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Pros and Cons of Using Land Trusts in Your Estate Plan
If you own property in Chicago, want to avoid probate, or wish to make it as easy as possible to transfer property to your beneficiaries, a land trust can offer a flexible way to manage property ownership in an estate plan while providing more privacy. A land trust is a legal process where you appoint a trustee to hold the title of your property on behalf of the beneficiary.
Land trusts can especially benefit real estate investors and those with multiple personal or business properties. However, they aren’t the right fit for everyone. Like any other estate planning tool, land trusts have benefits and drawbacks. Understanding both sides can help you decide whether a land trust fits your estate planning goals.
Pro: Lets You Avoid Probate
One of the main benefits of a land trust is that it allows property to pass directly to the beneficiaries instead of having to first go through probate. When someone dies, any assets that aren’t in a trust or transfer-on-death accounts are inventoried and valued as part of the estate for the probate court. The estate is then settled by paying all applicable debts before transferring the remaining property to any beneficiaries. A land trust allows you to avoid probate because property held in a trust is immediately transferred to the named beneficiaries upon the grantor’s death. This means that beneficiaries generally have faster, easier access to their inheritance.
Con: Can Be Complex to Set Up and Manage
Land trusts need to be set up correctly by someone knowledgeable about the legal processes involved. An experienced estate planning attorney can help the grantor determine who they want to name as beneficiaries and ensure the trust terms accurately reflect the grantor’s wishes. Before the land trust can be set up, a trustee must also be appointed who is willing and able to carry out the role’s responsibilities. Any issues or errors during the creation process could result in the trust being contested or disregarded, resulting in the assets needing to go through the probate process.
Pro: Easier to Transfer
A land trust can make it easier to transfer property, both during your lifetime and after your death. Instead of having to prepare and record a new deed every time you want to transfer ownership, you can transfer the beneficial interest in the trust without needing a new deed. This can be especially helpful in estate planning if you want to change beneficiaries, name a successor, or divide interest in a property among family members. For example, if you’re going to leave a family vacation home to your adult children, you only need to name them as successor beneficiaries as part of the trust agreement. The transfer process happens quietly and efficiently because the trustee’s name remains on the public title. This expedited and simplified process reduces paperwork and keeps the change out of the public records to protect your family’s privacy.
Con: Limited Tax Benefits
Many people prefer to use trusts to manage their assets to reduce their estate tax burden. However, a land trust doesn’t offer the same benefits in this area as other options, such as an irrevocable trust. Because a land trust is generally considered a grantor trust for tax purposes, the owner could still be subject to property taxes and capital gains, and estate taxes may still apply. If minimizing taxes — either for you or the beneficiaries — is a priority, an estate planning attorney may be able to discuss other options that offer more tax benefits.
Pro: Flexible Management Options
Using a land trust as part of your estate plan gives you more control over the assets while you’re still alive while also allowing you to plan ahead. Many start by naming themselves as trust beneficiaries while they are still alive to retain complete control over the property. However, depending on the trust terms, you can name successor beneficiaries so that the beneficiary interest is immediately transferred upon your death or even incapacitation.
Suppose you own a rental property. Putting it in a land trust with yourself as the named beneficiary gives you all the benefits of the trust while you’re still alive. Having a successor beneficiary ensures that the property can continue to be managed without interruptions upon your death or incapacitation. Planning ahead can make things simpler in the future and less stressful for your loved ones in what is likely to be an already difficult time.
Con: Can’t Cover All Assets
The primary drawback to a land trust is that it only applies to real estate holdings. It can’t be used to protect other valuable assets, such as cash accounts, vehicles, or personal property. If you wish to avoid probate with these items, you will need different tools in place, such as another type of trust. It’s also important to note that you still need a last will and testament even if you have a trust in place. An attorney can help you evaluate your estate planning needs and goals, as well as what tools you currently have in place and what your estate plan could still benefit from.
Land trusts can be valuable estate planning tools, but they should be created with the help and guidance of an experienced attorney. If you’re interested in the benefits a land trust can offer and want to learn more about this option, it’s time to talk with a compassionate attorney with the legal experience required to ensure you’re well-informed. Contact Nery Richardson & Konewko LLC at 773-232-6643 to start this process.
