Land Trusts Full Review

There are two distinct definitions of a land trust:

  1. An agreement whereby one party (the trustee) agrees to hold ownership of a piece of real property for the benefit of another party (the beneficiary).
  1. Private, nonprofit organization that, as all or part of its mission, actively works to conserve land by undertaking or assisting in land or conservation easement acquisition, or by its stewardship of such land or easements.

Land Trusts Throughout History

Possible earliest concept of equity in land held in trust is the depiction in the Old Testament where a king (the trustor) grants property back to its previous owner (the beneficiary) during her absence, supported by witness testimony (the trustee). In essence, and in this specific case, the king, in place of the later state authority (trustor and holder of assets at highest position) issues ownership along with past proceeds (equity, appreciation and debt reduction) back to the beneficiary:

“Now Elisha had said to the woman whose son he had restored to life, “Go away with your family and stay for a while wherever you can, because the Lord has decreed a famine in the land that will last seven years.”  The woman proceeded to do as the man of God said. She and her family went away and stayed in the land of the Philistines seven years. At the end of the seven years she came back from the land of the Philistines and went to appeal to the king for her house and land. The king was talking to Gehazi, the servant of the man of God, and had said, “Tell me about all the great things Elisha has done.”  Just as Gehazi was telling the king how Elisha had restored the dead to life, the woman whose son Elisha had brought back to life came to appeal to the king for her house and land. Gehazi said, “This is the woman, my lord the king, and this is her son whom Elisha restored to life.” The king asked the woman about it, and she told him. Then he assigned an official to her case and said to him, “Give back everything that belonged to her, including all the income from her land from the day she left the country until now.” — 2 Kings 8: 1-6

Ancient Rome

Land trusts have been around at least since Roman times but their clearest history is from the time of King Henry VIII in England. At that time, people used land trusts to hide their ownership of land so they would not have to serve in the military or fulfill other obligations of land ownership. For example, an elder uncle would hold his nephew’s land so he would not have to join the king’s army. To end this, King Henry in 1536 passed the Statute of Uses. The statute declared that if one party held land “for the use of” or in trust for another (a “beneficiary”), then legal title was vested in the beneficiary. Obviously, if the statute had been given literal effect, there would be no trust law. Shortly after the statute was enacted, however, English courts declared that the statute only applied if the trust was passive, that is, the trustee didn’t do anything but hold the land.

United States

In late 19th century Chicago, it was discovered land trusts would serve as excellent vehicles for investors to acquire land for commercial development, and city aldermen decided they would be a good way to hide their own ownership in land since they were forbidden to vote on city building projects when they owned land nearby. Because the law of England, including the Statute of Uses, was present in U.S. law, the question arose whether a land trust would be valid.

This question went to the Illinois Supreme Court, which ruled that if a land trust was set up with some minor duty on the trustee (such as to deed the property to the beneficiaries 20 years later), then the trust would not be considered passive and would be valid.

Thus, the land trust in America today is often called an “Illinois-type” land trust or “Illinois Land Trust”.

Land trusts have been actively used in Illinois for over a hundred years and in recent decades have begun to be used in other states. The creation of a land trust is not a recorded document; however, declaration of a trust is done through a “deed to trustee”. If the trust is filed as a public document, it removes all of the asset protection provided by the formation of the land trust. Robert Pless pioneered the use of the land trust that has been used by many professional firms throughout the United States since the early 1990s.

Types of Land Trusts:

Deed-To-Trust™ (For Acquisition) and Trust-To-Deed™ (For Disposition)

‘The beneficiary-directed Deed-To-Trust™ for acquisitions, and Trust-To-Deed™ for the disposition of real estate (also known as Equity Holding Trust Transfer™) has, for the past thirty-years, functioned flawlessly as a wholly legitimate and practical means for transferring the benefits of Fee-Simple real estate ownership, and is centered upon the 100-year-old Illinois-Type (beneficiary-directed, 3rd-party trustee) Title-Holding Trust. This trust structure serves very effectively to shield one’s real estate ownership from public view (i.e., in that only the deed to the 3rd-party nominee (the trustee) is recorded in the public record; while only the unrecorded, privately held trust document contains the identities of the trust’s beneficiaries, and which document remains unavailable to any inquiring party, absent a full court order and official deposition .

