What Is a Land Trust, and Who Needs One?

Trusts can be used as an estate planning tool if you need more than just a will to manage your assets. A land trust is a specific type of trust related to real estate. This is a type of living trust, meaning it can take effect during your lifetime, and is a tool used to manage property ownership. The terms of a land trust can be unique to your needs and the type of real estate held in the trust.

Consider working with a financial advisor to create an estate plan aligned with your goals.

What Is a Land Trust?

A land trust is a legal entity that assumes control of property and other real estate assets at the property owner’s behest. It’s a living trust, which is generally revocable. This means the terms of the trust can be changed or terminated at any time.

Unlike other living trusts, land trusts are associated exclusively with real estate. The types of assets a land trust can own include:

Physical property (homes, commercial buildings and plots of land)
Property notes
Mortgages

While a land trust can be used for any of these assets, it is typically used for real estate assets in property development or land conservation.

As an example, real estate developers can use land trusts to hold large pieces of property for commercial or residential development. You can also use a land trust to hold ownership of a piece of land that you want to preserve for wildlife or conservation efforts.

Types of Land Trusts

There are several types of land trusts, but the most common are Illinois land trusts, conservation land trusts and community land trusts.

Illinois Land Trusts

Title-holding trusts, also known as Illinois land trusts, are used for privacy, estate planning or to facilitate borrowing arrangements. The landowner, as both the grantor and beneficiary, signs a deed of trust, and a trustee simply holds the title with no responsibility to manage the property’s use.

This kind of land trust keeps the assets out of probate court, allowing the owner to preserve anonymity.

Conservation Land Trusts

Conservation land trusts are formed to preserve the natural resources of land through a conservation easement that donates development rights of a property. The landowner retains usage of the property (for farming, for example) and the title, unless it’s donated in its entirety.

Donors can benefit from state and federal income tax deductions, as well as local credits.

Community Land Trusts

Community land trusts are nonprofit, community-based organizations that typically aim to ensure long-term housing affordability.

They do this by separating ownership of land on which a building, such as housing, is constructed. The trust acquires permanent ownership of a parcel of land and enters into a long-term, renewable lease, typically for 99 years, with homeowners instead of a sale.

When homeowners sell their particular residence, the sellers earn only part of any increase in property value. The remainder is kept by the trust to help maintain the affordability of the residential units for future low- to moderate-income families.

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How a Land Trust Works

There are several types of land trusts, but the most common are title-holding land trusts, conservation land trusts and community land trusts.

Structurally, land trusts are similar to other types of revocable living trusts.

There are three parties involved.

Land Trust Parties

Party	Role
Grantor or Settlor	Creates trust and transfers property ownership
Trustee	Manages the trust according to the specific wishes of the grantor or settler
Beneficiary	Benefits in some way from the terms of the land trust

Each party has their own set of responsibilities.

Grantor. As the grantor or settlor, you decide which real estate assets should be transferred to a land trust and what terms the trustee must follow in managing those assets.
Trustee. Say the trust includes a rental property. In this case, the trustee’s duties may include collecting rent payments, overseeing upkeep and maintenance and finding new tenants when the property is vacated.
Beneficiary. The beneficiary is the person who benefits from the assets in the trust. So in the case of a rental property held in a land trust, the beneficiary may receive some or all of the rental income, depending on the terms set forth by the grantor.

The grantor of a land trust can change its terms at any time, including the following.

Add or remove real estate assets from the trust as new property is acquired.
Change the trustee or successor trustee if unhappy with the current one.
Give new instructions for how the trust’s assets are to be managed on behalf of the named beneficiaries.

If you end up selling all of the assets held in a land trust, you can dissolve the trust altogether.

Pros and Cons of a Land Trust

Because land trusts offer privacy and probate avoidance for real estate owners, they are a useful tool for investors and those seeking anonymity. However, they do not provide true asset protection, may complicate financing and could incur additional costs.

Benefits of a Land Trust

There are several benefits associated with using a land trust to hold real estate assets, including the ability to protect assets from creditors and minimize estate taxes.

A land trust can be beneficial in several situations.

You want to separate real estate investment property from your other assets.
You want the privacy and anonymity of assets that are owned by atrust and publicly listed in the trust’s name rather than your own.
You want assets to avoid probate once you pass away.
You want to be able to purchase or sell real estate assets without the sales price being made public.

