What is a Land Trust?
A land trust is a legal tool that can provide numerous benefits for property owners. Essentially, it is a private, nonprofit organization that works to conserve and protect land for future generations. By transferring land ownership to a land trust, property owners can ensure they can preserve and manage their land according to their wishes.
Land trusts serve many more purposes than just conservation of the land. A land trust is an integral part of your estate plan that allows your beneficiaries to avoid the hassle and expense of the probate process. If you own property, you should be aware of the options that are available to you. Land trusts can smooth the transfer of ownership of the land, which you can even accomplish now, allowing your family to stay out of probate. They can also help further your own goals concerning the land and work to preserve it for future generations.
When you own or purchase property and want to learn more about your options, you should see an estate planning or real estate attorney. They can educate you about what you can do with your land to help ensure that the title passes with the least possible hassle or establish other types of trust that can be beneficial. All it takes is time and investment; you may receive many benefits.
An attorney will ensure you properly prepare and execute all necessary legal documents, protecting your interests and minimizing the risk of costly mistakes. From drafting the trust agreement to transferring the title of your property to the trust, a lawyer will ensure that every step is completed accurately and in compliance with the law.
Consult with a real estate attorney or an estate planning lawyer to learn more about potential trust options and how to establish one. You can learn valuable information about how to make things easier for your loved ones, further your goals, and simultaneously receive tax benefits. Then, your lawyer will help you establish whatever trust you select and give you peace of mind that they have completed the tasks correctly.
Conservation Land Trusts
There are several types of land trusts. A conservation land trust is an easement that gives the trust the right to use the land while the owner remains. Other types of land trusts transfer the deed and title to the property into a trust, although the owner may retain control over the property itself.
A conservation land trust will take ownership of the property to attain specific goals. The conservation trust will not necessarily own the property but will work with the owner to reach these goals. Conservation trusts are typically community organizations that work to preserve the character of the land or its environmental status. The land trust may partner with the owner to achieve these goals, or they may own the land outright.
Land trusts usually consist of unpaid volunteers who devote their time to the property. They often exist to keep the property open to the public, and they may run educational programs, such as science and nature clinics. The board of directors of the land trust will make decisions about their priorities and goals and will usually begin with one or more conservation goals.
A conservation land trust is often a 501(c)(3) tax-exempt organization. In some cases, the land trust may be a semi-governmental organization reaping the benefits of government participation. A private board of trustees may exist, but the land conservation trust can be a state or local government unit. Regardless, the land trust operates as any board would, with governing documents, the requirement to follow bylaws and other rules that apply to nonprofits.
When establishing a conservation land trust, the owner must give up some of their rights to use and develop the land. They may need to share the land when the trust gives others access to it, while the landowner will still retain the use of the property. The language of the trust agreement will determine the exact contours of their usage. If the land gets sold or passed down to beneficiaries, the conservation trust will follow the land and remain in effect.
The Benefits of a Conservation Land Trust
As the property owner, you may wonder why allowing someone else to use the property is in your interest. This could potentially restrict your usage and affect the property’s value.
Some of the benefits of a conservation land trust include:
- The property owner may want to preserve a specific part of their land, such as a wetland or forest while retaining the right to use the rest of the property.
- The owner may want to preserve the property’s aesthetics.
- A conservation trust may make the land viable for future generations, whether for farming or development purposes.
There may be significant and compelling tax reasons for an owner to establish a conservation trust. The owner may take a federal tax deduction, although it is not for the total value of the land. In addition, some states also allow owners to not pay property tax for the portion of the land that they let the conservation trust use. However, you need to be careful about how you take the deduction because the IRS is very much on the lookout for any abuses of the system.
Land Trusts for Estate Planning Purposes
For estate planning purposes, a land trust will take the property out of your name and title it in the name of the trust. If the trust is irrevocable, you will actually have protection of your assets because you are no longer the owner, nor are you making any decisions about the property. A trustee is responsible for managing the property for the trust beneficiaries, and they will have the decision-making power. Then, if someone sues you, the plaintiff cannot access your property as part of the judgment since you no longer own it.
In the meantime, the owner has already transferred the title to the trust, so it does not have to go through probate. The probate process should transfer title to certain assets, but that happened when you established the trust and moved the property into it.
