You may have heard of a Land Trust, but do you really know what it is?
About 10 years ago, a client approached us and asked us if we could help him create an “Arizona Land Trust” so that he could purchase property in that state anonymously.
We were familiar with this type of Land Trust, but only in two states: Florida and Illinois.
But he was convinced he could do so and wasn’t too happy that what we told him he read online was not only wrong but could have gotten him in trouble.
If you’re reading this, you might be wondering if this structure is right for you.
The answer is, it depends. There are a number of factors, starting with…
What kind of Land Trust are you thinking about?
One of the problems with this subject is that there is no one “Land Trust” in the same way there’s one definition of an LLC, Roth-IRA or 401(k). When we talk about those, there’s really only one thing we can be talking about.
But when it comes to Land Trusts, there are different forms.
There’s a Conservation Land Trust. These are most often associated with things like land conservation laws, wildlife protection, water conservation, and sustainable farming. They tend to be charity-focused Land Trusts for maintaining the local environment.
You also have Community Land Trusts. They are designed to help preserve and protect land for local communities. These trusts involve community ownership, with residents having rights to the land and tax benefits for its conservation. It’s a way of protecting common property essentially.
Then there’s something called a “Family Land Trust.” This could be a Conservation Land Trust set up by a family.
In some states, Family Land Trusts are also used to provide affordable housing. The terms of the trust allow resale only to a household whose income or net worth doesn’t exceed specific guidelines.
Now, when we talk about Land Trusts, we’re specifically referring to a trust that holds title to a specific piece of property in a manner designed to protect the privacy of the buyer.
It can also be used for estate planning with respect to the property it owns, but it offers little if any asset protection.
A Land Trust designed for privacy has three parts
Grantor / Settlor: This is the person transferring the land into the trust. That’s you.
Trustee: This is the person who acts as the legal representative for the Land Trust. Because property ownership is public record, the lawyer who drafts the trust usually serves as the trustee to shield you.
Beneficiary: This is the person (or people) who benefit from trust assets. It’s usually the person setting up the trust. But family members can also be named as beneficiaries.
Why Set up a Land Trust?
There are a lot of supposed benefits on the Internet to this type of Trust, most of which is wrong (and often confused with a Living Trust.)
Basically, a Land Trust is useful if you want to accomplish the following…
#1: Keep your ownership interest anonymous
For instance, in Illinois, Land Trusts originated as a way for wealthy business owners and politicians to purchase property anonymously.
The buyer and seller make a private agreement in which the seller conveys ownership of the property to a trust set up by the buyer, rather than to the buyer directly.
The buyer’s identity is protected in this manner.
The buyer appoints a trustee who will appear as the property owner on all official documents. But the trust names the buyer as the beneficiary and gives them effective control of the property.
The trustee can only make transactions or significant decisions about the property when directed to do so by the beneficiary.
There’s no public record of the trust agreement containing the name of the beneficiary.
Whenever someone—journalist, competitor or someone who just doesn’t like you—looks up the address, they won’t find you. All they’ll see is the name of the Land Trust.
In some cases, the lawyer serving as trustee resigns and names the beneficiary – you – as the replacement trustee. This change doesn’t have to be publicly registered.
But whoever the trustee is, they have a legal responsibility to ensure that beneficiaries get full benefit from the assets in the trust.
#2: Estate Planning
As mentioned above, the beneficiary of a trust is the owner of the property themselves. But it’s possible to add extra beneficiaries like your children.
This will allow the asset held in the trust to move onto the next generation without having to go through probate.
And avoiding probate will help the kids (or whoever you want to give the land to) avoid fees and long court proceedings.
#3: Asset protection from creditors (sometimes, maybe, probably not)
There’s a lot of information about how Land Trusts can be used for asset protection.
Frankly, most of this is untrue. We’ve found articles that claim that Florida Land Trusts offer some protection in some cases, but we’re not aware of any case law and aren’t convinced by the claims we’ve read.
If asset protection is your main motivation, there are better options out there depending on which state you live in.
About the only way to add asset protection to a Land Trust set up is to take possession of the property through an LLC that is owned by your Land Trust.
But this is an advanced technique and should not be done without the help of a qualified professional. And there are some disadvantages you need to know about first.
