Are Land Trusts Useful?

The most common and permeable property boundary recognized by the law is a land trust. A land trust may be an attractive option at first because it has a few enticing benefits but is likely not the best option for rental real estate owners. A land trust means that the owner of a property transfers the title of a property to another party. The property owner maintains the overall management of the land, directing the trustee in all matters of affairs. This allows the property owner to remain anonymous while maintaining the ability to develop, sell, and rent the property.

To the public eye, however, the trust itself is listed as the holder of the property. Land trusts are commonly used to maintain anonymity by wealthy landowners in purchases or corporations looking to buy large tracts of land for future development. This is commonly referred to as an “Illinois Land Trust.” Other forms of land trust include conservation land trusts or conservation easements, which are utilized to protect the land from development or pollution. A trust agreement can articulate the parameters of development or use, making it a reasonable legal avenue for land protection. One last form of a land trust is a community land trust. This type of land trust is commonly used by non-profits or entities seeking to manifest low-income housing. This type of trust allows individuals to purchase a structure on a piece of land without purchasing the land itself, thereby decreasing the buyer’s overall purchasing cost.

- LLC’s and Rental Real Estate:

A better option for creating appropriate legal boundaries between your assets is the use of an LLC. This option is often a greater financial investment, but much safer in the case of a lawsuit. An LLC, or limited liability company, is a relatively new legal business distinction that incorporates some components of a partnership and some components of a corporation. LLCs are governed by ‘members’ who, like in a corporation, are not held personally responsible for debts or liabilities of the company. This is key in protecting the rental real estate from potential lawsuits. Additionally, LLCs are recognized as partnerships under tax law. This is substantially less financially cumbersome and costly compared to corporations.

- LLC’s and Multiple Rental Real Estate Sites:

It may be even more useful to your business to create multiple LLCs associated with each rental real estate property you own. One of the issues with outside liability comes about when a lawsuit associated with one real estate site effects a second property or multiple sites. If water damage on one site far exceeds what insurance can cover, for instance, you may be required to use other assets available within the LLC to cover that liability. By establishing multiple LLCs, you are containing the liability of each site to itself, thereby mitigating the overall financial effect of a lawsuit.

Topics: Land Trust, Rental Real Estate

Work cited: Michael Bowman, June 11, 2019

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