Land Trusts: Final Thoughts

Land Trusts:
Final Thoughts

We hope you have enjoyed this series on Land Trusts.  But alas; all good things must come to an end. We are wrapping up this series.  Then, we are going to take a couple of weeks off to compile this information into an ebook.  (Subscribe to this blog and/or follow us on Facebook or Twitter to be advised as to when this book is available.)  When we return, we'll be highlighting other  important Real Estate Law and Real Estate Investing subjects.  

Land Trusts: Summary of Advantages

Throughout this series, we have focused on all the advantages of putting properties into a Land Trust. To sum up, these advantages include:

1. Privacy: Using a Land Trust keeps property ownership private, and it keeps your name out of the public records.
2. Liability Protection: Using a Land Trust can help shield you from many frivolous lawsuits.
3. Protection from Judgements: A Land Trust helps protect your personal assets from being subject to a judgement.
4. Protection from Liens: IRS and other government judgements do NOT attach to property held in a Land Trust.
5. Avoiding Probate: Land Trusts help your assets pass DIRECTLY upon your death, rather than having to pass through probate.
6. Eases Transferability and Control: Property held in a Land Trust is much easier to sell, transfer, and manage.  This is especially true of "distressed properties," "under-water properties," and those in danger of foreclosure.
7. Minimizes Fees: Minimizes fees related to deed recording, transferring properties, title insurance, etc.
8. Eases Multiple Ownership: A Trust can have many beneficiaries.
9. Asset Protection: A Land Trust can help shield assets in case of ownership issues, such as bankruptcy or divorce.
10. Keeps Pricing Information Private:  A Land Trust helps protect your privacy regarding what individual parcels of land are worth.

Land Trusts: Summary of Concerns

1. You will need a Skilled Attorney: Few lawyers are experts when it comes to Land Trusts. You will need to find an attorney with skills and training in this area to receive the maximum benefits.
2. There are ongoing fees: A Land Trust will always have nominal ongoing fees associated with it.  After all, few Trustees are willing to do the job for free.
3. Privacy May Be Revealed with a Court Order: Although a Land Trust makes it more difficult to determine ownership, a Court can order ownership information be disclosed.
4. May Only Hold Real Property as Assets: Other forms of trusts allow multiple types of assets to be held by the trust.  A Land Trust, however, may ONLY hold real estate as assets.
5. Statutes Vary by State: Only a few States have their own, specific statutes regarding Land Trusts.  Their validity in other States relies on Case Law.  However, in those states that HAVE specific laws, you must ensure you follow them to the tee, or the Land Trust may not be valid.  Again, this is where engaging a skilled attorney is of supreme importance.

Land Trusts: Should I use One?

The choice to use a Land Trust is very individual.  No one can say definitively whether a Land Trust is the investment vehicle for you.  In writing this series, we hope we have equipped you with the tools and information you need to make this decision for yourself.  If you are leaning towards "yes," we suggest you gather your own information and documentation, and you meet with a skilled Land Trust Attorney in your area.  (If you live in the New York-Connecticut area, we'd be happy to meet with you to discuss your individual circumstances.  We offer free consultations for these purposes.)  

Again, we believe in Land Trusts.  We use them ourselves.  And as we branch out into property investments to enhance our own personal portfolio, we have begun using Land Trusts even more.  We want to invest in our own community, and we know that using Land Trusts are our most effective way of doing so.  And we live in a State that is using Land Trusts to revitalize neighborhoods and to provide affordable housing to our local workforce.  We have seen how effective Land Trusts can be, both on an individual and an organizational level.

Whether you already own real property, or there is property you have your eye on, we suggest you identify an attorney to help you now.  Having an attorney you know and trust will ease the process as you begin to accumulate property.  And you will need to interview this attorney to ensure s/he has the skills and knowledge you need.  Pick a few items from this series and use them as the basis for your interview questions.  If your prospective attorney cannot answer them to your satisfaction, move on to a lawyer who can.  

Final Thoughts

Again, we welcome your comments and feedback, whether you have been with us from the start or you are just finding this series now.  You can always find us through our website, hartelawoffice.com. We are also active on Facebook and Twitter.  We are also interested in what you would like to see in upcoming blog posts.  Do you have a burning question in the area of Real Estate Law?  Is there any topic you'd just like to learn a little more about?

Stay tuned for details on our Land Trusts e-book!

Land Trusts: Case Studies

Land Trusts: Case Studies

We’ve been looking at Community and Conservation Land Trusts for the last couple of weeks.Today, we’re going back to the Traditional Land Trust. This week, we're going to look at 5 specific examples of when a Land Trust was particularly helpful.

Case Study #1

Mike owns rental property in a suburb of Chicago.  In January, one of his tenants has visitors during a snowstorm.  One of these visitors, Mr Jones,  falls on his way out, and needs to be rushed to the hospital.  Mike thinks he is covered by his Landlord's Insurance.  However, Mr Jones's medical bills exceed the amount Mike is covered for, and Mr. Jones wants to be paid for his pain and suffering. Mr. Jones claims negligence and files suit against Mike, listing Mike's other rental properties as assets.

Mike learns an expensive lesson, and settles with Mr. Jones.  Mike goes to get an equity loan on his own mansion to pay off the victim and is denied.  Mike checks his credit report and finds his score has gone down significantly because of the personal judgement. He is unable to obtain a loan on his property and must begin liquidating personal assets.

Mike then learns about Land Trusts.  Mike forms an LLC called "Suburban Chicago Rental Apartments, LLC."  Mike places his rental properties into a Land Trust with the LLC as beneficiary.

The next winter, Mike has another slip and fall accident on his property.  Instead of being sued personally, the victim sees the property is held in trust, with an LLC instead of an individual as beneficiary.  The victim hires an "ambulance chaser" to represent him.  The attorney searches for assets, and sees the LLC has little to go after.  He advises his client to settle with the insurance company.  The victim wants to sue Mike personally, citing his lakefront mansion as an asset.  The lawyer informs the victim that Mike's personal property is off limits, as the apartments are held in trust, with the LLC as the beneficiary.  Mike knows his own home and property are safe, and that any judgement will be limited to the assets held by the trust.

Case Study #2

Lisa owns an single family house as an investment property.  She leases the property annually.  Her lease stipulates "No Pets."  Despite this, Peter the Meter Reader gets bitten by a dog on Lisa's property.  Peter hires a lawyer.

Peter's lawyer performs a property search.  He finds the property is owned by "Our House in the Woods" Land Trust.  The lawyer has to file suit against the Trustee, who is out of state.  The Lawyer cannot find someone to depose.  He is unable to easily find out who is the beneficiary of the trust, who in this case, is an LLC in a third state.  He does find out who holds the mortgage: a loan company in a fourth state.

Peter asks his lawyer about using "service by publication" to get a judgement.  The lawyer tells Peter that this case is too involved, and is not worth pursuing on a contingency basis.  He tells Peter he can pay a large retainer, but the costs would most likely outweigh any financial benefits Peter would see.  

Case Study #3

Bob and Linda both live in a very small town, where everyone knows everyone else.  Bob and Linda both make their living as landlords, renting a variety of different types of housing.  Linda, however, uses Land Trusts for her real estate holdings; Bob does not.

Both Bob and Linda have the misfortune of hitting runaway dogs, Bob on the South-side, and Linda in the West End.  Both dog owners want to sue, so they see their small town lawyer, Mr. Lincoln.  Mr. Lincoln starts by running their names.  When Mr. Lincoln enters Bob's name into the database, he gets over 50 matches.  His eyes widen, and he says "I think we have a VERY good case here!"  I'll take your case on a contingency basis.  I think we can BOTH make a little money here.  Conversely, when Mr. Lincoln runs Linda's name, he gets zero results.  Linda's investment properties are all held in a Land Trust.  Mr. Lincoln says "I'm not really seeing any assets we can attach here.  I'm not sure we really have a case."

Case Study #4

Twins Harry and Larry's Aunt passes and leaves each twin a large sum of money. Each decides to use his share for a down-payment on a new house.  Both intend to finance the remainder with a typical mortgage.  Larry decides to go the traditional route, while Harry decides to use a Land Trust for his property.  Harry ensures the Trustee signs all of the financing documents.  Larry decides finance in his own name, and he signs all the loan documents himself.  The documents are recorded, and each brother moves into his own house.

Six months later, Larry calls Harry in a panic.  He needs to borrow some money from Harry, as all his own accounts have been frozen.  Larry confesses he has been the victim of Identity Theft, and because of this, his finances are a mess.  He needs Harry to cover him while he tries to straighten his financial mess out.  A year later, Larry is really lucky, as the police have actually managed to track down the identity thief. It's a disgruntled former lover of the Aunt's, bound for revenge, as he feels Harry and Larry inherited what should be rightfully his. The thief confesses that the twins' new houses angered him so much, he vowed to take them away.

