A land trust represents a type of revocable trust designed to hold real estate. While most trusts are used extensively in estate planning, land trusts have two different purposes. One purpose is to keep the identity of a real estate owner out of the public records by holding the land in a trustee’s name. The other is to hold and manage large tracts of land for present and future use. However, unlike an irrevocable trust, you retain ownership of the real estate assets that you put into a land trust.
Raw and Cleared Land
You can put raw undeveloped land or cleared land into a land trust. If you are a developer, putting large tracts of raw land into a land trust lets you hold the land anonymously until you are ready to develop or sell the land. Nonprofit groups, along with state and federal agencies, purchase raw land and hold it in a land trust. The agencies can develop select parcels for public use and set larger tracts aside for preservation, for example.
You can put your income property in a land trust as a form of lawsuit protection. If you own several income properties, you might consider putting each one into a separate trust. Should a tenant win a court judgment against you, only the property he was injured at can be used to satisfy the judgment. Your other properties are not affected. You can select an out-of-state trustee to give you additional anonymity. The idea behind separate land trusts and out-of-state trustees is to convince your tenant and his attorney that trying to find your real estate assets is not worth the time and trouble.
If you own homestead property, your personal information is recorded in the public records. If you placed your homestead property in a land trust, you considered the risk of losing your homestead exemption. You had to choose whether your personal privacy or a property tax exemption was more important. Some states have amended their statutes so that you can keep your tax exemption and place your homestead property in a land trust. For example, Florida law states that the property’s primary beneficiary, who is usually the owner, is entitled to claim the homestead exemption if the property is held in a land trust.
Land Trust Limitations
Land trusts can keep your land ownership confidential up to a point. Your name will not appear if someone checks the public records. However, if you are involved in a legal action such as a lawsuit or a divorce, that could quickly change. If you are in a deposition and asked under oath to reveal your assets, you must disclose the real estate held in the land trust or potentially face perjury charges. If you want to make your real estate assets lawsuit-proof, an estate-planning attorney can help you achieve this goal.
Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications. She received a bachelor's degree in business administration from the University of South Florida.