Illinois Land Trusts
You can sometimes retain control over the property, even if you do not hold the title in your name. An Illinois Land Trust moved the title out of your name, but the trustee will have the title. Their role is limited to executing any deeds or mortgages at the direction of the owner. Real estate investors commonly use this arrangement.
One of the benefits of an Illinois Land Trust is that the trustee holds the title confidentially. The other significant benefit is that an Illinois Land Trust still allows you to avoid probate. However, because the owner makes decisions regarding the property, they cannot protect their assets from a lawsuit. Yet, owners can still protect themselves from these lawsuits when they hold the property as part of a general partnership. Otherwise, they are liable for their own negligence or another partner’s. Further, if there are multiple property owners, you will not have to obtain deeds from every beneficiary and the release of spousal homestead rights.
Tax Benefits for Title-Based Land Trusts
When you move the property title into a trust, your heirs may receive tax benefits. First, moving the land title into a trust reduces the estate’s taxable value. This move is crucial when your loved one needs to pay the estate tax, which has a rate of 40 percent. Then, assigning the land title to a trust allows it to qualify for tax-deferred exchange treatment. You can swap one property for another and postpone the obligation to pay capital gains taxes. You do not need to file a separate tax return for the property, as you can include the income on your own individual return. When it comes to the tax benefits for depreciation of the land, the beneficiaries and the trust will apportion the funds between them, depending on the share of income each received.
How to Set Up a Land Trust
There are several steps that you must take to establish a land trust. Specifically, you must do the following:
- Determine the type of trust that you want to establish
- Determine the property that is to go into the trust and the objectives of the trust
- Draft the document that lays out the terms and conditions of the trust
- File any legal documentation that pertains to the trust
- Maintain and administer the trust
The trust document is critical, especially when establishing a conservation trust. It specifies the exact nature of the trust’s land usage and what the owner can still do on their own land. When the trustee has responsibilities they must carry out, it is vital to consider selecting the trustee. The same goes for an owner who works with a conservation trust. They must perform due diligence on the organization to determine whether it is someone they can work with for the long term.
Other considerations occur when you think about establishing a land trust. If you are considering a conservation land trust, it can affect the property’s value (although you can recoup some of this loss through income tax deductions). In addition, the fact that there is an easement on the land can make it more difficult to obtain secondary financing. At a minimum, lenders will ask a host of additional questions when they learn about the land trust.
A land trust may mean you lose the right of redemption for the property. Ordinarily, when your mortgage has gone into default, you can make payments on it right up until the time of foreclosure to halt the process. Some states even allow you to redeem the property if the lender has already sold it, but you may no longer have that right if there is a land trust. Of course, you should always do what works best for your financial situation.
A real estate lawyer can offer invaluable advice and guidance regarding utilizing land trusts as part of your overall estate planning strategy. They can help you assess whether a land trust is the right option for your specific needs and goals. They can also assist in coordinating the trust with other estate planning tools, ensuring that you seamlessly integrate real estate assets into your broader estate plan.
How a Real Estate Attorney Can Help You
Many people think trusts are esoteric and inaccessible to the typical individual, but this myth is far from the truth. Land trusts are easy to execute when you have the help of an experienced real estate or estate planning lawyer. An estate planning or real estate lawyer can advise you of the different types of land trusts available to meet your needs. They will also prepare the documents on your behalf so they are ready for you to sign them. This way, you have the peace of mind of knowing that your attorney has adequately established the land trust and it is effective for your needs.
When you are estate planning, one or more different types of trusts can be a part of your overall plan. You may have land trusts in conjunction with other types of trusts to make things as smooth as possible for your beneficiaries. Your estate planning attorney can review your overall situation and recommend different types of trusts for your needs.
A Seattle real estate attorney will help you deal with the potential legal challenges with land trusts. These challenges can include disputes between beneficiaries, challenges to the trust’s validity, or issues related to property management or taxation. With their knowledge, a lawyer can anticipate these issues and provide practical solutions, protecting your rights and minimizing liability.
Land trusts can offer numerous benefits for protecting and managing your real estate assets. However, to ensure that you reap these benefits and avoid any potential legal pitfalls, you should seek the guidance of a qualified real estate lawyer. With their experience, you can handle the legal aspects of land trusts with confidence and peace of mind.