The thief confesses he stole Larry's information from his public record mortgage documents.  Once he had Larry's address and personal information, it was easy to use social engineering to get what else he needed.  Obtaining a financial document with Larry's signature allowed him to practice his forging skills until it was easy to send letters in Larry's name, with a perfectly matching forged signature. He even used this information to file "Change of Address" notifications on several of Larry's existing credit cards. 

The thief confesses he wanted to steal Harry's information as well, but found it much harder to do. Despite knowing Harry's new address, the thief couldn't find Harry's information in the property database.  He could not find mortgage documents in Harry's name, nor easily find anything with his signature.  Because of this, he got frustrated and left Harry alone. When Larry discovers the Land Trust protected Harry from identity theft, he asks his brother to help him develop his own Land Trust.  

Case Study #5

Marie is a single lady who just happens to earn her living as a Landlord.  She owns multiple properties, each held in a Land Trust.  Marie buys a new apartment building, puts it into trust, then makes arrangements to not renew tenant leases so that she can renovate the building.  She appoints her attorney as Trustee.

Arthur is a tenant in Marie's new building.  He has lived there for several years and does not want to move.  Arthur decides to find the owner of the building to express his contempt at the prospect of eviction.  He finds the trustee's name in the courthouse records, stomps down to his office, and demands to speak with the owner of the property.  The lawyer responds "It's owned by a trust."  When the angry tenant demands the owner's name and address, the trustee replies "We are not allowed to give out that information."  When Arthur throws a tantrum, the trustee calls the Police and has him trespassed off the property.

Marie learned the hard way to put her properties into Land Trusts.  When Marie was just starting out, she was set up on a blind date.  She declined a second date with the individual, and the individual started stalking her.  This man looked Marie up in the property database and found she owned 5 rental properties.  Mike began hanging out at the rental properties, harassing her tenants for her personal information, trying to get to Marie through her tenants.  Marie sought the help and advice of a lawyer, originally to perhaps obtain a restraining order.  The lawyer suggested Marie start using Land Trusts, so that future stalkers could not try to terrorize her through her properties.  Today, running Marie's name in the property database returns zero results.  Marie managed to protect herself from harassment simply by the use of a Land Trust.

Summary

This week, we examined five different situations where using a Land Trust was extremely beneficial. These case studies highlighted the privacy and asset protections a Land Trust can endow.  We also saw how the use of a Land Trust can enhance personal security.

Thus far, we have focused on the use of Land Trusts for property investors.  We also discussed how Land Trusts are also being used for conservation, neighborhood enhancement, and affordable housing.  We’ve also looked at specific examples of how all types of Land Trusts are being used.

As always, we invite you to submit comment and feedback.  You may use the comment form below, or contact us on our Social Networks by using the Facebook, Twitter, and G+ links in the sidebar.  We also invite you to reach out to us through our websites, www.hartelawoffice.com or harterealestatelaw.com.   We welcome questions and comments about this series, about Land Trusts, or any other area in which we practice.  We want all of OUR readers, clients, and friends to be Harrys, NOT Larrys!

Community Land Trusts Part III: Stories and Resources

Community Land Trusts:
Stories and Resources

Last week, we discussed how to form a Community Land Trust, a specific type of Land Trust.  Today, we'll see how Community Land Trusts are being implemented in various parts of the country.  We'll also discuss some resources for support and information once the trust has been formed.

Land Trusts in Action

Maryland

There are several Community Land Trusts in Baltimore, MD.  The Charm City Land Trust, Inc. formed around the turn of the Century, has been buying up vacant lots for years. The Northeast Land Initiative and New Park Heights Community Development Corp. have similar goals.  The three are non-profit groups that develop and oversee affordable housing, as well as community assets such as playgrounds and gardens.  All three groups sell property with ground leases.  There are income eligibility requirements for purchase, and specific guidelines and caps for resale of any property held in the trust.  Baltimore is using the Land Trusts to try to reduce the stock of vacant, crumbling buildings, to fight the housing shortage for middle-income workers, and to promote true, mixed-income type of neighborhoods.  

Nearby Frederick County is the home of Maryland's first successful community Land Trust. Baltimore is looking to their successes and issues in implementing their models. To qualify, Frederick residents have to earn less than 80% of the county's median income, which is currently about $107,000 per year.  In Frederick, any resale profit is split between the buyer and the trust, with the trust receiving 60%. The Frederick Trust is a subsidiary of Habitat for Humanity.

(Source: Community Land Trusts Make their Pitch: www.baltimoresun.com/business/real-estate/wonk/bs-bz-community-land-trust-20151130-story.html)

Oregon State

Oregon's largest trust, the Southern Oregon Land Conservancy, was formed in 1978. By the turn of the century, there were over 20 active Land Trusts in Oregon.  

The Three Rivers Land Conservancy is one of these trusts.  Its purpose is to try to conserve open land and access to natural resources in a rapidly growing, urban area.  They focus on the Southern part of the Portland Metropolitan Area, one of the few parts of the district that still has open space to preserve.  Created in 1991, they are building a system of green-spaces and trails to give residents access to natural settings within the urban environment.  Rather than focusing on large parcels, this trust has dozens of smaller properties. totaling over 160 acres.  Most of their land remains undeveloped.  They also make use of conservation easements to expand the areas they protect.

(source: The Oregon Story: http://www.opb.org/programs/oregonstory/land_trusts/index.html)

Pennsylvania

Pennsylvania has The Pensylvania Land Trust Association, also known as PALTA.  According to their website: "The Pennsylvania Land Trust Association was created by land trust volunteers and staff who recognized the need for an association that can focus on the broad needs of the conservation movement—to take on activities that no one organization could effectively handle or wish to handle on its own."  PALTA started as an informal network in 1991.  They incorporated as a non-profit in 1995, and today, they have more than 100,000 Pennsylvanians as members and contributors.

PALTA not only works to preserve land; they also work to foster conservation policy throughout the state.  PALTA also sponsors educational programs and offers support through webinars.

(Source: Pennsylvania Land Trust Association: http://conserveland.org/)

Florida

Florida has over 10 Community Land Trusts, including ones in both Palm Beach County and Broward County.  Palm Beach County is both one of Florida's richest counties and one of the poorest. Broward County, home to the Miami Metropolitan Area, has a similar socio-economic spread. 

The Community Land Trust of Palm Beach County focuses on affordable housing.  Those who qualify sign 99 year land leases, and the trust retains title to the underlying property.  The trust focuses on helping people build equity, qualify for mortgages, and learn about all the benefits of homeownership, while capping the equity participants build.  Participants are looking to build equity and stability, rather than seeing a return on an investment.

TheSouth Florida Community Land Trust in  Broward County operates similarly.  Putting participants in a trust-owned home with a mortgage generally saves them about $500 to $800 a month in rent. Initial purchase prices are about a third of the price of buying a similar home NOT owned by the trust.  

Both programs allow people to buy homes at below-market values. To qualify, residents must not make more than 120 percent of the area median income. They must also have steady employment and good credit.  These trusts tend to focus on workforce housing.  They want to help people stay in Florida, rather than flee the state for a place with a lower cost of living.  

(Source: The Sun Sentinel :http://www.sun-sentinel.com/business/realestate/fl-land-trust-affordable-housing-20150710-story.html)

Connecticut

Connecticut has the third most Land Trusts of any state in the country, significant especially because Connecticut is one of the country's smallest states.  There are over 130 conservation trusts alone.  Many of these smaller trusts are affiliated with the Connecticut Land Conservation Council (CLCC). Created in 2006, CLCC represents the merger of two previous organizations, one which focused on advocacy and the other that provided technical support to conservation trusts.    According to their website, "CLCC's mission is to advocate for land preservation, stewardship and funding, and ensure the long-term strength and viability of the land conservation community. The intent of CLCC is to enable our conservation community to better learn from each other and to even more effectively advocate for critical issues at the State Capitol."  CLCC holds an annual conference.  They also provide grants and assist Connecticut-based trusts to obtain funding.

A list of Connecticut Land Trusts can be found here:  http://www.ctconservation.org/findalandtrust

(source: CLCC: http://www.ctconservation.org/)

Connecticut also has several Community Land Trusts that focus on housing.  In fact, the State itself sponsors a Land Trust/Land Bank through the Department of Housing.  P.A. 87-441 "provides eligible applicants with grants, loans and deferred loans for the costs of acquiring land or interest in land and the costs of holding and managing land to be developed as housing for low and moderate-income families."  DOH has an open application process, meaning applications are accepted any time.  Funding is available to organizations to acquire  "real property for the purpose of providing for existing and future housing needs of very low, low and moderate income families."

