The Basics of Illinois Land Trusts
If you are thinking about setting up a land trust, you should educate yourself. Does a land trust even make sense for you? What are the benefits of putting your real estate in a land trust? What’s the downside? And of course, what types of land trust options do you have in the state of Illinois?
In its essence, a land trust is simply a trust created to hold real estate. In most cases, one land trust holds one parcel of real estate. The elements of a land trust are fairly straightforward: (a) You need to create a trust agreement; (b) to the extent you are using a title company or a bank to manage the land trust, you need to make sure that the trust is open and paid for; and (c) you need to actually fund the trust by transferring in the real estate in question.
One of the key benefits of a land trust is privacy. If done properly, especially if set up through a title company or a bank, the name of the owner of the property will not be visible in the public records. Another benefit is that a land trust can be a good estate planning tool. Upon the death of the beneficiary (who is often the same person who created the land trust), the real estate is simply transferred to the next beneficiary named in the land trust. The beneficiary can avoid probate of the real estate, which could otherwise be very costly. Yet another plus point is that you can focus on just one particular piece of real estate if that is all you want to do. While you could do that in a living trust also, a land trust can be far more cost-effective than doing a living trust if there are not a lot of other assets involved that require a full-fledged living trust.
Of course, the last pro could also be a con, depending on your point of view. If you are looking to consolidate not just your real estate, but also your other personal assets in one place, a living trust would be a better choice than a land trust. Another thing to keep in mind is that if you put your property in a land trust, you may have trouble financing or refinancing. If you already have a mortgage, you need to procure your lender’s permission before transferring the property into the land trust. If you don’t have a mortgage, beware. If you try to get a loan, many lenders will not loan if the property is in a land trust. Some lenders may require you to transfer the property out of the land trust to do the loan. And, of course, particularly if you go with a title company land trust or a bank land trust, there will be a one time set up fee as well as an ongoing annual fee for the life of the trust. When you want to transfer the property out and close the trust, there will be fees for that also.
Most land trusts created in Illinois are one of three types:
- Title company managed
- Bank managed
- Attorney created and self-managed
The former two options do require an initial fee and ongoing annual fees, as well as fees to close the trust. Typically you will need to engage an attorney to form a title company or bank land trust to make sure the provisions of the trust line up with your estate planning goals. The attorney created land trust option does not require any fees beyond the attorney’s fee to set up the trust. Despite this, and despite being an attorney myself, I typically prefer the title company land trusts. Of course, what type of land trust is right for you will depend on your individual situation. You will need to talk to an estate planning attorney to determine which type of land trust, if any, makes the most sense in your specific circumstances.