All About Illinois Land Trusts

The Seventh Circuit recently provided a good primer on Illinois land trust property ownership in Stable Investments Partnership v. Vilsack, 2015 WL 55466 (7th Cir. 2015).

There, the court agreed with the Northern District and found that an Illinois land trust beneficiary wasn’t an “owner” under a Federal farm subsidy program operated by the U.S. Department of Agriculture.

Land Trust Basics

Affirming summary judgment for the government defendant, the Seventh Circuit highlighted some key elements of an Illinois land trust:

In a land trust, the trustee holds both legal and equitable title to the land trust property;

– The land trust beneficiary holds a personal property interest in the trust proceeds and has the exclusive power to direct the trustee in its dealings with the property;

– Since the beneficiary’s land trust interest is personal property (e.g. like a car, bank account, anything moveable), that interest can be freely sold, assigned or transferred by the beneficiary;

– While the trustee is held out to the world as the property owner, it is the beneficiary who exercises the powers of ownership;

– Two main advantages of land trust ownership over competing methods include: (1) Anonymity: identity of trust beneficiaries are shielded from public knowledge – one must usually file suit to ID a land trust beneficiary; and (2) interests in the property can be pledged, assigned or sold easier than with other ownership methods;

A land trust beneficiary is the real party in interest concerning issues involving management and control of the land. By contrast, a land trust trustee is the dominant party for issues involving property title and public record filings a third party would likely consult when faced with a property dispute.

(**1, 4)

Citing Illinois case law and these principles, the Court found that the USDA properly exercised its discretion in ruling that the land trust beneficiary was not a statutory “owner” under the farm subsidies program.

Additional Land Trust Features

The Illinois Department of Professional Regulation (“IDPR”) echoes and amplifies some of the key land trust features on its Web page. Here are some land trust traits singled out for special mention by the site:

A land trust may be created by anyone capable of entering into a contract–an individual; a group of people, a joint venture or a business association;

– Since the beneficiary retains complete control of the real estate, he can end the trust or add more property to it anytime he wants;

– The trustee executes deeds and mortgages and deals with the property only if directed in writing by the beneficiary.

– When the property is held in a land trust, a judgment against one beneficiary doesn’t lien the real estate (see http://paulporvaznik.com/land-trust-beneficial-interest-personal-property-related-realty-cant-liened-creditor-il-law/6540);

– A land trust is uniquely suited to disposing of only a partial interest in realty. Since the beneficial interest can be transferred by assignment, no deed is required. This flexibility feature is important when real estate is held by multiple parties

– To create a land trust, you execute a trust agreement at the time the real estate is purchased or after it has been acquired. The agreement gives the beneficiary power to direct a corporate fiduciary (the trustee) to hold title to the real estate. The beneficiary can then dictate to the trustee who has authority to manage and control the property, whether and when the property can be sold and to whom and who becomes owner upon your death.

See http://www.idfpr.com/banks/consumer/tips/TRUSTS.ASP

Afterwords:

With land trust ownership seemingly gaining in popularity, Illinois real estate professionals – be they buyers, sellers, realtors or attorneys – should have a working knowledge of the basic attributes and effects of land trust ownership.

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PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.