"‘Land Trust’ means any arrangement under which the title, both legal and equitable, to real property, is held by a trustee and the interest of the beneficiary is personal property and under which the beneficiary or any person designated in writing by the beneficiary, has the exclusive power to direct or control the trustee in dealing with the title and the exclusive control of the management, operation, renting and selling of the trust property together with the exclusive right to the earnings, avails and proceeds of said property is in the beneficiary of the trust.” (765 ILCS 430/1)
A Land Trust is a device used to hold title to real estate. It is unique to Illinois, and only available to hold real estate in the state of Illinois. A land trust, is set up so that a Trustee (usually a bank) holds title to the property, while the original owner retains all rights to the property (i.e. the ability to sell the property). The original owner will remain in control of the property as a Beneficiary. An agreement known simply as a ‘Land Trust Agreement’ governs the relationship between the Beneficiary and the Trustee. These agreements are forms granting the Power of Direction (i.e. the ability to sell the property) to a specifically named person or persons.
The advantage of the Land Trust is that you can name a Contingent Beneficiary on the Land Trust Agreement. This person is the successor to the Primary Beneficiary (usually the original owner). Thus, you have created a Probate avoiding device. Since there is a named beneficiary there is no need to transfer the property thru probate once the Primary beneficiary dies. The Property automatically transfers to the successors.
Another, lesser advantage, is that a Land Trust keeps the name of the owner of the property off of the public record. The Trustee is named as Title Holder on the Deed. This is not a fool proof way of disguising your assets, but it does provide another layer.
Banks, the usual Trustee, for a Land Trust charge a small set-up fee initially, and after that charge a small annual fee to maintain the Trust. This makes the Land Trust a relatively inexpensive estate planning tool when your primary asset is your home.
A Land Trust is not a Living Trust (in the traditional sense) and it is not governed under the same Illinois Statute that governs other trusts. It is limited in nature, and therefore is not designed to handle the complexities of a large estate. You cannot set up a land trust to give out specific bequests annually or set it up to minimize the Estate Tax or Gift Tax.
*** Also, note that whenever a property changes ownership, it may trigger a Due on Sale Clause found within an existing Mortgage. Technically, transferring a property into a Trust is an actual sale. Sometimes, Lenders, will invoke this clause written in their mortgage and inform their client (the Owner) that the loan is due. This situation does not come up often, but it is possible to get a ‘Consent’ from your lender to allow this transfer without penalty. As always consult with an attorney before setting up a trust of any sort.
© 2006 Prendergast & DelPrincipe
All writing on this website is provided for generic informational purposes and should not be construed as legal advice of any nature. An attorney or other appropriate professional should always be consulted before making decisions that may affect ones personal, legal, or financial status. |
