In Illinois, property owners have access to what is called an Illinois Land Trust. It is specific to the state of Illinois and five other states in the country, and provides title to a trustee while the beneficiary of the land enjoys the rights of owning the land. It is both an asset protection tool and an estate planning tool.
Today, we explain when your clients might consider using an Illinois Land Trust.
If a property is owned by more than one person, each owner is subject to the cooperation and decisions of their partners. As a result, having an Illinois Land Trust provides protection from a number of scenarios, including:
An invasion of privacy
A Judgment against a party
A tax lien against a party
Division of property amongst heirs without full cooperation
Once the property is placed in a Land Trust, ownership is protected and a lien on the property is more difficult to create if there is a judgment against one or more of the owners.
Land trusts protect the owner’s identity because the owner of the property appears on public records as the Land Trustee. The beneficiary is not named publicly unless the beneficiary does something to expose their name, such as using their personal name instead of the Land Trustee’s name for billing purposes for real estate taxes. This can be particularly important for owners whose clients might try locating them for nefarious reasons or who are high-profile and want privacy.
If the property is purchased for investment purposes, for example, and that investment project may be unpopular in the community, a Land trust can protect the beneficiaries from bad publicity and becoming targeted by angry community members.
Creditor Memoranda of Judgment
Keeping in mind creditors can still have claims against all owners, with a Land Trust it becomes more difficult to file claims against the property. A creditor can’t file claims directly against the title to a property. They would have to issue a citation to discover assets against the debtor, discover that the debtor was the beneficiary of a Land Trust, and then file a Charging Order against the Land Trust.
The lien against the property is not the automatic process it would be if the creditor filed a Memorandum of Judgment. If a Memorandum of Judgment is filed against property that is in a Land Trust, the Memorandum of Judgment has no impact on the ability to sell or transfer the property. The beneficial owners would give direction to the Land Trustee to change beneficiaries or deed out from the trust, and there would be no payout from the Land Trustee.
How Is the Land Trust Established?
A Land Trust is established in two steps:
An institutional Land Trustee has a trust agreement that would need to be filled in. The Land Trustee would require a photo I.D. of the parties setting up the Trust (to prevent money laundering and other frauds) and a W-9 (so that any tax implications become those of the beneficiary, not the Land Trustee). The beneficiary or beneficiaries and successor beneficiaries are named along with the parties who hold the Power of Direction (the ability to tell the Trustee how to deal with the Trust).
A Deed in Trust is drafted between the seller of the property or the owner who is moving the property into the trust to deed the property into the Trust. The Deed needs to be recorded in the county in which the property belongs. If the Deed is not recorded, the Land Trust does not hold the property.
Although Illinois Land Trusts are not a necessary step, they do have their place in certain situations. If you aren’t sure but want to cover all your bases, a real estate attorney can advise when it makes sense for your client.
The Minchella & Associates Difference
With over 40 years of experience in Illinois real estate law, Erica Minchella has represented thousands of home sellers and buyers, landlords and commercial and investment property owners. For more information, schedule a consultation today.