Land Trusts

Illinois Land Trusts
by Vince Tolve, Executive Vice President and General Counsel, Lakeside Bank, Chicago, Illinois

        The Illinois land trust is easy to establish and inexpensive to maintain. It is a method of real estate ownership in which a trustee holds legal title to real estate, while the trust’s beneficiary has full power to dispose of the property and complete control over its management. (This page is a service of FamilyEstate Illinois.) Given the benefits it offers and its low cost, it ought to be considered by anyone who owns or plans to acquire real estate. Here are some reasons:

Privacy

        Not everyone wants to be a public figure. But if you own real estate in your own name, it is likely your name (and its connection to that particular piece of real estate) will appear in a public records office where it will be available to anyone who wants to find out the owner of the property. With many public records now available on computer data bases, anyone (including a growing number of telemarketers) with a computer can find out who just bought expensive home or prime piece of commercial property. When your real estate is held in a land trust, however, only the land trustee’s name is made public – not that of the trust’s beneficiary. And, unless forced to do so by a court order or statute, the land trustee will not disclose this important information to anyone.

Succession

        A beneficiary of a land trust can pass his or her interest to someone else by a simple assignment of the beneficial interest – there is no need for a deed which would become a part of the public record. Land trusts may also be used to obviate some of the delays and expense associated with probate proceedings. A land trust beneficiary may designate in the trust agreement a successor in the event of death. The successor need only establish the death of the beneficiary to immediately take over his or her interest. No intervention of a court is necessary.
        Also, an estate’s size may be reduced by making gifts of partial interests in a land trust. If the value of the interest given to each donee is less than the annual gift tax exclusion of $12,000 ($24,000 for married couples) a valuable piece of real estate can be given away tax free, and escape inclusion in the beneficiary’s estate. These features make the land trust a flexible and invaluable tool for an estate planner whether the focus of the plan is making lifetime gifts, or after-death transfers.

Litigation

        Being sued, losing the case, and having a judgment entered are no longer rare occurrences. Judgments are automatic liens against the real estate owned by the parties they are entered against. But beneficiaries of land trusts do not own real estate – their trustees do. Judgments against beneficiaries are not necessarily automatic liens against the real estate held in trust, allowing that property to be sold, gifted or financed when otherwise it might be difficult or impossible to do so.

        A probate proceeding can be costly and time-consuming. Two (or more) such proceedings would be very burdensome. Since real estate is governed by the law of the state in which it is located, the survivors of a decedent who owned real estate in two or more states may be faced with ancillary probate proceedings. Since the beneficiary’s interest in an Illinois land trust is legally regarded as personal property and only the land trustee holds title to real estate, a single probate court handling a deceased beneficiary’s estate may be competent to administer all of the assets wherever they are located.

Flexibility

        Any legally competent person or legal entity such as a corporation, partnership, general or limited, or limited liability company can become the beneficiary of a land trust. Any number entities or persons can simultaneously share the beneficial interest. Married couples, who otherwise qualify, may hold their beneficial interests as tenants by the entirety. Any number of different parcels of real estate may be owned by the same land trust. Since the beneficiaries do not own legal title to real estate, matters which would encumber that title, such as judgments in litigation, divorce, bankruptcy, and others, may not prevent the real estate from being conveyed. The trust lends itself to special uses as well. For example, co-operative housing corporations may elect to hold title to their land and buildings in a land trust. They could then issue beneficial interests to their residents in place of stock certificates – simplifying control and record keeping.

Financing

        Pledging your real estate as collateral for a loan connects your name in the public record not only with the real estate, but also with the amount of the debt against it. Holding the property in a land trust requires only the trustee to sign the mortgage – preserving important confidentiality. For lenders, taking an assignment of the beneficial interest of the land trust as collateral for their loan affords them an unequaled amount of control over their borrower’s ability to transfer or further encumber the property with more debt. The land trustee will not execute documents involving the property without the lender’s written consent.

Getting Started

         If the owner of real estate wishes to create a land trust a trust agreement and a deed-in trust needs to be prepared. The trust agreement, signed by the beneficiaries and the trustee, sets out the details of the relationship between them. The deed-in-trust places the property into the trust and subjects the real estate to the terms of the trust agreement. The beneficiaries continue to manage, control, and derive benefits from the property while the realizing the advantages the land trust offers. If new property is being purchased, the seller executes a deed-in-trust to transfer the property into the buyer’s trust.
        Institutional land trustees typically charge according to a fee schedule which takes into account the type of property to be placed into trust, and its value. Residential properties are charged less than commercial. An acceptance fee is assessed when the trust is opened and an annual maintenance fee accrues thereafter. As an example, an institutional land trustee, for a home valued at $250,000, may charge $100 to open the trust and $75 per year to maintain it. There may be additional charges to execute documents. For the largest properties, fees are generally negotiated on a case-by-case basis.

        All information provided in this website is of a general nature and is not intended, nor should it be construed, as legal advice. You should not act or rely upon the information herein without professional advice after a thorough examination of the facts of each situation. Although we strive to provide accurate, up to date information, there is no guarantee that it is accurate on the date it is received or that it will continue to be accurate.

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