(Source: Connecticut State Government: http://www.ct.gov/doh/cwp/view.asp?a=4513&q=530484)

Litchfield has provided affordable housing through a trust for over 25 years.  Since 1989, this trust has developed over 48 homes.  According to their website "The Litchfield Housing Trust was created to strengthen our community by advocating, facilitating, and developing housing so that Litchfield could once again become affordable families of all income levels."  They offer rentals as well.  To qualify,  the applicant must have a gross family income below 80 percent of area Median Family Income.  If they are interested in ownership, they must be able to qualify for a mortgage.  This trust builds up its inventory both through purchases and donations.

(Source: Litchfield Housing Trust :http://litchfieldhousingtrust.org/)

In 2005, inspired by Litchfield, a group of citizens in Sharon decided to organize their own housing trust.  They formed a group, looked aat similar programs in Salisbury and Cornwall, then modeled themselves after the Litchfield Trust.  The mission of the Sharon Housing Trust, Inc. is "to provide permanently affordable home ownership to low and moderate-income households members of the Sharon community."  

Thus far, the trust has only developed one property.  In 2005, they received a donated parcel, and were able to sell it by 2007.  They have identified a site for their second home, and are now screening potential buyers.  The Sharon Housing Trust will require sweat equity from participants.  

The Sharon trust cobbled together its initial funding through donations, matching donations, and State grants.  They received  a $100,000 grant through the DOH program described earlier.

(Source: Sharon Housing Trust: http://www.sharonhousingtrust.org/)

Land Trust Resources

There are a number of non-profit organizations with the sole purpose of providing support to Community Land Trusts.  Three of the most well known are the Land Trust Alliance, National Community Land Trust Network, and Community Wealth.

Community Wealth: www.community-wealth.org

According to their website, "Community-wealth.org houses an extensive collection of resources focused on Community Land Trusts and their role in community wealth building. "  Here you can find a wealth of resources.  They have a policy section, a best practices section, a toolbox, and a wealth of articles and stories about how trust princiiples are being implemented.  They also have a lot of facts, figures, and statistics that may be helpful in developing your own trust's pitch.  They also have a large section on funding resources.

The National Community Land Trust Network: www.cltnetwork.org

CLT Network is another resource powerhouse.  Their primary goal is to develop resources for folks developing or wanting to start a community trust.  They also have a wealth of information on their website.  They offer training, advocacy, networking, and funding information.  They also sponsor an active forum so that members can learn from each other and "do not have to reinvent the wheel."  They offer newsletters to keep folks up to date with all the developments happening across the nation.  They also offer technical assistance and help people develop all the things that go along with building a Community Trust.

The Land Trust Alliance: http://www.landtrustalliance.org/

The Land Trust Alliance offers resources for conservation trusts.  According to their website:

The Alliance brings its more than 1,100 member land trusts together — and increases each one’s success.  We advocate for the policies and incentives that it takes to save millions of acres every year. We’re the go-to source for training for people who work in conservation — so land trusts get more done. We back up land trusts when the places they promise to protect are threatened. And we support land trusts in connecting more people to the land.

They also offer an extensive "learning center," filled with everything you'd ever want to know about setting up or maintaining a conservation trust.    They also sponsor trainings and publish a newsletter.

Summary

This week we continued exploring Community Land Trusts.  We looked at how these types of trusts are being implemented in several states, including Connecticut, Oregon, Pennsylvania, and Connecticut.  We also learned about some National Non-profits who aim to support all types of community and conservation Land Trusts.  

The next couple of posts will wrap up everything you need to know about Land Trusts.  Then we'll take a couple of weeks off to compile our course into an e-book, for even easier reading. Watch this blog space for information about the book.

Being Connecticut residents ourselves, here at The Law Offices of Heath D Harte, we are very proud of Connecticut's trusts.  We have all types here: investment Land Trusts, Conservation Land Trusts, Housing Trusts, Regional Trusts, and local Trusts.  Our own State Government believes in using Land Trusts as a solution, as is evidenced by their open application process for state funds.  Like Palm Beach County, we have a wide range of socio-economic status in Connecticut, and we'd like to keep our own talent in-state.   We have seen the utility of ALL types of trusts, and we believe investors can benefit from participation in all of these types.  It is why we've spent so much of our energy developing our Real Estate Law practice.  We also believe successful investors can reduce their tax obligations through donating to non-investment trusts, while also significantly improving their own communities.  And as always, we look forward to assisting you with all your Real Estate Law needs, including setting up Land Trusts.

Part II: The Community Land Trust

Part II: The Community Land Trust
Setting Up a Community Land Trust

Last week, we started learning about Community and Conservation Land Trusts, and how these types of trusts are preserving communities.  This week, we'll talk about how one goes about starting a Community Land Trust.  Future posts will talk about how these types of trusts are being used across the country.

How To Set Up a Community Land Trust

Step One: Determine Your Goals

So you want to start a Community trust.  Why?  What types of goals do you hope to accomplish?  Are you looking to preserve affordable housing?  Preserve open space for recreation?  Do you wish to provide amenities not easily found in the area?  Who are you hoping to serve? Low income individuals?  Middle class? Service workers? First-time homeowners?  Nature lovers?  Boaters?

As with anything, your first step involves delineating your plans.  This will help guide you through the rest of the list of things you need to do.  Remember, these types of trusts always have one thing in common: they serve some sort of public benefit. Beyond that, your trust may have a very narrow focus, or it may have broader goals.

Many community trusts focus on housing.  However, others choose to focus on Day Care, recreation, or building parks and playgrounds.  Waterfront areas may develop trusts for community docks, swim areas, or fishing access.  Some trusts focus on preserving hiking or biking trails.  Historic districts may use trusts to preserve their "character."  Community trusts are not just limited to providing affordable housing.

People less experienced with building trusts may want to begin with a  more narrow focus.  Starting smaller may help lead to greater initial success.  

Step Two: Recruit an Organizing Committee

Most Community Land Trusts are non-profit organizations.  Many communities already have established groups that might be interested in sponsoring the trust. Once you have the goals outlined, the next step is to either find an established group to work with or to form your own, brand-new group.  Whichever option you choose, you'll want a committee to help.

When forming this organizing committee, keep your overall goals in mind, and try to invite people with skills and resources in those areas to join your group.  If you decide to form a new, non-profit, try to invite someone with expertise in this area to join your group.  If you are partnering with an existing group, your steering committee will consist of your people, plus a few from that established group.

In addition to forming the 501(c)3, your steering committee will need to raise the initial funds to get your trust off the ground.  This means you'll need at least one person with fundraising experience.  Funds may come from a variety of sources, including government grants, foundation grants, fundraisers, and good old donations. It is always helpful to have a philanthropist on your initial Board.  Real Estate personnel, builders, developers, and other people familiar with local regulations are also helpful.  If you cannot recruit such individuals for your steering committee, do not give up. Many National Non-profits began as small, grassroots clubs.  As you grow your trust, you can continue to try to recruit people to join your Board.

Step Three: Refine Your Goals and Beneficiaries

Now you have a committee together, it's time to refine your goals further.  Who exactly will the Trust serve?  And in what geographical area(s) will you provide services?  Will there be  income requirements or residency requirements for beneficiaries?  Again, this relates back to the purpose of your trust.  

If you are focusing on housing, you will need to define your terms concretely.  If you are targeting "service workers," exactly who qualifies? Teachers? Fire Fighters? Police? Bus Drivers?  If you are targeting "the middle class," what exactly does that mean in your area?  If you are trying to preserve housing, must a potential beneficiary already live in a certain neighborhood, or will you accept people looking to move there?  If you are providing work force housing, must they be employed within a certain mile radius? And what happens if they lose that job?  Do they lose the housing too?  

If you are focusing on recreation, similar questions apply.  Are you providing trails for anyone, or for just the town residents?  Will someone need a membership card to use a trust-owned dock?  If so, who qualifies for membership?  Are there financial considerations, residential considerations, or both?  

If you decide to partner with an existing group, they may already have criteria for membership.  You may have to adapt your initial goals to be more in line with those of the organization.  Steering committee members may have ideas for funding sources, to which you'll need to bend your initial goals.  

Step 4: Organize and Formalize

You've made a plan, recruited an organizing committee, and refined that plan.  Now it's time to organize.  It's time to elect a Board of Directors, designate staff roles, and start filing the paperwork.

