Asset Protection

An Illinois Land Trust: Is it Worth It?

Concept art of an article about Illinois Land Trusts: A bridge over a stream in a tranquil field (AI Art)

Have you heard about an Illinois Land Trust and wondering if you need one?

If done properly, it offers privacy and the ability to pass real estate to your heirs without going through an expensive and public probate process.

But it also has some notable drawbacks. In this article, we’ll discuss all that so that you can decide whether this kind of trust is right for you… or whether something else might be a better fit.

What is an Illinois Land Trust?

An Illinois Land Trust, also known as an Illinois Title-Holding Trust, is a confidential legal arrangement that allows individuals or entities to hold real estate or personal property privately. It can also simplify estate planning and may qualify for Illinois’ Homestead exemption. However, it does not offer asset protection.

This sort of trust is governed by a mix of common law and Illinois statutes. Key statutes include the Land Trust Beneficial Interest Disclosure Act and the Land Trustee as Creditor Act.

These laws outline the structure, rights, and responsibilities of land trusts in Illinois. They also address trustees and beneficiaries.

They also provide guidelines for applications, disclosures, and transactions related to this kind of entity.

The trust is created by a written agreement called a Deed in Trust between the beneficiary (i.e. you) and trustee (usually a lawyer). The trustee holds legal title on behalf of the beneficiary. Your identity is kept confidential, while the trustee’s name is publicly known.

The History

The concept of the Illinois Land Trust dates back to the late 19th century. It was created as a legal tool to provide individuals with greater control and privacy over their real estate holdings.

It was first recognized by the Illinois legislature in 1893, the first in the country to recognize the concept. Because it has been around for so long, it’s better established as a way to hold real estate than in any other state.

An “Illinois Trust” is sometimes used as a synonym for a Title-Holding Land Trust in any state.

Who Needs It?

Mainly, this sort of trust is for people who want privacy in their real estate dealings. Some groups might include:

  1. Public figures: Celebrities and other notable figures who value privacy and want to keep their real estate ownership confidential.
  2. Real estate investors: Who are purchasing property strategically and don’t want to signal to competitors what they’re doing.
  3. Individuals: Who want a simple way to leave property to their heirs without the probate process.

Pros and Cons of an Illinois Land Trust

Advantages

The pros of an Illinois Land Trust are as follows:

  1. Privacy benefits for property owners, ensuring their personal information remains private.
  2. Private transfers of ownership, making it easy to pass property to beneficiaries without probate.
  3. You might qualify for the Homestead exemption if the property is your primary residence.

Disadvantages

When considering such a trust, you should also be aware of the potential disadvantages. These include:

  1. No personal asset protection. A land trust does not provide personal asset protection. If you lose in court, your personal assets both inside and outside the trust are at risk.
  2. Possible difficulty in obtaining financing. Many lenders don’t like land trusts because it makes financing more complicated. You may find it harder to get a mortgage. That said, Illinois banks do understand Illinois land trusts better and are more willing to lend to them compared to land trusts in other states.
  3. Can complicate property sales or refinancing. Selling or refinancing a property held in a land trust may be harder compared to a traditional property sale or refinance. There will be more steps involved, which will increase legal costs. Again, though, you might find it easier than if you had a land trust in another state.
  4. The trustee’s name is publicly known. This defeats the purpose if you serve as your own trustee. You will need to have a third party serve this purpose, which will increase costs.

Alternatives to an Illinois Land Trust

Illinois Land Trust vs Illinois LLC

An Illinois Land Trust and an Illinois LLC are similar in what they do, but they also have distinct differences.

Both provide privacy benefits for property owners.

An Illinois Land Trust offers confidentiality to beneficiaries. So does an Illinois Living Trust. The names of beneficiaries doesn’t have to be declared to the government.

An Illinois LLC can also offer confidentiality to beneficiaries, but in a different way. The only information that can be retrieved online about an Illinois LLC are the names and addresses of its registered agent and manager.

