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Continuing with the series on tools to transfer property outside of probate and without using a trust, this piece discusses the land trust.
In Illinois, a land trust is commonly referred to as an “Illinois land trust” or a “land title trust.” A person may transfer title of his or her property into a land trust so the trustee, typically a bank and/or a title company, becomes the owner of the property and of the property title. The former property owner becomes the “beneficial owner” and the interest in the property changes to interest in personal property not real property. However, the beneficial owner is also the person holding the “power of direction” over the trustee, which means that the trustee will act with respect to the property as directed by the beneficial owner.
The difference between a land trust and a revocable living trust is that generally the trustee of a revocable living trust is responsible for the management and maintenance of the trust assets. With land trusts, the beneficial owner has the more active role.
Because a land trust is created by a private transaction between the beneficial owner and the trustee, and the beneficial owner no longer holds title, it may provide a certain amount of asset protection. However, a simple title search will allow a creditor to deduce who the beneficial owner is and, using the appropriate court action, attach a lien to the beneficial interest. Also, although the land trust removes the property out of the probate estate, it is still considered a part of the estate for estate tax purposes. Furthermore, a co-beneficiary cannot force the sale of the property.
Nevertheless, a land trust will allow a person to transfer property to a loved one without requiring them to go through probate. Individuals who are interested in using this tool should take care to ensure that they name a successor beneficiary or probate will, in fact, be required. Beneficiaries who want to remove the property from trust typically have to pay the trustee fees, but these fees are not as high as the fees that accompany probate.