Within the Deed-to-Trust™ transfer, title to the corpus (the real estate) is temporarily vested in the third-party, bonded and licensed, non-profit corporate trustee.

Land Trusts (including Deed-to-Trust™) are legal and accepted in all US states, although in Louisiana and Tennessee, beneficiary-interest in any real estate holding device is perceived as Use in, and Ownership of, Real Estate vs. Personal Property, thereby necessitating judicial foreclosure, versus eviction, for the removal of a defaulting tenant beneficiary. In other states, “Land Use” is, as per common legislation, Use in Trustversus Use in Land. (Note, however, that even in LA and TN a qualified land trust beneficiary is, under IRC 163(h)4(D), entitled to full income tax deduction for the expense of mortgage interest and property tax (see also Rev. Rul. 92-105).

The temporary transfer of a property’s ownership to an inter-vivos trust does not violate any lender’s alienation (“due-on-sale”) admonitions (i.e., see 12USC1701j-3).

Deed-To-Trust™ does not compromise any provision of the Wall Street Consumer Financial Protection Act (Dodd-Frank) regarding Seller-Financing, despite the fact that virtually 100% of all benefits of fee-simple ownership are being conferred upon the acquiring party, albeit without a title transfer to, or formal loan-assumption by, that party.

Other Real Estate Investments Using Land Trusts

Land trusts are effective in managing multi-faceted divisions of the bundle of rights that parties can own in real estate, and can be used to manage project as large and complex as a multi-state real estate trust, or as simple and small as a single-family home.

Corporations sometimes set up land trusts when they want to compile large tracts of land without arousing suspicion or alerting people to their plans (which would cause the asking price to rise). For example, the land for Walt Disney World near Orlando, Florida, was put together by using many land trusts to buy smaller tracts of land.

Individuals use land trusts as an alternative type of housing tenure to owner occupancy mainly for privacy and to avoid probate. Many investors buy properties through land trusts to prevent their names appearing in public records. The land trust also allows the property to immediately pass to the owner’s heirs upon death, rather than go through a lengthy probate process.

Additional Benefits For Individual Homeowners (Sellers and Buyers)

      • Sales price of the property can be kept o# the public records.
      • Property taxes are lower if the purchase price is kept private.
      • Judgments or liens (such as IRS liens) against an individual’s name are not a lien against their land trust property.
      • Partners can more easily continue a project if one dies or is divorced.
      • Interests can be transferred quickly without recording a deed.
      • Managing a rental property is easier when the trustee can be blamed.
      • Negotiating a purchase or sale can be easier when the trustee can be blamed.
      • Liability on financing can be limited to the assets of the trust.
      • Lease options can be placed into a trust, with the purchaser recording the option.
      • Make loans “Assumable-like” by using a land trust. Transferring title into a land trust with the seller as beneficiary does not usually trigger the alienation clause (due-on-sale clause) of the security instrument.

Investment trust companies hold property for investment purposes and non-citizens who want long term access to land in Mexico often enter real-estate trust agreements, called fideicomiso, with Mexican citizens, but land trust more often refers to a community scale organization.

Despite containing the word “trust”, many, if not most land trusts are not technically trusts, but rather non-profit organizations that hold simple title to land and/or other property and manage it in a manner consistent with their nonprofit mission.

Approximately 56 million acres (230,000 km ) of land in the United States is owned by the United States government in trust for Native American tribes and individuals. The Indian trust lands are governed by the tribes, exempt from taxes, and are usually exempt from state laws.

Indian trust lands differ from commercial land trusts in that there was no trust document that created the Indian trust and specified the duties incumbent on the federal government in managing the trust.

Conservation Land Trusts

Land trusts, also called land conservancies and, more rarely, conservation land trusts, have been in existence since 1891. However, land trusts were not well known before the 1980s.

History

The first conservation land trust, The Trustees of Reservations was founded in 1891. The number of land trusts has steadily increased with most forming in the last 25 years. There are land trusts working in Canada (e.g. Wildlife Preservation Canada, Edmonton & Area Land Trust, EcoTrust Canada, Georgian Bay Land Trust and Thames Talbot Land Trust), Mexico, and other countries worldwide, in addition to international land trusts like The Nature Conservancy and the World Land Trust.

