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BY CHRISTOPHER W. YUGO | Monday, July 10, 2006 | (No comments posted.)
Earlier in the year, I wrote a column about land trusts. Since that time, I have received a lot of questions about how a land trust works and how they fit into an estate plan. Although I try not to repeat myself too frequently, I think it might be a good idea to review land trusts.
Land trusts are simple trusts established to hold title to real estate. The form of land trust we use in Indiana is generally known as the Illinois land trust.
Land trusts are generally administered by professional trustees such as bank trust departments and trust companies like the Lake County Trust Company, located in Crown Point. The documents are usually prepared by the trustee, so there is no need to pay an attorney for drafting the documents.
Their greatest benefit from an estate planning standpoint is that they offer a simple, inexpensive way to transfer title to real estate without probate. For example, you can establish a land trust which names you as a beneficiary during your lifetime and your kids upon your death. After you have died, the kids can show up with a death certificate and have the real estate conveyed to them.
Land trusts also offer privacy. Since bank records are confidential, it will be difficult for your friends and neighbors to determine who the beneficiary is. Not impossible, but difficult.
I like land trusts for smaller estates. On simple, small estates you generally can use payable on death provisions on the bank accounts and a land trust for the real estate. With proper planning, probate can be avoided.
There are disadvantages to the land trust, which limits the benefits. Although land trusts are cheap to set up, there is an annual trustee fee. The trustee will likely be a bank, and banks tend to want to get paid. Fees will vary, but you can probably expect an annual fee of between $100 and $200.
Other limitations result from a land trust's simplicity. It is unlikely that a land trust agreement is going to be able to provide for a minor beneficiary.
You could have problems if you name your 8-year-old grandchild as beneficiary. You might be able to avoid probate only to find that a guardianship needs to be established.
Also, land trusts don't tend to work well when there is contention between the beneficiaries. A land trust trustee does not have any discretionary authority. The trustee will require a direction before it takes any action, such as signing deeds or offers to purchase. If the beneficiaries can't agree, the trustee may be unwilling to take any action until they can.
Land trusts can be useful in estate planning. However, their limitations do not make them well-suited for larger or complex estates. If you think a land trust could help you, contact your bank's trust department or a trust company.
Christopher Yugo’s Estate Planning column appear every Sunday in The Times. Address questions to Yugo in care of The Times, 601 W. 45th Ave., Munster, IN 46321. Yugo’s information is meant to be general in nature. Specific legal, tax, or insurance questions should be referred to your attorney, accountant or estate-planning specialist.
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