If you are working with an established group, you may not need a separate Board of Directors.  But you will still need to determine positions and roles.  If you will have any paid staff, you will need to write job descriptions and determine the chain of command.  Even with an all-volunteer group, you'll need to delineate roles and responsibilities, as well as who reports to whom.  You may need to break into committees and sub-committees and appoint committee chairs.

You'll also need to decide the structure for beneficiaries.  Will this be a "membership" group?  If so, what are the criteria for membership?  Are there dues to join?  Or will you require "sweat equity." Will they need to apply for membership? Is the membership limited in number, or is it unlimited? Will you have wait lists?

If you are establishing your own non-profit, you'll need to complete your 501(c)3 application.  It's best to do this BEFORE you start fundraising so that donations are tax deductible.  And of course, you'll need to name your trust, as well as figure out where your group will be physically located.  You may need to look for donated space, at first, until you've raised enough money to get your own.  This is also the time to recruit volunteers to help you develop your outreach materials.  Business located in your service area that may benefit from your activities are a good source for donations.  Businesses can donate either goods, like paper for flyers, or actual services, like a designer to help with flyers.

Step Five: Solicit Donations and Funding

Now you have the basics of your trust together, you need some actual land.  And to get land, you will need to raise funds.  Funding can come from a variety of sources. These include Federal and Local Government grants, tax credit programs, corporate donations, individual donations, matching grant programs, private land donations, Foundation grants, sales, galas, and special events.  

Many organizations like to plan a public initial fundraiser in the form of a local event. This can be something as lush as a black tie dinner or something as small as a car wash at the local High School. The purpose here is to market the new organization and to solicit volunteers as much as it is to raise funds.  A public fundraiser markets your group's goals and purposes, and helps the group find both donors and beneficiaries.  It can also help to expand the pool of volunteers.  

Again, soliciting entities in the community that may benefit from the trust's goals is key during this phase.  You must sell your organization at the same time you are raising funds to make it a reality. This is probably the most important phase of starting your trust, as well as the most frustrating.  But it is this phase that will ultimately mean success or failure.  

Step Six: Acquire Assets

Now you have yourself formally established, and you've raised some funds, it's time to start meeting your goals.  A Land Trust must consist of real property.  Now is the time to start acquiring that land.

Of course, the assets you acquire will depend on the goals of your trust.  If you are building playgrounds, you'll need to find some empty lots in a suitable area.  If you are focused on housing, now is the time to acquire land for housing units, and maybe even a few blighted buildings.  If you're developing community gardens, it's time to find spots to put them. Once you've acquired the property, it is time to develop or redevelop that property.

But the real property is not the only asset you need to acquire.  With a Community Land Trust, your beneficiaries are one of your greatest assets.  While you are obtaining land, you need to be recruiting members as well.  And depending on your model. these members may be key in helping you to redevelop that land so that it meets the goals of your trust.

And of course, all the information we reviewed about setting up a Land Trust applies here.  Once your organization acquires the Real Property, the parcels are all put into a Land Trust.  The basic steps for setting up a Land Trust all apply here.

Step Seven: Keep Repeating Steps Three, Five, and Six

A successful Community Land Trust needs to be self-sustaining.  Your group will need to keep fundraising to keep it alive.  And as the Community Land Trust matures, you'll need to keep reassessing your goals, service areas, and beneficiaries.  And hopefully, you will be successful enough to keep building your assets.  Whether that means you start with a quarter acre lot and 4 garden plots, and grow that to 6 acres and 2 dozen plots, or you start with 2 apartments and grow that into an entire building, a successful trust will expand to meet the community's needs.  You may start with a neighborhood and expand to serve an entire city.  

Likewise, you should always be looking to expand your stable of volunteers.  Your volunteer needs may change as you peak and plateau.  Your membership requirements will likewise change.  You may find your trust requires more "sweat equity" from beneficiaries than you initially thought.  

Your group may want to broaden their focus as your trust grows.  Committee and sub-committee needs will change.  Building your trust will be an ongoing cycle of building, recruiting, fundraising, and assessing.  That is just par for the course.

Summary

This week  we reviewed the steps needed to set up a Community Land Trust.  The steps for setting up a Conservation Land Trust are virtually the same, the only difference really is the trust's goals.  A Conservation Trust is really just a specific sort of Community Land Trust.  And a Community Land Trust is a specific type of Land Trust, with the beneficiaries serving some sort of public interest.

Our own offices are located in Stamford Connecticut and White Plains, New York.  Both are cities with a wide range of diversity.  We have the very rich, the very poor, and all income levels in between.    Both areas are Urban-Suburban areas, just a hop, skip, and a jump from more rural-suburban locales.  Our area is ripe for all sorts of Community and Conservation trusts, especially as public recreation areas are being lost to in-fill developments.

We truly believe that Community Land Trusts can improve the quality of life for people across the spectrum in our area.  In fact, it is becoming harder for the middle class here, as there is more housing available at either end of the spectrum than there is in the middle.  We are seeing more trusts being developed every year.  And each and every one is an asset to the area.On the lower end of the scale, people are organizing to try to stay in the area their family has lived for generations.  On the upper end, we see more people taking advantage of the tax benefits participating in community trusts can bring.

We hope you are enjoying this series, thus far.  As always, we welcome your feedback.  Questions can be submitted here or on our website at HarteLawOffice.com Or you may reach us through Facebook, Twitter, or Google+.

Whether you are an investor or a philanthropist, Land Trusts of all kinds can help you reach your goals, and we are here to help.  We can even help you locate properties for any type of Land Trust.  Please contact us today.  We'd love to help you with your Land Trust.

The Community Land Trust

The Community Land Trust

Thus far, we have been discussing the traditional Land Trust, built on the Illinois model.  However, there is a second type of Land Trust, and any discussion of Land Trusts would be remiss without a mention.  Today, we'll be looking at the Community Land Trust.

What is a Community Land Trust?

A community Land Trust is is a non-profit organization that focuses on preserving community amenities for the locals.  Some Community Land Trusts focus on conserving land, open space, or other natural resources, while others focus on maintaining and developing community assets like affordable housing, gardens, parks, or playgrounds.  Other trusts focus on preserving farm land, and protecting it from being converted to housing developments.  The trust acquires land on behalf of the community and retains it, in trust, for perpetuity.  It then can lease the land, develop the land, or protect the land from ever being developed in any way.

In 1992, the US Federal Government codified the Community Land Trust in The Housing and Community Development Act.  (https://en.wikisource.org/wiki/Housing_and_Community_Development_Act_of_1992/Title_II#Sec._213._Housing_Education_and_Organizational_Support_for_Community_Land_Trusts.) This Act says “The term ``community land trust´´ means a community housing development organization that is not sponsored by a for-profit organization; that: acquires parcels of land, held in perpetuity, primarily for conveyance under long-term ground leases; transfers ownership of any structural improvements located on such leased parcels to the lessees; and retains a preemptive option to purchase any such structural improvement at a price determined by formula that is designed to ensure that the improvement remains affordable to low- and moderate-income families in perpetuity.”

In 2011, there were approximately 242 Community Land Trusts, containing over 10,000 housing units.  82% of their residents had incomes over 50% below the local average.  (http://community-wealth.org/strategies/panel/clts/index.html)

What is a Conservation Land Trust?

A conservation Land Trust operates similarly to a Community Land Trust, but it's sole purpose is to protect land in its natural state, to protect land from development and urbanization, and to protect natural resources.  These may be small, local organizations or huge, International conglomerates. 

Perhaps the best known Conservation Land Trust is The Nature Conservancy. Often times, Conservation Trusts acquire land through donation.  The land owner will deed the land to the Conservation Trust in exchange for a large tax break.  In some jurisdictions, developers may donate land to a Conservation Trust in order to receive “credits” that allow them to develop other land in the same locality.

How Do These Trusts Benefit a Land Owner?

There are many reasons a land owner may choose to participate in a Community Land Trust.  Some of these are outlined below.

Financial Incentives

Many people choose to join these types of trusts for financial reasons.  First, there are huge tax incentives that come with donating land to a trust.  Second, there may be financial reasons to sell part of ones land to a trust.  Often, that serves the purpose of buffering ones land from development while still being able to enjoy the use of ones land.  This is especially true of farm land in rapidly urbanizing areas.

Sometimes, land is purchased with the intent of rezoning.  If the rezoning fails, especially if it fails due to public uproar, selling the land to a Community or Conservation Trust allows an investor to recoup the money outlaid.  It is often the best way to avoid having a perceived “useless property” in ones portfolio.  

Many times, a Trust will make an offer on a property just to protect its future use. In these cases, the Trust may pay above what one could get for the parcel on “the open market.”

