land trust is either land conservation or property development.
Typically, real estate developers use land trusts to hold their large pieces of property for residential or commercial development. On the other hand, you can use a land trust for land to use in conservation efforts or preserving wildlife.
Types of Land Trust
When setting up a land trust, it is crucial to understand the two types of land trust. It will be a lot easier to build and establish terms between parties.
Here are the following types of land trusts:
- Title-holding trust
- Conservation land trust
A title-holding trust allows the owner to be anonymous in maintaining all rights of the property. Also, to direct the actions that are going to happen in the land trust.
On the other hand, a conservation land trust requires the owner to lose some rights over land development and use. This land trust aims to protect historical or cultural sites, wildlife, and other natural resources.
The conservation land trust protects the natural resources from commercial development or activities that may cause pollution or disruption.
How does Land Trust work?
Land trusts are not that different from other types of living trusts. There are three people or parties involved in the process of establishing a land trust:
- The settlor or grantor is the one that creates the trusts and will transfer the property ownership.
- The trustee is the one that manages the trust depending on the terms of the settlor.
- The beneficiary is the one that benefits from the terms under the land trust.
As the settlor or grantor, you will decide what real estate assets you should transfer in a land trust. You will also create the terms and conditions that the trustee should follow in managing the assets.
For example, if the rental property is included in the trust, collecting rental payments will be one of the trustee’s duties. Other than this, maintenance, overseeing upkeep, and finding new tenants when the property is vacated are other trustees’ duties.
On the other hand, the beneficiary is someone who benefits from the assets in the trust. If you are the beneficiary, you may get some or all the rental income which will depend on the terms.
The grantor is the one who can change the terms of the land trust anytime. There are a lot of things you can adjust or change in the land trust:
- You can remove the real estate assets in the trust.
- You can also add the real estate asset to a newly acquired property.
- You can designate a new trustee if you’re not happy with the current trustee.
- You can also give new guidelines on how to manage the assets on behalf of your beneficiaries.
- Lastly, if you sell all of the assets included in the land trust, you can terminate the land trust.
This process is typical when having a land trust. Now, what will happen if you choose between the two types of land trust?
Title-holding trust requires the landowner to sign a document called “Deed in Trust.” This document transfers the legal ownership of the property.
In establishing the trust, the landowner can specify the things needed to manage the land. As the landowner, you can also determine who will have control over it and the distribution of produced income.
Even though the trust is the titleholder on the paper, the landowner has complete control of the property. You can also give several estate planning benefits and protect your assets from the judgments. Title-holding trust is helpful for celebrities, wealthy people, and large companies who want to keep their development plans under wraps.
Conservation Land Trust
Under conservation land trusts, the trust doesn’t take over the land title except the property is donated. Instead, you, the landowner, can pursue a legally binding agreement called a conservation easement.
A conservation easement allows you to “donate” your development rights to the trust. The trust is required to ensure that the agreement is enforced, which in this case, is to manage the property.
Conservation easements allow you to retain your ownership and usage rights in the land. The usage rights can be the right to raise livestock or to continue farming the land. While you can do your rights, the easement will ensure you that the land will remain undeveloped in perpetuity.
Conservation easements have this “follow the land,” which means that the terms under the easement will still be in force. It is still in force even after the land is sold or passed to the next generation of heirs.
Benefits of using a Land Trust
There are many benefits to using land trusts to manage your real estate assets. Usually, you can use a land trust to protect your assets from creditors or decrease estate taxes.
You might want to consider a land trust if:
- You want to separate your real estate investment property from your other assets.
- You want to have anonymity and privacy because the assets are named after the trust, not you.
- You want to avoid the probate process when you pass away if your assets are held in a land trust.
- You want to have protection from creditors or enhanced liability protection.
- You want to buy or sell real estate assets without disclosing the sales price publicly.
Other than these, land trusts allow you to have the privacy that will not give people your estimated net worth. It also allows you to separate your investments in a larger scale of real estate from your finances.
How to Set up a Land Trust?
There are similarities in creating other types of trust to set up a land trust. It will start with identifying trustees to oversee it and then determining the assets held in the trust. After that, you have to choose a beneficiary. These are the common things that happened in different kinds of trusts.
In a land trust, the beneficiary can be one person. However, you can establish a limited liability company (LLC). The LLC aims to act as the beneficiary to give more protection against creditor lawsuits or liability claims.
The next step is to build the actual trust document. Building the trust document will require you to consult an estate planning attorney.
An estate planning attorney can help you validate the document and help you with the issues you missed. The problem can be updating the property insurance beneficiaries for the assets when you transfer to the trust.
How do Land Trusts Protect Privacy?
A land trust includes two legal documents:
- The trust agreement between the parties of trustor and trustee; includes the powers, rights, duties, and responsibilities of both parties.
- The deed for the trustee came from the trustor.
The first step to do is to execute the trust agreement. After that, you have to record the trustee deed.
Once these are done, the land titles office will no longer disclose that you’re the owner of the property. Additionally, the trust agreement will remain private.
The public records will also not reveal your information about the land property.
A land trust is something that can be necessary if you want to invest in real estate. It is also essential if you’re going to separate the property from the other assets in your estate plan. Setting up a land trust can provide you particular protections and privacy benefits. You can do this by asking a professional to help you in creating a land trust.