A land trust is a private legal agreement that transfers a property title from the owner to a trustee. The trustee agrees to hold that title for the benefit of another party.
The creator of the trust, known as the trustor, is typically the primary beneficiary for their lifetime. This party retains complete use of the land and owns the beneficial interest thereof. Land trusts are generally revocable, meaning the trustor may modify or terminate the agreement while they are still alive.
Land trusts provide a measure of privacy. Once a land trust is completed, a public records search will no longer reveal that you are the property owner. If people don’t know you own certain assets, it could deter them from pursuing litigation against you because you won’t appear to have sufficient assets to make a suit worthwhile.
Land trusts are also a tool to avoid probate by allowing you to designate succession of ownership. You can name a contingent beneficiary who will receive the title when you die, without the cost and delay of court proceedings.
Land trusts can also facilitate multiple ownership, providing a structure for clear legal division. In some cases, they could improve lending access. Arguably, a land trust could allow you to circumvent a “due on sale” clause that would otherwise prevent you from selling property or transitioning it into an LLC without paying back financing in full, but interpretations differ on that issue.
Only six states have a land trust statute on the books (Florida, Hawaii, Illinois, Indiana, South Dakota and Virginia), but you can hold land in trust in most other states as long as the beneficiary, trustee or property is based in one of those states.
Land trusts have become less common. Today they are often replaced by living trusts and transfer on death deeds. They can be useful to real estate developers, however, and still have a place in some estate plans. Work with your estate-planning attorney to decide if a land trust is right for you.