Many localities are now offering developer incentives for donating land to trusts.  In many locales, a developer may receive incentives in another area for donating a parcel to a trust.  The developer may donate parcel A in order to receive concessions on Parcel B.  In some areas, that may mean increased density.  In others, developers receive permission to clear land for conserving different land.  

Finally, donating part of ones land to a trust may result in lower property taxes for years to come. Your donation may include an agreement that allows you to still “use” the land.  However, since you no longer own it, you will no longer be taxed on that portion of the land.  

Protection of Future Land Use

Many land owners choose to protect their land through a conservation easement. This is a legal agreement between the owner and a Land Trust that permanently limits uses of the land in order to protect its conservation values.  In most cases, the owner retains his ability to own, use, and sell this land, as well as pass it down to heirs.  

The terms of each conservation easement are individually negotiated.  However, they must include some sort of public benefit.   Benefits are simple, and include such things as preserving views, preserving access to waterfront, protecting wild life and/or its habitat, historic preservation, or even something as simple as protecting public space.  

Conservation easements can include provisions for future use.  For example, you may negotiate the future right to subdivide the parcel, or even to convert a portion to housing.  However, if you want to ensure your future heirs don't cut down all the trees on the Southwest corner, you can protect the future life of those trees with a conservation easement.  You can use a Conservation Easement to prevent your heirs from paving paradise to put up a parking lot.

Protect a Community

Many people are lamenting the affluenza epidemic that is attacking America.  Cities are rapidly gentrifying, and the middle class is rapidly being squeezed out of many places.  Many of our service workers can no longer afford to live in the areas they serve.  A lot of folks want to protect their communities from over-gentrification. The Community Land Trust is a fantastic way to do so. Community members can form trusts to buy up land and prevent it from being sold to the highest bidder.  

Habitat for Humanity is one of the largest organizations built on this model. However, Local Community Trusts are being established across the country every day.  These trusts benefit the community in many ways.  They offer opportunities for first time home-buyers, and allow young people to establish themselves in communities they could not otherwise afford.  In addition to protecting areas, trusts can help revitalize them.  Trusts often buy up properties in blighted neighborhoods with the goal of making that area vital again.  They provide housing for teachers, firefighters, and veterans.  And in many cases, they allow people to stay in the area in which they grew up.

Philanthropy

Many people like leaving some sort of legacy.  Establishing a community trust is one of the more affordable ways to do so.  While an individual might not be able to afford to have their name on the wing of a hospital, they may be able to leave the community a park.  While the Carnegies may have left a legacy of libraries, Mr. Jones may choose to donate a small pocket park to his community. Future generations will remember him when they play under the trees in Jones Park.  And though the donation may be made for vanity purposes, the donor will still reap a myriad of financial benefits from the donation.

Summary

This week, we learned about Community and Conservation Land Trusts.  These are a specific type of Land Trust, set up to promote the public good.  But although charitable in nature, these types of trusts still financially benefit the donors in many ways.

Next week, we'll continue to examine the Community Land Trust.  Future posts will talk about how these land trusts are being used across the US, and about how you go about setting up or contributing to one.

Here at the Law Offices of Heath D Harte, we truly believe in building communities.  Real estate is an important component of community building and revitalization.  Effective real estate investors know how to build their own net worth while investing in the local community.  We believe ALL types of Land Trusts can help an individual become successful with Real Estate.  As your portfolio grows, you will need to balance your tax liabilities.  Using Community Land Trusts, you may increase your own bottom line while growing your community.  

Many Land Trust courses only focus on using the Illinois Model to grow your own net worth. However, the judicious use of Land Trusts can balance your investment properties with investments in the community itself.  That, in turn, will help your other community investments to grow in value. One type of Land Trust can grow your investment in another.  This is why it is important to be aware of both types.

As always, we invite your comments, questions, and general feedback.  Please use the comment form below, or connect with us on Facebook, Twitter, and Google+ using the links in the sidebar.  And as always, we are here to help you with all of your Land Trust  and Real Estate Law needs.  Please visit us at HarteRealEstateLaw.com or HarteLawOffice.com, or contact us and let us know how we can help.

Drawbacks to Land Trusts

Drawbacks to Land Trusts

In previous posts, we've learned all about Land Trusts and how to form them. By now, you may be thinking that Land Trusts are the greatest thing to come along since sliced bread. And Land Trusts offer many benefits. But nothing in this world is all good. Land Trusts have some disadvantages too.

This week, we're going to review some of these drawbacks.  Next week, we'll go back to the positives.  But there are limitations to Land Trusts that are important to consider.

There is no such thing as “100%” Protection for Any Asset

No asset can be completely protected, and of course, this applies to real estate in a trust as well.  Let's face it.  We live in a litigious society where anyone can sue for anything they want.  People often go so far as to hire investigators to uncover hidden assets they can possibly attach for judgments.  While Land Trusts make it more difficult to find the assets, and protect them from being found in a cursory search, a skilled investigator will work to find the beneficiaries of the trust.  

Again, this is why many people choose to put their assets, including real estate, into an LLC. However, if the LLC is sued, real estate  WILL be considered a part of that LLC's assets.  Likewise, if an individual is listed as beneficiary, the properties in a trust can be considered to be amongst that person's assets.  While putting real estate into a trust makes it more difficult to find the beneficiary, Federal Regulations ensure it is not impossible.  This is especially true for assets in a revocable trust, which is why Land Trusts should be formed as irrevocable, whenever practical.

Assets Held in Trust are NOT Exempt from Financial Disclosure Requirements

Oftentimes, an individual is deposed, under oath, during the course of legal actions. You may be deposed as part of a lawsuit or during a legal separation.  You may be asked for a list of ALL assets during the deposition process.  If so, you MUST disclose assets held in trust, Land Trusts included. Failure to disclose your Land Trust assets can be considered perjury.  

Timing Can Be Important

The timing related to developing the trust can matter too.  If you have pending litigation or are contemplating separation from a spouse, it is not a good time to be putting assets into trust.  You must avoid the appearance of impropriety.  Should your spouse file for divorce close to the time the trust is formed, you could be charged with hiding assets.  Similarly, if you form a trust while legal or financial action is pending, you could be accused of fraud for attempting to hide assets. Thus, it is important to plan proactively, and to form the trust before you are in the middle of such issues.

Insurance and Financing Can Be More Difficult

Many insurers, lenders, and mortgage companies are reluctant to get involved with Land Trusts.  It can also be harder to refinance real estate held in a trust.  Some mortgagers will require you to take the real estate out of the trust before they will consider refinancing.  This will require additional fees and paperwork.  Of course, you can always put the property back into trust after refinancing, but again, there will be additional fees and paperwork.  It may also be more difficult, or even impossible to get a traditional equity loan on property held in a Land Trust.

Requirements Can Be Different in Different States

Because few states have their own Land Trust Statutes, mistakes can be made when forming the trust that do not become apparent for years.  Additionally, because trusts are often formed in a different state than where the real estate property is held, multiple state statutes may apply.  This is especially true if the trustee and beneficiary live in different states.  Great care must be taken when forming the trust to avoid such mistakes.  And case law from the applicable states must be carefully considered.  

For example, the State of California requires the Trustee to have specific duties and obligations.  It requires a more active role than the traditional Illinois model usually includes.  The State of Texas requires a trustee to be licensed and bonded for the trust to be considered valid.  

This is where working with a skilled attorney is especially important.  You do not want to go through the work and expense of creating a Land Trust, only for the courts to find it invalid.  (Here at the Law Offices of Heath D. Harte, we carefully research the requirements and precedents set in EVERY STATE involved with the Land Trust to avoid these types of issues. However, not all so-called Real Estate Attorneys have this type of expertise.  If your Land Trust involves multiple States, your choice of attorney is even more crucial.)

It May Impact Homesteading

Many States have Homestead Exemptions for a primary residence to reduce your tax obligations.  If you have such an exemption, it is important to investigate if putting your property into a Land Trust will effect that exemption.  Again, this differs according to locality.  In some states, you are able to put your primary residence into trust and maintain your homestead exemption.  In others, this is not true.  

Again, your lawyer will be able to advise you if this will impact your situation.  But this is an important point to research if you are considering putting your home into a trust.  It is not a concern for real estate investment properties that do not qualify for homesteading.

Likewise, the US Government still has a homesteading program.  Most of us think of “Little House on the Prairie” when it comes to homesteading.  Today's homesteading program usually applies to derelict properties in urban areas.  Many real estate investors look at this homesteading program as an avenue to acquire housing.  Since homesteading requires BOTH residency and renovation to acquire title to the property, homes acquired through this program cannot be put into trust.  

