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© 2016 - U.S. Legal Forms, Inc USLegal Guide to Revocable Land Trusts I NTRODUCTION A land trust aims to protect the lands and waters that define our communities and enrich our quality of life. A land trust may accomplish this through establishing and monitoring permanent conservation easements. Conservation easements are legal agreements by which landowners voluntarily limit the development potential and use of their land. The land remains in existing ownership but the easement "runs with the title" insuring that the protections remain in place regardless of who may own the land in the future. A land trust works with landowners to protect the natural values of their property and ensure that the scenic beauty of the area will be maintained for future generations. The protected property may be donated by land owners, or the trust may purchase property. A land trust's legal and real estate specialists work with landowners, government agencies, and community groups to: •create urban parks, gardens, greenways, and riverways •build livable communities by setting aside open space in the path of growth •conserve land for watershed protection, scenic beauty, and close- to-home recreation •safeguard the character of communities by preserving historic landmarks and landscapes •generate federal, state, and local conservation funding •promote the importance of public lands. Another type of land trust is allowed in some states. It is a revocable, living trust primarily used to hold title to real estate for privacy and anonymity. Mortgages, leases and other interests in land can be held in a revocable land trust. The owner of the land, called the grantor, can transfer title to a land trustee and specifies who will be the beneficial owner and who will have the power of direction over the trust. The beneficial owner has the right to use the land. The beneficiary of a revocable land trust has complete control over the property. The beneficiary manages the property, which includes collecting and distributing income, insuring the property, or directing the lease or sale of the property. The beneficiary can assign these responsibilities to the trustee. The holder of the power of direction has the right to instruct the trustee in title transactions, such as directing the trustee to transfer a deed or mortgage to someone. Typically, the beneficial interest and power of direction remains with the original owner. Unlike a regular trustee who acts according to the rules set forth in the trust, the land trustee acts only according to the direction of the holder of the power of direction. When real estate is held in a land trust, however, only the land trustee’s name is made public – not that of the trust’s beneficiary. Unless forced to do so by a court order or statute, the land trustee will not disclose this information to anyone. A land trust may generally be created in any state except Louisiana, or the District of Columbia, as long as the trustee, the property or the beneficiary of the trust is domiciled there. Land trust laws varies by state, so local laws should be consulted for specific requirements. O THER B ENEFITS Land trusts are commonly used for purposes of privacy and asset protection. They hide ownership and keep the beneficiary’s name out of the chain of title. Several states require full disclosure of the beneficiaries of a trust for a transfer of title to be valid. However, if a personal property trust is the beneficiary of the land trust the ultimate beneficiary is still not revealed. Following the chain of title would may someone to assume that the previous owner is now the beneficiary of the land trust, however, it is not guaranteed. Often, when making the original purchase a person will have the title transferred directly from the seller to the trustee. By not making the initial purchase individually, the person’s name is kept out of the chain of title and a claim of a fraudulent conveyance may be avoided. While a revocable land trust is beneficial to protect privacy, it is not an effective asset protection tool. An LLC or personal property trust may be made the beneficiary of a land trust to provide an extra measure of privacy and asset protection. A basic revocable land trust is considered a “pass thru” entity by the IRS and requires no tax return. The beneficiary reports all the results of the trust (income, expenses and depreciation) on their personal 1040 tax return. Not being required to file a separate tax return is one of the many benefits of using a Land Trust. Also, no separate bank account need be opened since all of the proceeds of rents or sales should go directly into the account of the beneficiary. It may also be possible to later sell the property without triggering a due on sale clause in a mortgage. S ELECTING A T RUSTEE You may have an individual, entity or institution serve as your trustee. Some of the considerations for picking your trustee are: integrity, trustworthiness, ease of accessibility, liability insurance coverage and maturity, among others. For example, a person may want to use an individual as the trustee to save on trust fees and because of their availability on evenings and weekends. Others may not know a trustworthy individual and prefer to use an institution or attorney. B ENEFICIARIES Most revocable land trusts are set up by a grantor who also becomes the beneficiary, or an entity that the grantor owns becomes the beneficiary. Beneficiaries typically may be changed at any time. If the grantor sets up a revocable land trust and makes someone other the grantor the beneficiary, it may be deemed that the equity in the property placed into the trust has been gifted to the beneficiary. This could generate a gift tax for any value above the $12,000 standard gift tax exemption. In some states the trustee can only be a natural person or a specially licensed trust company, and cannot also be a beneficiary. C REATING A L AND T RUST To initially create a land trust, there are three main documents involved. A Trustee’s Deed, an Agreement and Declaration of Trust, and an Assignment of Beneficial Interest. The Trustee’s Deed is the document that actually transfers title to the property into the trust. It is a variation of the standard deed that is used on traditional sales. The main thing you’ll need to obtain for this deed is the legal description for the property. You may find it in some of the seller’s loan documents or by contacting the county recorder’s office. The Agreement and Declaration of Trust defines the terms of the trust arrangement. It essentially clarifies the roles and powers of the trustee, lists who the beneficiaries of the trust are, and identifies the property in trust. An Assignment of Beneficial Interest transfers the beneficial interest, or ownership of the property, from the seller to the assignee, such as you or your corporation or LLC.