What Is a Land Trust?

A land trust is designed for real estate. In some cases, it might also involve mortgages, notes, etc. In its very simplest form, a land trust is an entity. This entity becomes the owner of property, but only as directed by the owner of said property.

Generally, most properties qualify for a land trust. That said, some land trusts are usually reserved for conservation and development or tax and liability reasons. Oftentimes, property investors, and those planning their estate, create land trusts due to associated benefits.

Of course, a land trust’s terms vary from one trust to the next. Understand that each one should offer terms that are specific to the needs of the individual requesting the trust. For example, depending on the type of trust, it might help preserve natural resources, maintain historical areas, bolster recreational destinations, manage undeveloped land, and more.

Overall, a land trust assumes legal ownership of the property it’s created for. It also is responsible for stewardship.

Land trust terms to know:

• Grantor: The creator of the trust and who transfers the property.
• Trustee: The manager of the trust, and who handles details of it.
• Beneficiary: The person (or people) who benefit from the trust.

Generally, the landowner assumes each of the above three roles.

Land Trust Type: Title-Holding Trust

A title-holding trust makes it possible for a landowner to enroll their property into a land trust. This offers anonymity while retaining rights to the property and its use.

A document called the “Deed in Trust” is signed by the landowner(s). This transfers the property from the landowner to the trust itself. Then, the landowner (or whoever they designate) becomes the trustee of the trust. They also determine who controls the land and the parameters of use of the land. Of course, they also set rules for income distribution the property generates within the trust.

“Putting your property in a trust is typically for liability reasons,” said Bob Stalberger, a Whitetail Properties land specialist. Depending on your net worth, you might do it to transfer to family members or heirs at time of your death.”

In addition to keeping the property out of probate, this type of land trust also protects trustees from liability concerns, such as judgements.

Those who might want a title-holding trust include:

• Anyone seeking liability protections (i.e.: judgements, liens).
• Wealthy individuals concerned with estate planning.
• Celebrities, public figures, or anyone else desiring privacy.
• Businesses and corporations who don’t want to telegraph future plans to competitors.

“To have things in trusts means you don’t own it,” Stalberger said. “The trust owns it. Your trust is an entity. Having something enrolled in a trust, if something ever happened to you.

“For example, let’s say you get in a car accident, and you [accidentally harm] someone,” Stalberger continued. “Having a property in a trust, means you don’t own it. The defendant could never come after you for your land, because you don’t own it. You’re just a trustee for the trust that holds the property.”

Trusts are especially common with farmers and larger landowners. “They’ll put their land in a trust,” Stalberger said. “If they get to a point of age where they don’t have healthcare, they can go get healthcare through the state. Let’s say they must go to a nursing home. The nursing home can’t come after the property if it’s in a trust. The trust owns it. Joe the farmer doesn’t own it. If Joe the farmer did own it, the state would require them to sell it, because they have the ability to make payments for healthcare. If they don’t own it, but the trust owns it, and they’re just a trustee, they aren’t forced to sell that. Right or wrong, they’d be able to hand down that [property]. They could have $2 million worth of land that the trust owns. If they’re on medical assistance at a nursing home, the taxpayers pay it, and the state can’t tell him to pay that bill when he dies, because he’s just a trustee of the trust. Good, bad, or indifferent, that’s the tax world we live in right now. That’s why people do it.”

Of course, there are time restrictions on when property is enrolled in a trust, and how long it must be so before it becomes sheltered from such a scenario as described above.

Land Trust Type: Conservation Trust

A land trust is quite different. It’s often associated with conservation easements. This focuses on preserving wildlife species, wild places, areas of cultural importance, etc. As mentioned, this requires relinquishing certain freedoms over the property, such as particular land uses, building developments, etc. Of course, the trust can be tailored to fit the landowners current and expected future needs, but these details must be clearly stated in the trust agreement.

“A state land trust is an easement,” Stalberger said. “It’s a perpetual easement that runs with the land. You typically can’t build houses or structures on it. It still allows you to hunt on and use it (at least in Minnesota — I can’t speak for other states). It gives you a lower tax on the property. Typically, it’s a one-time payment.”

Property income potential is another factor when deciding on a conservation trust. “What’s the income potential?” Stalberger said. “If I buy a piece of ground, could I put it in a land trust, or easement to get some payments?

Of course, once that decision is made, restrictions are applied to the property. More specifically, it places restrictions on the deed. Once in, there is no out.

For example, if the property is 100 acres, and 50 of it is tillable, those 50 acres aren’t going to be tilled anymore. It’d have to be in a wildlife planting of some sort.

“That might be fine and dandy for you, but 20 years down the road, this might limit the number of potential buyers, because they can’t put in a food plot,” Stalberger said.

If you’re going to do something like that, and enroll it in a trust, consider leaving a few acres here and there for food plots. Or, to retain the ability to lease out tillable acres to crop farmers, exclude that part of the property from the trust. Furthermore, maybe you leave a few acres for a building site. Keep these things in mind when planning.

Before deciding on this, determine what you currently use the property for. Consider future uses, too. Also, know that this will decrease the property value. After all, it’s a restriction on the deed, and these almost always minimize the resale value. For example, if the land is worth $4,000 per acre, and it’s enrolled in a trust with the state, it might become worth, say, $2,500 per acre.

“Once that’s on there, you can’t buy it out,” Stalberger said. “And it’s not like CRP where it’s a 10- or 15-year deal. You’re stuck with it, including your generation, the generation after that, and so on. So, determine if it makes sense for your goals for the property.

Another consideration is public access. In some states, and in some instances, a land trust makes it possible for people to access that land for hunting and recreation as if it’s public land. Before enrolling a property into a trust, be sure of this element, and know the details that come with the type of land trust you sign onto.

Land Trust Pros and Cons

There are many different pros and cons with land trusts. It’s important to weigh the benefits and downsides of each type of land trust before moving forward.

Pros:

• Benefits with planning an estate.
• Potentially preventing property from entering probate.
• Separating land assets from other assets.
• Protecting landowner anonymity (although not always guaranteed).
• Protecting against liability (although not always guaranteed).
• Certain types of trusts can be short- or mid-term agreements.
• Potential tax breaks (relating to conservation land trusts).

Cons:

• Potentially losing redemption rights, situation depending.
• Missing out on secondary market loans.
• Certain types of trusts cannot be changed or undone.
• Privacy can be pierced by court orders.
• Liability can still be an issue, situation depending.
• Losing certain rights and the ability to use the land in certain ways (regarding conservation-minded land trusts).

Determine If a Land Trust Is Right for You

Each landowner must decide if a land trust is right for them. This requires extensive thought, much planning, and consulting with someone who can give professional legal and financial advice on land trusts. Then, the decision is yours.

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