Only nine states formally recognize the land trust as a means of titling ownership of real estate, including Illinois, Hawaii, Florida, Georgia and Alabama. However, other states also acknowledge the legitimacy of this device through their recognition of trusts in general. Real estate investors all over the U.S. can take advantage of the features peculiar to this type of trust.
There are many reasons why a person might want to use a land trust to invest in real estate. As real estate investment website Deal Maker Library points out, placing the investment in a land trust provides a greater level of privacy than does a regular real estate transaction. When you buy real estate through a land trust, your name and the price you paid stay out of public records. As such, any liens or judgments against you would not be able to collect the property in the trust.
As real estate investment firm Norada Real Estate Investments explains, there are three main parties in a land trust, otherwise known as a grantor trust in states where land trusts are not recognized as such. There is the grantor -- that is, the person setting up the trust and providing instructions on how the assets should be disbursed; the trustee, who may or may not be a different person from the grantor and who holds the property in his name; and the beneficiary, usually the grantor, which can also be a corporation, partnership or other group of individuals that retains ownership of the trust's assets.
According to incorporation services firm Companies Inc., anyone in all 50 states can make use of the land trust, although not all states explicitly codify this type of transaction in its laws. Anyone who is able to enter into a legal contract may form such a trust, says property management consultancy Mr. Landlord. As long as the trust is revocable and you remain the beneficiary and do not include more than five dwellings in the trust or give rights of occupancy to other parties, you should be allowed to transfer a mortgaged property to a land trust without bank interference.
A number of advantages accompany the purchase of real estate through a land trust, apart from the privacy it affords. The land trust vehicle lets you avoid transfer taxes because the sale of a beneficial interest in a trust involves selling an interest, not the actual conveyance of real estate itself. Additionally, tax assessments are lower because the sale price is not made publicly available for assessors to access. Moreover, you sidestep lengthy and expensive probate procedures, including dividing up properties after an owner dies.
Timothea Xi has been writing business and finance articles since 2013. She has worked as an alternative investment adviser in Miami, specializing in managed futures. Xi has also worked as a stockbroker in New York City.