Advantages of Land Trusts

a. Real Property held in a land trust is not subject to partition.

b. The unavailability of partition is a reason to have properly drafted beneficiary agreements. In situations where there are multiple beneficiaries, the standard trust agreement will not deal with operational issues. A sample beneficiary agreement is attached as Appendix E.

c. In some forms of land trust agreement, operational problems have been dealt with by means of specific additional provisions in the trust agreement. In Harden v. Desideri, 20 Ill. App. 3d 590, 315 N.E. 2d 235 (1974), the trust agreement specified a management agent and provided that the agent was to operate and manage the trust property as directed by two-thirds (2/3) of the owners of beneficial interest in the trust. Although the trust agreement dealt with management of the property, it can be extended and amplified to deal with a variety of other problems.

d. There are, of course, many problems that can arise in the operation of property. Well drafted beneficiary agreements can deal with problems such as buy-sell arrangements, dispute resolution as well as other governance issues. The terms of beneficiary agreements can be incorporated in the trust agreement. See Ferraro v. Parker, 229 So. 2d 621 (Fla. Ct. App. 1969).

e. In situations where multiple owners hold title to real property, the potential exists for judgments, divorce, death, bankruptcy or incompetency of a single beneficiary to cloud the title to all or a part of the real property. The use of the land trust prevents the possibility of clouds on the title in these situations.

f. It is important, however, to realize that the ownership of a beneficial interest in the trust can, however, be reached if a creditor learns of the beneficiary's ownership interest in the land trust.

g. Under well-drafted trust agreements, provision can be made to avoid deadlocks among multiple owners. A general partnership, limited partnership or other form of beneficiary ownership can be prepared to spell out the rights and obligations of multiple owners in situations where disagreements may arise.

h. Where real estate projects are syndicated, the use of a land trust can reduce delays where signatures must be obtained from remote locations and can facilitate the many conveyances of lots in subdivisions and units in condominiums.

2. Interests of beneficiaries may not be disclosed without order of court.

a. There are situations where good reasons exist for purchasers of real estate not to publicize their ownership of that real property. The land trust permits such individuals to keep their names from the public record.

b. An important use of the land trust arises in the situation in which a developer, seeking to develop an area in which there are many owners of small parcels, uses the land trust to minimize the potential for a few owners to hold out for exorbitant prices by keeping his name of the public records and notifying them of his intentions.

3. Judgments against the beneficiaries do not affect the legal title to the real property held in a land trust.

a. Judgments can, however, be enforced against a beneficiary's beneficial interest [the beneficial ownership of beneficiaries] in a land trust.

b. The title to the real property held in a land trust can be conveyed free and clear of the lien of judgments against a beneficiary, and regardless of whether a beneficiary has transferred or encumbered the beneficial interest. Section 689.071.8(e), F.S.

4. The beneficial interest in the land trust is personal property.

a. Non-residents of Florida can, by placing title to their real estate in a land trust, avoid ancillary probate administration in the event of death.

b. The existence of a land trust under these circumstances permits ease and simplicity in dealing with title to the real property.

c. Beneficiaries may make dispositions of the beneficial interest upon death of the named beneficiary. These dispositions can be handled by providing in the trust agreement for the remaindermen to succeed to the beneficial interest of the beneficiary. The provision for remaindermen has been held not to be testamentary. See In re: Sacks Estate, 231 N.E.2d 688 (Ill. 1967).

d. Since the interest of a beneficiary is personal property, marital rights of dower and curtesy do not apply; therefore, title can be conveyed without the joinder of the spouse. Duncanson v. Lill, 322 Ill. 328 (1927).

5. The death of a beneficiary does not terminate the trust.

6. Where mortgage financing is used in connection with a land trust, personal liability of the beneficiary can be avoided if the lender does not require personal guarantees. See Section 689.071.8(a), F.S.

a. With the use of an appropriate exculpatory clause, no personal liability is imposed on the beneficiaries or trustee and exposure to deficiency judgments in the event of foreclosure can be avoided. Conkling v. McIntosh, 324 Ill. App. 292 (1944).

b. An example of an exculpatory clause for a mortgage is as follows:

c. Care should be taken to exculpate the trustee from personal liability for condominium assessments. See Taylor v. Richmond's New Approach Association, Inc., 351 So.2d 1094 (Fla. 2d DCA 1977).

B. Use of the land trust as a vehicle for holding title to real property permits the preservation of tax benefits under the Internal Revenue Code.

1. All of the tax advantages of individual ownership may be retained when a land trust is properly used to hold title to real property.

2. The deduction for expenses flows directly through the beneficial owners, assuming of course that the appropriate election is made for such purpose.

3. If C-Corporation tax consequences are desired, place the beneficial ownership of the trust in a C-Corporation.