Pros and Cons of a Land Trust
We’ve already covered some of them, but to summarize:
Advantages
- Anonymity: In some states, Land Trusts can form a useful barrier between you and snoops.
- Avoid probate: A Land Trust – like any trust including the more common (and often confused with) Living Trust – will bypass the hassles and costs of probate.
- Asset Protection: To the extent asset protection exists in a Land Trust, it’s because a creditor might not realize you own a particular piece of property. But there are better options.
Disadvantages
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It can be tough to get a mortgage
Other than Illinois, banks in most states don’t like property held in Land Trusts and don’t know what to do with them. Because of this, they might not be willing to give you a mortgage, or if they do, they might force you to do so in your own name, which destroys the privacy of the structure.
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It can be tough to get banking services
Banks need to know who their customers are. The anonymity of Land Trusts makes that hard. The banks may just refuse to offer their services as a result.
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Setup Fees
You’ll need a lawyer to draft the trust agreement. If you have a third-party trustee, that’ll be another few hundred dollars a year minimum.
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Unintended Results
If you don’t follow “the rules”, you might end up creating trouble for yourself.
Maybe you accidentally do something that ruins the privacy aspect… like getting the utility bill in your own name instead of the trust (because it’s usually easier). Or it could be more serious.
For example, going back to our Arizona Land Trust case for a moment, Arizona does not see any difference between a “normal” trust and a Land Trust. Indeed, an Arizona land deed that names a trust as buyer but doesn’t disclose the name of the beneficiary is null and void.
That means, in the worst case, you’ll have a situation where you don’t actually own the property you’ve paid for.
So if you move ahead, just be sure to:
- Have an advisor who will help you figure out if this is the best structure for you.
- Work with that advisor to make it fit your circumstances.
Land Trusts in Various States
As you’ve probably gathered by now, the concept of a Land Trust to hold property anonymously is not well supported in most states. But for the sake of completeness, here’s a list of some of the states that clients ask us about setting up a Land Trust in.
Alaska
There is no law that supports the use of a trust to hold property anonymously. Instead, clients looking for privacy and estate planning benefits might consider a Living Trust.
For asset protection, Alaska does have a Domestic Asset Protection Trust (DAPT) law. An Alaska DAPT can make it difficult for creditors to seize assets it owns, especially within the state.
Arizona
As we just discussed, it’s not possible to use a trust to hide the identity of a property buyer in the state. A better option for estate planning is a Revocable Living Trust.
For asset protection, LLCs or irrevocable trusts can be good options.
California
This state lets a trust shield the identity of a property owner, although the concept is not nearly as well developed as it is in Florida and Illinois. A better option for estate planning is a Living Trust.
For asset protection, LLCs or irrevocable trusts can be good options. Some residents use DAPTs formed in another state because California has weak asset protection laws and lacks a DAPT law.
Florida
The “Sunshine State” has a rich history of using Land Trusts to anonymize real estate ownership. We’ve also seen claims they offer asset protection, but we’re not convinced by these arguments.
There is one possible exception: both the trustee and beneficiary of a Land Trust may be able to take advantage of Florida’s unlimited homestead exemption if they live on the property.
Florida also recognizes a legal concept called “tenancy by the entireties” that protects real estate jointly owned by a married couple from creditors of one, but not both, partners.
Georgia
This state has no case law or statutes that let a Land Trust hide the identity of a property buyer. We generally suggest to Georgia clients that they use a Georgia Living Trust for estate planning and LLCs or irrevocable trusts for asset protection.
Illinois
This state has the longest tradition of using Land Trusts for privacy protection. But again, outside of any land held within a Land Trust, we’d suggest a Living Trust for estate planning, and LLCs or irrevocable trusts for asset protection.
Illinois also recognizes “tenancy by the entireties,” which protects real estate jointly owned by a married couple from creditors of one, but not both, partners.
Indiana
We’ve seen some evidence Land Trusts can be used for privacy protection in this state. But we don’t know of any case law or statutes which support the concept, so be careful.
That said, we still prefer to use a Living Trust for estate planning. Indiana does have a Domestic Asset Protection Trust law, making it a good option to hold property or other assets in the state. The state also recognizes tenancy by the entireties.