There are currently more than two thousand land trusts operating in every state in the US. Over 300 new local and regional trusts were formed from 1998 to 2003, with the last LTA Census counting 1,537 operating in the United States. Over 1,000 of these are members of the LTA. California now has the most land trusts, with 173 operating statewide in 2003. Massachusetts, despite being much smaller, was a close second with 154 land trusts that year.

Aims

The goal of conservation trusts is to preserve sensitive natural areas, farmland, ranchland, water sources, cultural resources or notable landmarks. These include enormous international organizations such as The Nature Conservancy or World Land Trust, as well as smaller organizations that operate on national, state/provincial, county, and community levels.

Conservation trusts often, but not always, target lands adjacent to or within existing protected areas. However, land areas that are particularly valuable in terms of natural or cultural resources or are home to endangered plant or wildlife are good candidates for receiving protection efforts.

Land trusts conserve all different types of land. Some protect only farmland or ranchland, others protect forests, mountains, prairies, deserts, wildlife habitat, cultural resources such as archaeological sites and historic battlefields, urban parks, scenic corridors, coastlines, wetlands and waterways. It is up to each organization to decide what type of land to protect according to its mission. Some areas have extremely limited public access for the protection of sensitive wildlife, or to allow recovery of damaged ecosystems.

Many protected areas are under private ownership, which tends to limit access. However, in many cases, land trusts work to eventually open up the land in a limited way to the public for recreation in the form of hunting, hiking, camping, wildlife observation, watersports, or other responsible outdoor activities.

This is often with the assistance of community groups or government programs. Some land is also used for sustainable agriculture or ranching, or for sustainable logging. While important, these goals can be seen as secondary to protection of the land from development.

Strategies

Many different strategies are used to provide this protection, including outright acquisition of the land by the trust. In other cases, the land will remain in private hands, but the trust will purchase a conservation easement on the property to prevent development, or purchase any mining, logging, drilling, or development rights on the land. Trusts also provide funding to assist like-minded private buyers or government organizations to purchase and protect the land forever.

As non-profit organizations, land trusts rely on donations, grants and public land acquisition programs for operating expenses and for acquiring land and easements. Donors often provide monetary support, but it is common for conservation-minded landowners to donate an easement on their land, or the land itself. Some land trusts also receive funds from government programs to acquire, protect, and manage land. Some trusts can afford to pay employees, but many others depend entirely on volunteers.

According to the 2005 National Land Trust Census, 31% of land trusts reported having at least one fulltime staff member, 54% are all volunteer, and 15% have only part-time staff. When land is acquired, trusts will sometimes retain ownership of the land in perpetuity, or sell the land to a third party. This third party is often the government, which will usually add the land to an existing protected area, or create a new one entirely. Land trusts were instrumental in the 2004 creation of Great Sand Dunes National Park in Colorado, as well as the expansion of Hawaii Volcanoes National Park by 50% in 2003.

Land trusts also sell land to private buyers, usually with a strict conservation easement attached. Keeping the land under private ownership has the added benefit of maintaining the land on local property tax rolls, providing income to the local government.

Land trusts use many different tools in their protection efforts. Land trusts buy or accept donations of land in fee. This means that the landowner will sell fee simple interest to the land trust or will just give the land they own to an organization. Landowners may also sell or donate a conservation easement to a land trust.

A landowner that donates a conservation easement to a land trust gives up some of the rights associated with the land. For example, the landowner might give up the right to build additional structures, while retaining the right to grow crops. Future owners also will be bound by the conservation easement’s terms. The land trust is responsible for making sure the easement’s terms are followed. This is done through monitoring of the land.

Conservation easements offer great flexibility. An easement on property containing rare wildlife habitat might prohibit any development, for example, while an easement on a working farm might allow the addition of agricultural structures. An easement may apply to all or a portion of the property, and need not require public access. Each conservation easement is carefully crafted to meet the needs of the landowner while not jeopardizing the conservation values of the land.

In between selling land or an easement to a land trust is an option called a bargain sale. A bargain sale is where a landowner sells a property interest to an organization for less than the market price. The amount of value between the market price and the actual sale price is considered a donation to the organization. There are other strategies to conserve land as well.

