Friday, July 26, 2013

What is a Land Trust?

I received a comment on a recent blog about using a Land Trust to purchase and to transfer property. A land trust can be a convenient and inexpensive way in which a buyer may take title to a property.

"Land trust" means any agreement where a use or trust is declared of any real property, for the use or benefit of any beneficiary, under which the title to real property, both legal and equitable, is held by a trustee.

"Beneficial interest" means any interest, regardless of how minimal, in a land trust, held by a trustee for the benefit of beneficiaries of such land trust. "Holders of the power of direction" have the authority to direct the trustee to convey, execute a mortgage, distribute proceeds of sale or financing, and execute documents related to the land trust. These "holders" may be person(s) with a beneficial interest in the trust.

Land trusts are considered by many to possess distinct advantages over other methods of ownership of real property.  

Land trusts are especially helpful when the privacy of the beneficiaries is to be protected, or kept as confidential as possible. The interests of beneficiaries may not be disclosed without a court order.

It is simple to transfer beneficial interest. And they are a good way to transfer title by adding or changing beneficiaries of the trust, without having to apply for new loans which are typically due on sale with the transfer of title. 

Personal judgments against the beneficiary do not become liens on the trust's real estate. Financing is facilitated, either by the trustee obtaining mortgage loans secured solely by the trust property, or by the beneficiary pledging his beneficial interest as personal property, and both trustee and beneficiary can be kept free from personal liability. 

In addition there are estate plan advantages to ownership of beneficial interests in real estate held in a land trust rather than the real estate itself. The beneficiary may distribute his interest by a gift, sale or by testamentary disposition without affecting trust title to the real estate or partition of the real estate. 

Not all lenders will lend to a business trust when purchasing a property, so good to ask your lender about this in advance of taking title to a property this way. Of course, you may always quit claim it to a land trust after you purchase.

I am not an attorney, and this should not be construed as legal advice. Always seek the assistance of a legal professional, if you are putting together a land trust agreement. Please contact me if you are interested in seeing a form used for Collateral Assignment of Beneficial Interest.

Happy investing!

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