There are Costs and Fees Associated With Land Trusts

There will always be annual costs and fees for any Land Trust.  And these costs apply throughout its life.  Most trustees receive compensation for their services.  In states that require Trustees take a more active role, the fees will be higher.  Of course, we strongly believe that the benefits outweigh the costs.  But there will always be ongoing costs and fees associated with maintaining the trust.  

Summary

This week, we discussed some of the drawbacks of Land Trusts, as well as things to consider before putting real estate property in to a Land Trust.  Although a Land Trust enhances your privacy, ownership can be determined through comprehensive investigation.  A Land Trust can help to protect your assets, but in certain circumstances, these assets can still be attached.  Insurance, financing, and refinancing can be more onerous, and it may involve taking the property out of trust. Putting your primary residence into trust may effect homesteading, in certain states, and state requirements for trusts may be confusing.  Finally, there are ongoing costs involved with running the trust.

However, as we've discussed in previous posts, the benefits outweigh the drawbacks in many cases. We will continue to highlight these benefits in our next post.

We truly believe in the utility of land trusts at The Law Offices of Heath D Harte.  We are real estate property investors ourselves, and we have found our Land Trusts to be helpful in many ways.  If you are considering your own Land Trust, you do not have to wait until this series is over to contact us. We are here to help you with all of your Real Estate Law needs, Land Trusts included.

We invite you to send your questions to us by visiting www.HarteRealEstateLaw.com and using the contact us form.  You may also follow our Land Trust series on Facebook, Twitter, & G+ by selecting the respective icons on the bottom of our web page.  www.HarteRealEstateLaw.com

Setting up a Land Trust, Part 2

Setting Up a Land Trust, Part 2

Our last post detailed the steps you need to take to set up a Land Trust.  As promised, we are continuing this week with some specific examples.

Land Trust Agreement Samples

Now you know what a Land Trust is, as well as what goes into forming one, it's time to see some samples.  Land Trust Agreements are filled with legal boilerplate, as are most legal documents.  However, their contents boil down to what we've discussed already.  Again, we cannot stress the importance of consulting with an attorney when drawing up your own trust.  These samples are not meant to be "do it yourself forms" in any way, but rather, are provided as concrete examples of what goes into a Land Trust.  They are provided for informational purposes only.  They may also be helpful for organizing your information so you will be prepared when you meet with your own lawyer.

ATG Trust Sample Trust Agreement Sample

ATG Trust Trustee Deed Sample

Emarquette Bank Trust Outline Sample

Emarquette Bank Trust Agreement Sample

First Midwest Trust Agreement Sample

Investor Insights Trust Agreement Sample

Sample Trustee Deed

Chicago Land Trust Company Trust Agreement Sample

Again, these samples are being provided for reference purposes only.  They are NOT supposed to represent any type of "Do-it-Yourself" type kit.  We strongly suggest you consult with a skilled attorney when trying to create your own trust documents.  

We have provided a zipped folder with copies of these samples, if you prefer to download them to read.  This file is stored on our Google Drive.  

Summary:

This post was a continuation of last week's post.  Last week, we discussed all of the steps in developing your own Land Trust, including how and when to consult with your lawyer along the way.  This week, we examined some specific Land Trust Samples, to help make this topic a little more concrete for our readers.  These included sample Trust Agreements, as well as sample Deed Agreements.  Most of these samples were full of legal boilerplate type language.  Your attorney will probably have similar boilerplate forms to be used when developing your own trust.  However, these samples can be valuable in helping you organize your information so that you can be prepared during your own consultation with your attorney.  

Next week, we will continue our series on Land Trusts.  Future posts will delve into the pros and cons a little further, as well as discuss some "real life examples" in which Land Trusts are being used.

As always, The Law Offices of Heath D Harte is here to help you with all of your trust-related and real estate legal needs.  Feel free to contact us at any time to discuss your own trust needs.

Setting Up a Land Trust: Steps and Samples

Setting Up a Land Trust: Steps and Samples

Now that we understand the concept of Land Trusts, it's time to make things a little more concrete. Today we'll discuss the specific steps you need to take to develop your trust.  We'll also look at some sample templates that you can use to develop the trust.  As always, you really should consult with a qualified attorney when taking these steps.  

How To Set Up a Land Trust: Steps

Step 1: Draft A Trust Agreement

The second part of this post contains some sample trust agreements so you can see what a typical agreement looks like.  Although these samples are being provided to give you an idea of what a trust agreement contains, it is extremely important that you work with an attorney on this step.  Your attorney will know the specific verbiage needed in the state you want to establish the trust.  In fact, your attorney will help you to complete all of the steps described hereafter.  But it is important to know what the steps are so that you can bring the proper information and paperwork to your attorney. The next couple of steps talk about what you need to help your lawyer "fill in the blanks."

Step Two: Designate the Grantor and the Trustee

This is important: who is putting the land into the trust, and who will be the trustee? Now you may ask, aren't I the grantor?  Possibly.  However, investors often ask the seller to put a piece of real estate in trust when they contract to purchase.  When the property closes, the investor just amends the trust, naming himself/herself as beneficiary.  You personally may never take title to a property.  Rather, the property is moved into a trust pre-purchase, and the trust is amended upon closing.  In this case, the grantor is the current deed holder, rather than you.

The trustee is a very important decision.  Many entities can act as Trustee.  And the fees differ significantly according to who you appoint.  There are companies whose entire business revolves around being paid trustees for a Land Trust.  Banks, property managers, lawyers, and Investment Managers are other possible choices.    One of the biggest choices is will you use an institutional or a private trustee.  Institutional trustees usually have set fee structures, and these are usually higher than those charged by private trustees.  Costs are more negotiable with private trustees as well.

When meeting with your attorney to discuss developing the trust, you may want to inquire if s/he ever acts as a Trustee.  If the answer is yes, ask about his/her fee structures for doing so.  If the answer is no, ask who the attorney recommends you appoint as trustee.  If your attorney can neither suggest possible trustees nor personally acts as a Trustee, you may NOT have selected the appropriate attorney to develop your trust.  In this case, you may want to interview other attorneys before proceeding further.  (You can always contact us, The Law Offices of Heath D Harte.  We can help you with all your Land Trust needs.)

Remember, the trustee is the administrator or manager of your trust.  The trustee needs to be someone you can trust yourself, hence the name.  In addition, if you appoint a private Trustee, it should be a person with a different last name.  Your attorney will advise you whether the place you are setting up the trust requires that the Trustee be in the same State.  We cannot emphasize the importance of selecting the RIGHT Trustee enough.

Step Three: Name The Trust

Again, consult with an attorney while completing this step.  Ideally, you want to keep your name out of the trust.  However, in some jurisdictions, it is easier/preferable to use the beneficiaries' name(s) in the name of the trust.  If you are trying to keep ownership private, it is best to leave your name out of the trust's name.  A "classic" Illinois Land Trust generally uses a generic trust name.

Step Four: Determine Type: Revocable or Irrevocable

This is another crucial step, and will depend on your intents and purposes.  Most trusts are set up as irrevocable.  However, an irrevocable trust cannot be amended in any way.  You cannot change any of the terms until the trust expires or all its assets have been removed.

You may amend a revocable trust.  You may change beneficiaries, trustees, etc.  So if you think you're going to want to change anything at all, the trust must be set up to be revocable.  

We previously discussed the example of an investor asking a seller to put a property into trust before going to closing.  In this case, you would need a revocable trust.  However, in most cases, Land Trusts are set up as irrevocable.  Your attorney will advise you on what is appropriate for your specific situation.

Step 5: Name the Beneficiary

Again, this may not be as straightforward as it seems.  Depending on your intents and purposes, you may be the beneficiary, a corporation or LLC may be a beneficiary, or the beneficiary may be a number of people.   

The Chicago Land Trust Company has put together a sample list of "Beneficial Interest Designations" that show the types of beneficiaries a Land Trust may have.  It is embedded below:

As you can see, naming a beneficiary can be quite complex.  But a skilled attorney can help you match your named beneficiaries to your overall intents.

Step Six: Name the Director

Think of the Director as the CEO of the trust.  The Director is the person who dictates how the trusts' assets are handled.  Typically, the beneficiary is named as Director.  If the beneficiary is an LLC, typically the director of the LLC would act as the Director for the trust.  This is probably the most straightforward step in the process, and the one that requires the least amount of consideration.

Step Seven: Name Successor Beneficiaries

As we saw in step 5, naming beneficiaries can be quite complex.  Adding to the confusion is the question of successor beneficiaries.  Successor beneficiaries can be thought of contingencies, should a "main" beneficiary die.  For example, an aging parent might name a child as a beneficiary, to help that child avoid paying Estate Taxes and probate costs.  That child's child may be named as a successor beneficiary, should something happen to the original beneficiary before the trust expires.