Maine
Land trusts in this state don’t offer privacy. For estate planning, we’d again suggest a Living Trust and LLCs or irrevocable trusts for asset protection.
Michigan
Like most states, neither case law nor statutes in Michigan support the use of privacy-preserving Land Trusts. We’d again suggest a Living Trust for estate planning.
Michigan has a Domestic Asset Protection Trust law, making a DAPT an option to hold property or other assets in the state. The state also recognizes tenancy by the entireties.
Minnesota
Neither case law nor statutes authorize the use of Land Trusts to protect a property owner’s privacy. Again, our preference would be to use a Living Trust for estate planning and LLCs or irrevocable trusts for asset protection.
Nevada
We’ve seen online promotions for “Nevada Land Trusts” to anonymize land ownership but haven’t found any evidence that state law or court decisions supports the concept.
Fortunately, Nevada does offer the Domestic Asset Protection Trust structure, making it a good option to hold property or other assets in the state. For estate planning, it’s again hard to beat a Nevada Living Trust in most cases.
North Carolina
You can’t use a Land Trust to hold property anonymously in North Carolina. A Living Trust is a great option for estate planning and LLCs or irrevocable trusts for asset protection. The state also recognizes the useful asset protection concept of tenancy by the entireties.
Ohio
In this state, a Land Trust is no different than any other trust and won’t protect the identity of a property purchaser. A better option for estate planning would typically be a Living Trust. Ohio has a DAPT statute, making this a good option to hold property or other assets in a protected form. And Ohio also recognizes tenancy by the entireties.
South Carolina
A South Carolina trust can’t be used to anonymize property ownership. For estate planning, a Living Trust would generally be a better option, along with LLCs or irrevocable trusts for asset protection.
Texas
In this state, trusts don’t shield the identity of a property buyer. A Texas Living Trust would generally be a better option. For estate planning, along with LLCs or irrevocable trusts for asset protection.
Utah
This state has no law supporting the idea of a Land Trust to protect the buyer’s identity. A Living Trust is a better option for estate planning. Utah does have a Domestic Asset Protection Trust statute, making this a good option to hold property or other assets in a protected form.
Wisconsin
This is another state that doesn’t allow using a trust to anonymize a real estate transaction. Again, we’d suggest a Living Trust for estate planning and LLCs or irrevocable trusts for asset protection.
Common Questions
How do you compare a Land Trust vs a Living Trust?
A Land Trust and a Living Trust are both legal structures used for privacy and estate planning, although they both generally don’t have any asset protection.
However, there are some key differences between the two.
A Land Trust is a type of trust specifically for real estate, while a Living Trust can be used to hold any personal asset.
A Land Trust offers privacy, as the beneficial owner of the trust is not publicly listed. Instead, the beneficial owner appoints a trustee to serve, in effect, as a nominee owner.
The owner uses the Land Trust to pass on assets after their death and control the beneficiaries’ access to the property and assets.
A Living Trust, on the other hand, is used to transfer assets to stated beneficiaries upon the death of the trust’s creator.
The person who creates the Living Trust usually serves as the trustee and doesn’t hide that fact.
And like a Land Trust, a Living Trust allows the trust’s creator to control how the assets are distributed and when the beneficiaries will be able to access them.
When deciding which type of trust to use, it is important to consider the assets and how they should be distributed upon death.
In states that recognize the concept, a Land Trust is best suited for real estate and other tangible assets.
In every state, a Living Trust can be used to convey any personal or business asset, including real estate, to its beneficiaries.
Can a Land Trust get a mortgage?
It’s possible but, with the exception of Illinois, it’s much more difficult. In that state, banks have figured out how to work with these structures while preserving privacy.
Does a Land Trust help with inheritance?
Yes, it can, by naming your children (or other heirs) as additional beneficiaries. However, if privacy is not so much of a concern, a Living Trust is more flexible. Whereas a Land Trust can only hold property, a Living Trust can hold all kinds of assets, including property.
Are you wondering if a Land Trust is right for you?
Feel free to get in touch with us to schedule a free no-obligation consultation with one of our Associates to see if this structure is worth having as part of your wealth protection plan.