The identities of the owners (called “members” in an LLC) are not disclosed. Each member can then prepare an estate plan to protect the identity of their beneficiaries.

An LLC can also offer asset protection where an Illinois Land Trust cannot.

Illinois Land Trust vs Illinois Living Trust

An Illinois Land Trust and an Illinois Living Trust are both legal arrangements. They provide privacy and control over real estate ownership. However, there are some key differences between the two.

An Illinois Land Trust is a privacy tool that effectively hides your identity from the public. You still control it, but so long as you don’t serve as a trustee, your name won’t be a matter of public record. Nor will the names of your beneficiaries.

An Illinois Living Trust, also called a revocable trust or a living revocable trust, is used for estate planning. It allows you to transfer your assets, including real estate, into the trust during your lifetime. You can also have a say on how those assets will be managed and distributed after you pass.

In most cases, you’ll serve as the initial trustee of an Illinois Living Trust. Any accounts or other arrangements you set up involving the trust will be in your name. But the names and arrangements made for your beneficiaries remain private.

Like a land trust, a living trust also doesn’t offer any asset protection.

Costs of an Illinois Land Trust?

The cost of an Illinois land trust can vary based on several factors. The initial setup fee for a residential property can range from $1,000 to $5,000. If your lawyer remains as trustee after set up, you will likely have to pay ongoing monthly fees as well. That’s because, as your legal representative, they will have to sign all documents on your behalf.

There will also likely be other fees for extra services like amendments, assignments, and trust termination.

Needless to say, it’s important to consult with a professional to understand all potential costs.

Illinois Land Trust Taxes

An Illinois Land Trust is not taxed as a separate entity. Instead, the tax liability is passed through to you as the beneficiary.

This means that you are responsible for reporting any income or losses from the trust on your personal tax return. The trust itself does not file a separate tax return.

Common Questions:

Do Illinois Land Trusts offer asset protection?

You will sometimes hear claims the Illinois Land Trusts offer asset protection. However, we have not found any evidence of this. And in fact, court precedents would suggest they don’t.

If asset protection and/or wealth protection is a priority, there are better structures out there.

What is the difference between an Illinois Living Trust and an Illinois Land Trust?

They are both legal arrangements. And in different ways, they offer privacy and control over real estate ownership. However, there are important differences between the two.

An Illinois Land Trust effectively hides your identity from the public. You maintain control over the trust, but by not serving as a trustee, your name remains confidential and is not a matter of public record.

On the other hand, an Illinois Living Trust, also known as a revocable trust or a living revocable trust, is used more often for estate planning purposes. You transfer your assets, which can include real estate, into the trust. You can say how these assets will be managed and distributed after you pass.

In most cases, you’ll serve as the initial trustee of an Illinois Living Trust. Any accounts or other arrangements you set up involving the trust will be in your name. But the names and arrangements made for your beneficiaries remain private.

It’s important to note that neither a land trust nor a living trust provide asset protection.

Does an Illinois Land Trust qualify for Homestead Exemption protection?

Yes, an Illinois land trust can qualify for homestead protection if you are the beneficiary and the property is your primary residence. That said, the Homestead Exemption allowances in the state are very low — $15,000 for a single owner and $30,000 for a married couple.

If you’re looking to protect the value of your home, you will need to continue other options.

Do I need to register a land trust in Illinois?

Yes, you do. Once your lawyer has drafted a Deed in Trust (the agreement that creates the trust), you must file it with the Register of Deeds in the county the property is in.

Where can I find a Land Trust Lawyer in my Area?

Our firm, the Nestmann Group, helps build complete plans for clients interested in wealth protection. A big part of that is helping you protect your privacy — something an Illinois Land Trust offers.

However, a proper wealth protection plan is more than that. A good one will look at other factors like asset protection, tax strategies, insurance, and available government protections.

If you’re interested in seeing what’s right for you, please schedule a free no-obligation consultation with one of our wealth protection associates. You can do that here.

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