What is and How To Set Up a Land Trust
Anderson Business Advisors
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A land trust, or real estate land trust, is a contractual vehicle for transferring the title of a property to an appointed trustee and is typically used for?estate planning. The original property owner does not lose their claim of ownership on the property, but the trustee becomes the titleholder for legal purposes. There are many reasons why setting up a land trust can be beneficial.
First, Let’s define What a Land Trust is?
A trust in legal terms is an arrangement where a grantor or settlor gives property or an asset over to someone else to take care of and hold. The property being held is known as the principal, while the steward managing it is known as the trustee. Anyone who derives benefit from the managed asset(s) held by the trustee is called a beneficiary. In some cases, the grantor is also the beneficiary, while in others, the beneficiary (or beneficiaries) is a separate person(s).
Like any other type of trust, a land trust can be revocable or irrevocable. Irrevocable trusts require the permission of the beneficiary to make changes. These types of trusts are usually used for gifting, charitable, or inheritance purposes. By contrast, a revocable trust still permits the grantor to retain control over the asset, which means they can alter or even cancel its terms. At the same time, they are afforded many of the protections we will expand upon below.
A trust is usually a three-part relationship between the grantor and the beneficiary, connected through the stewardship of a trustee. Keep in mind that the beneficiary and the grantor can be the same person behind the legal paperwork. For example, a landowner or homeowner can appoint a trustee to handle their landed equity and appoint the landowner’s LLC or corporation as the beneficiary. However, you will need the help of an attorney to construct your beneficiary, because certain constructions (such as an LLC) can leave a paper trail that eliminates some of the benefits of setting up a land trust in the first place.
What is the History of Land Trusts?
Our modern understanding of this fiduciary relationship dates back to England at the time of the Crusades. Feudal lords making their way abroad would leave their landed property in the hands of a trustee, who would manage it in their absence. Unfortunately returning crusaders often found the trustee unwilling to return the land. Many cases were brought before the royal courts, and over time, a legal precedent around the principle of a trust was developed.
While feudalism and the crusades have come and gone, real estate land trusts have remained as a matter of particular interest to real estate investors, or anyone who wants to minimize some of the legal burdens and liabilities around owning property.
Community and Conservation Land Trusts
A community land trust usually operates as a nonprofit with an executive director as the trustee. This executive director will handle the daily concerns of the community land trust, which is often set up to protect tracts of land valued by a local?community?and to provide collective ownership over this cherished asset.
One of the more common reasons to set up a community land trust is to facilitate affordable housing options for members of the community, especially when the surrounding real estate climate has become prohibitively expensive in terms of maintaining a continuous and/or contiguous community. Sometimes the community land trust will rent out its properties to residents at affordable prices. Alternatively, it may allow the homes to be sold, but with resale restrictions that require the property to be resold at a particular pricing point.
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Conservation Land Trust
Another similar type of land trust in this vein is the conservation land trust, which can be used to preserve a particularly cherished asset such as a natural resource, impressive landscape, or historical landmark with particular significance to the community that has formed the conservation land trust. While a conservation land trust will not usually provide financial benefit to its members or investors, it can be a legal vehicle for protecting landed assets for future generations to benefit from and enjoy.
Examples of natural land or open space that would benefit from a land preservation strategy include an outdoor recreation space with a trail leading up to scenic vistas, or perhaps an island wildlife habitat. By forming a conservation land trust, local communities can come together to create a legal land conservation strategy.
What are the Benefits of establishing a Land Trust?
Below we will discuss 8 of the major benefits that a Land Trust can bring to real estate investors or property owners.
Read more about What is and How To Set Up a Land Trust.
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