Land trusts can be useful if you don’t want people to estimate the true value of your net worth or if you invest in real estate on a large scale and want those dealings kept separate from your personal finances.

Drawbacks of a Land Trust

One of the biggest misconceptions about land trusts is that they provide blanket asset protection from creditors or lawsuits.

While they offer privacy by keeping ownership details off public records, they do not prevent creditors from discovering the trust, nor do they guarantee liability protection. Additionally, land trusts do not shield assets from estate taxes or eliminate the need for proper tax planning.

Another potential downside is that land trusts may complicate financing. Many lenders prefer properties to be titled in the borrower’s name, and transferring real estate into a land trust could trigger a due-on-sale clause in some mortgage agreements. If the trust is not structured properly, obtaining traditional financing may become more difficult.

There are also administrative costs associated with setting up and maintaining a land trust. Trust agreements must be drafted correctly, so it is often best to procure legal assistance. Additionally, some states impose fees or further regulations on land trusts.

If privacy and probate avoidance are the primary goals, a different estate planning strategy may be more beneficial.

How to Set Up a Land Trust

Setting up a land trust is similar to creating any other type of trust.

It starts with identifying one or more trustees to oversee it, choosing a beneficiary and determining which assets will be held in the trust.

Choose Trustees and Beneficiaries

With a land trust, the beneficiary can be an individual, but you can also create a business structure, such as a limited liability company (LLC), corporation or limited partnership (LP), for the sole purpose of acting as beneficiary. Doing so can offer increased protection against liability claims.

If you already have a living trust, you can name that trust as the beneficiary of your land trust.

Create the Trust

The next step is creating the actual trust document.

You can do this using an online tool, but it is usually best to ask an estate planning attorney for help. This professional can ensure the trust document is valid and help with issues you may overlook, such as updating property insurance beneficiaries for assets you transfer to the trust.

Determine Asset Distribution

An estate planning attorney can also help you determine whether it’s necessary to create multiple land trusts for multiple real estate assets.

Ultimately, your intentions for the property’s use will help you determine whether to group them together into a single trust or create individual trusts. For example, if you have both investment properties and conservation land, you may want to keep them separate.

How Land Trusts and LLC Structures Compare

Land trusts and limited liability companies (LLCs) are both used to hold real estate, but they serve different structural purposes.

A land trust is primarily a title-holding arrangement designed to control how ownership appears in public records, while an LLC is a legal business entity that directly owns property and operates under state corporate law. One focuses on how property is held and disclosed, while the other focuses on how property ownership is organized and governed.

From a privacy standpoint, land trusts are commonly used to keep an individual’s name off public property records since the trustee is listed as the legal owner. LLCs, by contrast, usually require public filings that disclose the entity’s name and, in some states, its members or managers. While an LLC can add a layer of separation between the owner and the property, it does not offer the same level of anonymity as a land trust on its own.

Liability treatment also differs. A land trust does not provide inherent liability protection because legal responsibility still flows to the beneficiary. However, an LLC limits liability at the entity level, so any property claims are generally confined to the LLC’s assets and not the owner’s personal assets. For this reason, LLCs are more commonly used for rental properties or projects with tenant or operational exposure.

Tax and administrative considerations also separate the two structures. A land trust typically does not owe income tax, with income and expenses reported directly by the beneficiary. An LLC can be taxed as a disregarded entity, partnership or corporation, depending on elections and ownership. LLCs also require ongoing compliance, such as annual filings and fees, while land trusts tend to involve fewer formalities once established.

Bottom Line

A couple working on setting up a land trust.

A land trust can be useful for real estate investors or those who want to keep their property separate from other assets in their estate plan. Setting up a land trust can offer certain protections and privacy benefits, although you may benefit from an estate planning attorney’s support when creating it to ensure your trust is legal and valid.

Tips for Handling Real Estate Assets

Consider talking to a financial advisor about your specific estate planning needs. If you don’t have an advisor yet, finding one doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Real estate can add diversification to a portfolio, but it doesn’t necessarily mean you have to own rental properties. There are other ways to invest in real estate, including real estate investment trusts, purchasing mortgage notes and real estate mutual funds.