Land Trust Basics

Periodically I come across a client who is interested in a land trust, but doesn’t know all that much about it. Well, here you go, land trusts in a nutshell:

Land trusts are a fancy way to hold title to real estate; instead of holding title in your own name or in the name of your company, you can hold title in a land trust. There are basically two types of land trusts: 1) Land trusts that are administered by a bank (typically for an annual fee of a few hundred dollars) and 2) Land trusts that you can administer yourself, with the help of an attorney who can set it up for you.

There are a number of advantages to having a land trust:

1) Land trusts can be useful estate planning tools, especially for smaller estates.
2) Land trusts allow the transfer of property quickly upon your death. The property can be transferred to your heirs per the terms of your land trust immediately without having to go to court.
3) Land trusts avoid probate — not for your estate in general, but at least with respect to the property held in the land trust. If you have a relatively small estate which is tranferred through joint tenancies or payable on death accounts, then you can simply put your house in a land trust, and your heirs can avoid the entire probate process in court.
4) Land trusts are relatively inexpensive.
5) If you purchase property and put it directly in a land trust, without ever having owned it in your own name, your nosy friends and neighbors will not be able to figure out what you own by searching your name in public records databases.

Of course, land trusts have their disadvantages too:

1) Land trusts are poor estate planning tools for large or complex estates, unless they are simply a small component of a larger, more comprehensive estate plan.
2) Land trusts are a poor estate planning tool when the beneficiaries of a particular piece of land are likely to squabble or have disputes. The trustee of a land trust has very little discretionary authority when compared to the trustee of your average living trust, making such disputes more difficult to resolve.
3) Land trusts should not be used when leaving real estate to minors.
4) While land trusts are relatively inexpensive, there is some cost involved. If you set up your land trust through your bank, you will have to pay an annual fee. If you hire an attorney to set it up, you will have to pay to draft the land trust.

If you are not sure whether a land trust is the right option for you, contact your attorney for his or her opinion. A professional familiar with real estate and estate planning should be able to guide you properly.