With a revocable trust, successor beneficiaries may be changed at any time.  However with an irrevocable trust, successor beneficiaries must stay the same throughout the period the trust runs.  Thus, this is another area requiring careful thought and consideration.  And it is another area that warrants thorough discussion with your attorney, particularly if you are using a Land Trust to help structure your estate.

Step Eight: Name Successor Trustees

Just as with the beneficiaries, you want a "Plan B" in place, just in case something happens to the trustee.  A primary trustee might become ill, retire, or just up and quit.  You need a plan in place should that happen.  This is especially crucial if you choose a Private (rather than Institutional) trustee.

Again, with a revocable trust, things can be changed later.  It is much easier to replace a trustee after a trust has been formed.  But things are more set in stone with irrevocable trusts.  You cannot amend the trustee once the trust has been established.  Even with an institutional trustee, you need a sucessor named.  Companies go bankrupt or out of business; you do not want your trust to go up in smoke just because the trustee does.

An attorney can be especially helpful when it comes to finding and naming successor trustees.  This is absolutely a step in the process that cannot be overlooked.

Step Nine: Designate the State

Your particular needs will dictate in which state the trust is formed.  It is not necessary in all cases to establish the trust in the state the property is located.  In many cases, it is advantageous to set up your trust in a different state.  And of course, the state in which the trust is established will form the basis for the statutes upon which it is based.

If all the land in the trust is in one state, it may be best to establish the Land Trust in that state.  If there are properties from different states in the trust, the issue becomes more complex.  Many investors choose to set up trusts in Illinois with institutional trustees.  Investors also prefer to set up their trusts in states with clear statutes.  Some states require the trust be established in the state where the land is physically located.  This is another area in which your attorney is key.  A skilled Land Trust Attorney should make the recommendation to you, once you have presented him/her with the parcels to be included in the trust.

Step Ten: List the Trust Assets

Finally, it's time to list the real estate that will form the Land Trust.  Some people prefer to set up individual Land Trusts for each parcel of real property.  Others include multiple properties in their trust.  The decision to set up one vs. many Land Trusts will, of course, depend on your purposes.  If your primary purpose is tax management, you will want to confer with both an accountant and an attorney before finalizing any trust agreements.  If it is more for estate management reasons, consulting with an attorney will suffice.

Step Eleven: Finalize the Paperwork

The process is finally reaching its end.  Once you have drawn up the agreement, named the Trust, appointed a Trustee, named successors, designated beneficiaries, named successors, designated a Director, listed the supporting state statutes, and listed all the assets, you should have the Trust Agreement in hand, ready to be executed, as well as the Deed of Trust.  (The Trust Agreement should be dated BEFORE the Deed of Trust.)  Now it is time to get everything signed and notarized. (Of course, always read the documents through thoroughly BEFORE signing the final papers.)

Now that the paperwork is signed, it's time to record the documents.  ONLY the Deed of Trust gets recorded.  The Trust Agreement remains private, locked up in the file cabinets of you, your attorney, and the Trustee.

Step Twelve: Insure the Properties

This is the final step in the Land Trust process, and a step that many people overlook: insure the properties.  Placing a property in a trust does not negate insurance obligations.  You have done this much to protect yourself and your assets; don't forget this important final step.

Land Trust Agreement Samples

Next week, we will continue this post.  Check back to see several examples of Land Trust Deeds and Agreements.  Again, we cannot stress the importance of consulting with an attorney when drawing up your own trust.  And remember, here at the Law Offices of Heath D Harte we are Land Trust Experts.  Contact us if you want to discuss your Land Trust plans.

As always, please use the comments section below to ask any questions.  You may also contact us through Twitter or Facebook.

The Illinois Land Trust

This week, we continue our series on Land Trusts. Today, we are focusing on the Illinois Land Trust, the trust agreement that forms the basis for all modern American Land Trusts.

The Illinois Land Trust

Any discussion of Land Trusts would be incomplete without a discussion of The Illinois Land Trust. Now, as we learned last week, Land Trusts date back to Roman times. However, Illinois was the first US state to formalize land trusts, and all Land Trusts in the US are based on the Illinois Land Trust. They have influenced US Land Trust development so much that ALL land trusts in states without specific statutes to support them refer to any land trust as an Illinois Land Trust.

The Illinois Land Trust Model

The mid-1800s were notable for the development of railroads across the US. Railroad Magnates were some of the first American businessmen to begin utilizing land trusts for property acquisition. The land the companies needed to lay the actual tracks was very often put into a land trust.

In the late 1800s, the city of Chicago began expanding. This period saw the first skyscrapers being built in the city, and the local aldermen had to consider numerous building project proposals. Many of these aldermen wanted to grab their own piece of the proverbial pie and invest in the burgeoning city. Unfortunately, aldermen were banned from voting on any project in which they held any type of financial interest. Additionally, they couldn't vote on any project if they owned land nearby. In order to skirt this rule, the aldermen began using Land Trusts to hide these financial interests.

Of course, this led to the validity of such trusts being questioned. Litigation ensued, and the Supreme Court of Illinois upheld the trusts' validity. However, the court decreed that in order for these trusts to be valid, the trustee must have an active, rather than a passive role. The trustee must have some sort of duties, however minor, for the set up to be valid. Thus, the trustees doing what the beneficiaries direct them to do is considered enough of a “duty” to constitute an active role.

The Illinois Land Trust is based on common law, originally English, but widely followed in the US in the 1800s. It has been further refined and validated by case law over the last century. The Illinois Model is a revocable trust, with its primary purpose being to hold title to property. Its primary purpose is NOT to operate a business or to make money under the law. Thus, it is not eligible for things like Chapter 11 Bankruptcy Reorganization. The Illinois model differs from the common law model in that in an Illinois land trust, the trustee has both legal and equitable title. (In the common law model, the trustee has legal title, while the beneficiary has equitable title.) In the Illinois Land Trust, the beneficiary has a personal property interest only.

The Illinois Model was the first to define a Land Trust, as well as state it consists of a Trust Agreement and a Deed in Trust. Typically, the Illinois Land Trust is for a 20 year period. Historically, banks acted as trustees, but few do this any more. In Illinois, there is a title company whose sole business is to act as trustee. In many cases, a lawyer may act as trustee. It is appropriate for an entity to receive a nominal fee for acting as the trustee.

Over the last 100+ years, the Courts in Illinois have continued to uphold the validity of land trusts. Some notable cases are: Robinson vs. The Chicago National Bank (1961), Chicago Federal Savings and Loan Association vs. Cacciatore (1962) and BA Mortgage vs. Aerican National Bank and Trust (1989.)

The Illinois Model in Other States

Of course, the Illinois Land Trust is the basis of statutes in the State of Illinois. But Illinois is not the only state to have statutes relating to Land Trusts. Now, Illinois, Florida, Georgia, Hawaii, Indiana, North Dakota, and Virginia all have state statutes relating to Land Trusts. Arizona, California, and Ohio have upheld Land Trusts through case law. (In California, Land Trusts are referred to as “Title Holding Trusts.”) Montana, Kansas, and Massachusetts have also upheld Land Trusts in court cases. In most states, the validity of Land Trusts is supported by common law. Only Tennessee and Louisiana specifically do not recognize Land Trusts.

Whether you live in a state that has a specific statute or not, it is ALWAYS best to speak with a qualified attorney when contemplating a Land Trust. And this attorney needs to have a specific expertise in Land Trusts, as opposed to just trusts in general. This attorney should know about how local courts have ruled in Land Trust cases, as well as how courts across the country have treated Land Trusts. Again, the Illinois Land Trust forms the basis of case law in all states, but especially in states without their own specific statutes. In states with specific statutes, it is imperative your lawyer is familiar with all the nuances of the state-specific laws as well as court precedents.

The Illinois Land Trust and Real Estate Investors

Despite the fact its stated purpose is “to hold title to property,” there is nothing that precludes an investor from using a Land Trust. In fact, many Real Estate Investment Clubs (REICs) form trusts with the members being the beneficiaries. Florida does place some different restrictions on corporate owned Land Trusts, but these exist only to clarify legal responsibilities for different land-associated liabilities. They are not designed to deter the use of a land trust in any way, shape, or form. Walt Disney would never have acquired the land needed for Disney World without the use of a Land Trust. In fact, we specifically recommend Real Estate Investors consider using Land Trusts in conjunction with real estate investments. Later posts will elaborate on why Land Trusts for investors are a very good thing.

Summary

In this article, we reviewed the Illinois Land Trust model, its history, and its applicability to Land Trusts in other states. We discussed how the Illinois Model provides the basis for Land Trusts in most other states.