In October 2002, Property and Environment Research Center published a report by Dominic P. Parker entitled Cost-Effective Strategies for Conserving Private Land. This paper identified numerous ways for operating land trusts more efficiently, pointing out that conservation easement and other tools for land preservation may be less costly than ownership. Sometimes the various rights associated with land ownership are separable. A preservationist organization may, for instance, buy only the extraction rights on a property with oil or minerals, and then rent those rights to extractors on the organization’s terms.

The terms might include requirements to protect the environment and pay the organization royalties on materials extracted. Many land trust organizations had already been using these strategies for years when this report was published.

Structure

The Land Trust Alliance, formed in 1981, provides technical support to the growing network of land trusts in the United States. The Alliance performs a National Land Trust Census that keeps track of the land protected by local and regional land trusts. The last Census, conducted in 2003, reported that these trusts have protected almost 9.4 million acres (38,000 km) of land in the United States, double the 4.7 million acres (19,000 km) recorded in the 1998 survey. Over 5 million acres (20,000 km) of that was protected by conservation easement in 2003. Although it does not include national or international land trusts in its Census, the LTA estimates another 25 million acres (100,000 km) in the U.S. have been protected by those organizations. The largest amount of land protected by local and regional trusts is in the Northeast with 2.9 million acres (12,000 km), while the fastest growing region between 1998 and 2003 was the Pacific (consisting of California, Nevada, and Hawaii), with protected land increasing 147% to 1.5 million acres (6,100 km) in 2003.

Community Land Trusts

History

Community land trusts trace their conceptual history to India’s gramdans where villages held property in the community interest, and to European and North American land banks, which are quasi-public agencies that invest in land often to help build family farms or to encourage economic development.

In 1972, community land trust pioneer and peace activist Robert Swann wrote in his treatise; The Community Land Trust: A Guide to the New Model for Land Tenure in America; “The ideas behind the community land trust…have historic roots…” in the indigenous Americas, in precolonial Africa, and in ancient Chinese economic systems. Thus, “the goal is to ‘restore’ the land trust concept rather than initiate it.”

Residential land trusts emerged in the United States after calls among civil rights leaders in the 1950s and 1960s in the American South for economic reforms to reverse rampant poverty. The Institute for Community Economics was organized in the late 1960s to help residential trusts:

      • Gain control over local land use and reduce absentee ownership.
      • Provide affordable housing for lower income residents in the community.
      • Promote resident ownership and control of housing.
      • Keep housing affordable for future residents.
      • Capture the value of public investment for long-term community benefit.
      • Build a strong base for community action.
      • Preventing foreclosure.

Residential community land trusts are now widespread in the United States, but seldom gain much notice beyond occasional local news accounts. The Institute for Community Economics in 2004 reported nearly 120 community land trusts of varied sizes in 30 states, the District of Columbia and in five Canadian provinces. While a few earlier trusts faltered, the number of land trusts in North America overall nearly tripled between the 1987 and 2004.

Aims

Community land trusts (CLT) rely on community members, word of mouth and strategic communications to attract new residents, members and supporters. In residential land trusts, the CLT usually owns the land, leasing it long-term to the land user who owns the home and other improvements on the land.

CLTs usually retain rights to buy buildings from residents who move out of the community. The goal of residential trusts is often to protect housing prices from real estate speculation and gentrification, as well as to allow residents to accrue ownership equity, including sweat equity.

A 2007 study showed that foreclosure rates of members of housing land trusts in the US were 30 times lower than the national average. Foreclosure is destabilizing some neighborhoods as vacancy and abandonment rise and absentee landlords replace homeowners. To focus attention on the problem in Washington, D.C., Enterprise Community Partners and City First Land Trust established a real estate owned program and acquired more than 50 properties in 2009.

Burlington Community Land Trust (BCLT) is a nonprofit, member-based organization whose mission is to ensure access to affordable homes and vital communities for all people through the democratic stewardship of land. BCLT was the first municipally funded community land trust, and today is the largest community land trust in the United States, with more than 2,500 members. BCLT has become a model of locally affordable housing and community revitalization.