What is a land trust?
A land trust is a legal entity that takes possession of a property or has the power to do so at the request of the owner. Like other types of trusts, the terms of each land trust are unique.
Key points to remember
- Land trusts are organizations that assume legal ownership, stewardship or partial control of a property at the request of the land owner.
- Title trust land trusts, also known as Illinois land trusts, protect the anonymity of landowners and prevent the probate of property.
- Land conservation trusts are responsible for managing undeveloped land in order to maintain natural resources, historic sites and public recreation areas for future generations.
- Landowners who use conservation easements to transfer development rights to a conservation land trust can receive a tax deduction for their charitable donation.
- Due to some instances of fraud, certain donations of conservation easements and the land trusts that accept them have been the subject of increased scrutiny.
How a land trust works
Start by understanding the two types of land trusts.
A securities holding trust allows the owner to anonymously retain all rights to the property and direct the actions of the land trust. These trusts are also commonly known as “Illinois land trusts” because they were first popularized in Chicago in the 1800s. At that time, landowners were not allowed to vote on city projects in the same places where they owned land. To circumvent this law, wealthy businessmen and politicians would use land trusts to buy land anonymously, thereby protecting their voting rights.
Not all 50 states have a legal structure in place for a title trust. However, most states rely on Illinois land trust laws if they do not have one, which means that any individual can form an “Illinois style” land trust in any State with appropriate legal advice.
- A conservation land trust, on the other hand, requires that the landowner renounce certain rights on the use and development of the territory. The purpose of a land conservation trust is to protect wildlife, historic or cultural sites and natural resources from commercial development or other activities that may cause disturbance or pollution.
Land trusts holding titles (aka Illinois Land Trusts)
In a title trust, the landowner signs a document called Deed in Trust, which transfers legal ownership of the property. When creating the trust, the landowner (who is both the grantor of the trust and the beneficiary) can specify how the land is to be managed, who has control of it and how the income it generates is distributed . This means that although the trust is the holder of the paper title, the landowner retains full control over the property.
Title trusts are used as a way for landowners to remain anonymous and keep valuable assets out of probate. They can also provide a number of other estate planning benefits and protect assets from judgments or liens. This can be particularly useful for the very wealthy, celebrities and large corporations who wish to keep development plans a secret.
A typical example: the famous Walt Disney World Resort in Orlando, Florida, was originally purchased in 1965 using a title trust. The original owners of the Florida swamps on which the complex is built had no idea that Disney, already a household name at the time, was behind the purchase. If they had known the identity of the buyer, they would likely have increased their asking price.
Protected Land Trusts
In a conservation land trust, the trust does not necessarily assume title to the land, unless ownership is given in full. Instead, a landowner can enter into a legally binding agreement, called a conservation easement, thereby “giving” his development rights to the trust. The trust is responsible for ensuring that the easement is enforced and, in some cases, managing the property.
Conservation easements can be adjusted so that the landowner retains their property and use rights – such as the right to continue farming or raising livestock – while ensuring that the land remains undeveloped in perpetuity . Conservation easements “follow the land”, which means that the conditions of the easement remain in force even if the land is sold or passed to heirs.
The total number of acres of undeveloped land managed by more than 1,300 private conservation land trusts across the United States
There is another important distinction between title and conservation land trusts: donating to the latter could give you a big tax break.
If a landowner donates his development rights to a conservation trust, he can receive a tax deduction equal to the difference between the value of the encumbered land (with the easement in place) and what he could be worth it was set up for its “optimal use.” In some cases, this deduction can be worth millions of dollars.
Typically, landowners are either farmers and ranchers who have owned the property for generations, or very wealthy individuals, families or businesses who can afford to buy plots. Recently, however, a new investment niche has developed, designed to open up the tax benefits of conservation to a larger segment of the population.
Investing in conservation easements …
Using a multi-member partnership (or “syndicate”), these investment companies allow several accredited investors to pool their money to buy land for conservation. After having given the real estate development rights to a land trust via a conservation easement, the members of the company shared the tax deduction on a pro rata basis. Thanks in part to these conservation partnerships, it is estimated that land conservation increased by 175% between 2005 and 2020.
… and the controversy over investing in conservation easements
Of course, whenever there is a profit potential, someone will abuse the system. There have been high profile cases of people who have made very big deductions for giving easements on golf courses, lots and other properties that actually don’t have much ecological or cultural value.
In response, there has been an aggressive reaction against unionized investments, in particular, and land trusts that accept their easement donations. However, this singular focus may not paint a full picture of the issues at stake. Whether given by farmers, billionaires, or unionized investors, it is clear that conservation easement laws need to be scrutinized. closer to ensure that the risk of abuse is minimized without removing the incentive to keep.