We will continue to delve into Land Trusts in the coming weeks, and we will elaborate on the use of Land Trusts with investment properties. We will also focus a little more on the pros and cons, and what a Land Trust can and cannot do for you. As always, we recommend you consult an attorney when trying to implement anything you have learned here. This series can only cover generalities; nothing here should be construed as legal advice, and by reading this, you have not initiated an attorney-client relationship. We would be happy to discuss such a relationship, and should you wish to have one, you may contact our offices.

And again, please use the comment form below to ask us any general questions you may have about Land Trusts or anything contained in our blog posts. You may also reach out to us through G+, Twitter, or Facebook (links in the sidebar.) We look forward to continuing this journey with you in the coming weeks.

Introduction to Land Trusts

Introduction to Land Trusts

Trusts

Before getting into the specifics of Land Trusts, it is important to understand the concept of trusts. According to the dictionary, the legal definition of trust is “confidence placed in a person by making that person the nominal owner of property to be held or used for the benefit of one or more others.” (Dictionary,com) It lists “safekeeping, care, protection, and custody as synonyms.

Simply put, a trust is an arrangement that allows a third party, called a trustee, to hold assets on behalf of a beneficiary or beneficiaries. It is a legal document that spells out the rules for how you want assets handled. A trust separates the legal ownership of an asset from the enjoyment of that asset. The trustee has responsibility for managing and maintaining the goods, while the beneficiaries get to use those goods.

Trusts are separate legal entities, like a corporation or LLC is a separate legal entity. Trusts hold resources. They can help protect those resources from creditors. Trusts are also used to protect assets for heirs. Trusts dictate how and when assets pass to beneficiaries. They can help one avoid probate costs and avoid capital gains taxes. Trusts can also help one keep his chattel private. Trusts allow assets to pass outside of probate, thus keeping the assets out of the public record.

Trusts are revocable or irrevocable. An irrevocable trust cannot be altered by the grantor after execution. Conversely, a revocable trust is more flexible and may be dissolved at any time. However, revocable trusts are generally subject to estate taxes whereas irrevocable trusts usually are not. An irrevocable trust is generally protected from legal judgments against you as well. Thus, an irrevocable trust is generally preferred if your goal is to remove assets from your estate or to reduce estate taxes and probate costs for heirs.

Each state has different laws related to trusts. Thus, your first step in creating a trust is to consult with a knowledgeable attorney.

Land Trusts

A land trust is one specific type of trust agreement. Essentially, a Land Trust is an agreement in which a trustee holds title to real estate for the benefit of another party. And although a Land Trust is a legal agreement, it is not a “recorded document.” Instead, they are declared through a “deed to trustee.” Thus, the specific properties that form the trust are kept private. The deed conveying the property does not identify the parties involved, but rather just assigns the beneficial interest under the trust.

Land trusts have been around since the Roman Empire. During the Elizabethan era in England, Land Trusts were used to avoid Military service. During feudal times, land ownership came with many obligations, including fighting for the King. Nobles would form land trusts to hide their ownership, and thus, avoid its associated obligations. Today, land trusts provide similar shelter from owner identification. Likewise, the transfer of the property to the land trust does not require the payment of transfer or recording fees. You also retain tax benefits like seniors' exemptions or homestead exemptions even though the trust now owns the property. You retain all property owning rights, including the right to mortgage, rent, improve, or live on the land. However, activities associated with that land do not effect tor personal holdings any more. Financial transactions associated with the land will no longer effect your credit report. Liens and judgments against you will not attach to the property. Liens and judgments against the property will not attach to your personal credit.

Land Trusts can be especially beneficial when there are multiple owners of a single property. First, it makes it easier for one owner to sell their share of a property to another owner. Second, it protects co-owners from being impacted by another co-owner's financial distresses. It protects the other owners' interest should one investor need to file bankruptcy, as it takes the property out of that individual's asset pool. The trust dictates what happens to the shares should a shareholder pass away. And it makes completing all associated paperwork easier, as documents only require the signature of the trustor, rather than needing all involved parties to sign.

Land Trusts are of particular interest to investors, as it allows folks to discreetly buy land. This may be a large tract of land for redevelopment purposes, or it may be a number of small parcels. (Rumor has it that Walt Disney used land trusts to purchase the needed acreage for his Florida theme park. By using the trust, it obscured his identity so that folks would not know Disney was planning a huge park, thus driving up the land costs.) Setting up a trust can be particularly helpful when buying land in many states, or land in a state in which none of the beneficiaries reside. Again, a Land Trust absolves one of individual responsibilities and instead, puts all of the burdens on the trust itself. The trust handles the taxes, paperwork, association fees, etc.; the beneficiaries just sit back and reap the benefits of enjoying the land.

Most land trusts are formed for a specific period of time. At the end of the period, they either expire or are extended. The trust agreement itself should specify what happens if the trust agreement is allowed to expire.

Like with any other trust, the first step in developing a Land Trust is consulting with a skilled attorney. You, of course, should be armed with the basic information, including who will be the trustor, the trustees, and the beneficiaries. In addition, you should have a good idea of the property or type of properties you will be including in the trust, whether these are properties you currently own or are hoping to obtain. You should have an idea of whether they are for personal use, or if they will be used commercially or rented. Your attorney will then prepare the trust agreement, as well as handle the deed transfers and document recording. It is important to select an attorney skilled in preparing Land Trusts, as few are trained in this area. Depending on where you live, your attorney may suggest you establish your Land Trust in a different state. (This will all be explored in greater depth in a later article.)

In sum, a Land Trust is a simple legal agreement that moves ownership of real estate from an individual to a separate legal entity, while allowing you to retain all of the benefits associated with owning the land. Responsibilities move from the individual to the legal trust. You are no longer associated with that property in any legal way; instead, the trust entity assumes all the legal obligations of property ownership. You are no longer listed as owner in any property databases, and the property essentially separates itself from your estate. Still, you still enjoy all the benefits of owning that particular piece of real estate.


This article discussed the general concept of trusts and Land Trusts, and it introduced some of the reasons one might want to form a land trust. Subsequent chapters will discuss these reasons a little more in-depth. Later chapters will also delve a little more into the history of land trusts, including the Illinois Land Trust, state considerations, pros and cons, tax benefits, and frequently asked questions. Please follow this blog to be notified when additional chapters are posted. You may subscribe to the blog by using the form in the right sidebar, or follow us on Facebook, Twitter, or G+ to be notified when new chapters post. We look forward to exploring Land Trusts with you in the future.

Land Trusts

Land Trusts:

Prologue

Happy New Year to all of our readers.  To start the New Year, we'd like to introduce you to a guest blogger: Laurel Nevans.  She has been a Home Owner for decades, and now, she is considering becoming an investor.  However, she had never explored the idea of Land Trusts until recently. Laurel is interested in building a rental portfolio in Florida, an area particularly ripe for real estate investment.  When we asked her if she'd ever considered investigating a Land Trust, she confessed she knew nothing about them.

Laurel has generously agreed to work with us to inform our readers. As she learns all about the ins and outs of Real Estate Trusts, she'd like to invite our readers along on the journey.  As we open 2016, we'll all learn about  the ins and outs of Land Trusts.  We will start by reviewing exactly what is a land trust.  From there, we will learn about when it might be beneficial to set up a land trust, as well as when a land trust might not be the best choice.  We will review the pros and cons of land trusts, as well as a lawyer’s role in developing one.  We'll discuss some Frequently Asked Questions (FAQs) about Land Trusts, and we'll answer reader's questions.  We'll also discuss whether Land Trusts are good investment vehicles, and what are the limitations.  When we are finished, we will compile all of the information into an easy to reference ebook, including document samples.

Of course, none of this should  be construed as legal advice.    You should always consult with an attorney in your jurisdiction before taking action as a result of the information given to you here.  The information that will be given to you here will help prepare you to meet with an attorney and make informed questions as well as give you a better idea of what an attorney can and cannot do for you.

We invite all of our readers to take this journey along with us.  To be notified when new articles are posted, please follow us.  You may subscribe to the blog using the subscription form in the right sidebar, or you may follow us on Facebook, G+ or Twitter to be notified when new chapters are posted.

We also invite all of our readers to submit questions to be answered in future posts. Please submit questions using the comment section of this article.  You may also tweet us your questions or comment on the associated Facebook post.

Here at the Law Offices of Heath D Harte, we get a lot of inquiries about Land Trusts.  Although a lot of people are knowledgeable about real estate in general, we find few are aware of the benefits of Land Trusts or the intricacies involved with setting up trusts.  Hence, we hope you will take this journey with us to fill the gaps in your knowledge.  Please invite your friends and colleagues to join us.