Land Trusts (LT) have been used in the United States for more than 100 years, primarily for privacy of ownership. Many people, for various reasons, want to own real estate without public knowledge. Perhaps they are celebrities, politicians (President Obama owns his home in the Chicago suburb of LT) or individuals who don’t want the general public to know about their private business. Such people may also fear the wrath of a disgruntled tenant, seller, or superintendent. Furthermore, if it were common knowledge that the richest men/women in town owned local rental properties, perhaps rent increases and maintenance requests would be perceived differently.
Because property ownership is public information, many real estate owners and real estate investors choose to take title to their real estate investments in LT’s. The land trust holds the rights in the name of the Trustee and the trustee itself. LT Beneficiaries are not disclosed to the public and are only named in the Trusteeship Agreement (unrecorded contract between the Trustee and the Beneficiary). Beneficial Owners can be individuals, corporations, Limited Liability Companies or other trusts. As a consequence, actual beneficial holders can be buried deep for reasons of privacy and asset protection (without documents on public records showing actual ownership and control).
The beneficial interest holders of LT are responsible for what happens to the property held in the trust. Therefore, most real estate investors will have a beneficial interest through another entity (i.e. a corporation or limited liability company). Unfortunately, some LT recipients are unscrupulous and try to conceal ownership to avoid conflicts of interest and/or building code violations. Consider, for example, Chicago councilor Thomas Keane, who has an interest, through a land trust, in a company that has acquired a lucrative parking space with the city’s O’Hare International Airport. The board member does not disclose his ownership interest when he chooses to award the contract (see Land Trust Secrecy—Probably Secrets No More, 23 DePaul L. Rev. 509,511 n.10 (1973)).
The technique of using LT to hide possession has been elevated to an art form in Cook County, Illinois. It is estimated that over 90% of the property owned in Cook County is held by land trusts!
So why is it important to record the title in the name of an individual or an LT Trustee? Everyone who has property in public records some kind of document that records their interests. Failure to do so creates a risk that a subsequent purchaser or creditor of the previous owner may dispossess the current claimant. But it is also true that recorded titles do not necessarily reveal a personal name or identify them in any way! Conversely, a nominee, corporation, trustee or other entity may be placed as the legal title holder. Its relationship with beneficial interest holders may (as noted earlier) be represented by private, unrecorded documents which are not disclosed to anyone without a court order or an institutionalized discovery process.
Is it immoral not to reveal the true identity of those who control real estate? Some people will say yes but, once you own real estate in your own personal name and experience some of the inherent legal risks, you may be more understanding of those who don’t want to own property in their personal name. Real estate ownership carries risk and sometimes excessive risk. While it is true that real estate ownership comes with some responsibilities (i.e. maintenance, compliance with building codes, meeting minimum housing standards, etc.), it should not be a target source for attorneys’ contingent fees and other reckless legal attacks.
In addition, some real estate investors are concerned about the interference of the Federal and State governments in their lives (read: The Patriot Act). Because there’s no requirement to itemize specific property ownership details on your IRS 1040, holding real estate in LT keeps the investor’s name off all city, county, state, and federal databases.
Because Land Trusts are not registered at the State or Federal level (unlike Limited Liability Companies -LLCs and Corporations), they are the last useful non-entity entity available to owners of real property (land, repaired property, commercial buildings, residential buildings, real estate options, real estate contracts, etc.). Yes, LLCs and Corporations offer more direct asset protection benefits, but Land Trusts provide more ownership privacy and indirect asset protection benefits. Therefore, it is best to link Land Trusts, LLCs, and Corporations together for the best of both worlds.
By setting up a Land Trust with an LLC or Corporation as the beneficiary, real estate investors create a unique structure with the benefits of symbiosis. For example, changing the ownership of a beneficial interest (held by the LLC), would effectively change the owner/control over the title holding LT without public notice or knowledge. Not only would this be a very private transfer of ownership and control, but tax authorities would be left behind resulting in huge tax savings!
Some theorists argue that property should be owned only in the name of individuals so that “public goods” can be served by holding owners accountable for what happens to property (responsibility for people and conditions). At the Federal level some even refer to two important laws: the Freedom of Information Act (1976) and the Privacy Act of 1974 as reasons to impose ownership on behalf of individuals and not trusts (or at least limit Land Trust’s privacy). through statutory regulations).
In Arizona, for example, fear of organized crime drives its legislative action (see New York Times, March 30, 1976 at 20, col 4). The AZ legislature enacted, as an amendment to the listing law, a provision requiring any transportation to or from the Trustee to include the name and address of the beneficiary or a person representing the beneficiary. However, it is not clear under these laws whether Trustees of other Trusts (i.e. personal property trusts), corporations, or nominees can be registered as beneficiaries and still comply with the law.
In Illinois land trust laws appear to have evolved out of legislative concerns over slum housing problems and corruption among public officials (as the case of Thomas Keane previously stated). A 1963 law enacted in Illinois requires full disclosure of beneficiaries of a Land Trust “within 10 days of receipt of notice of or complaint of any breach of regulation relating to the condition or operation of real property that affects health or safety.” The apparent intention was to compel disclosure of the “real owner” of buildings with housing code violations. While there is a fine of $100.00 per day for non-compliance with the law, nowhere does it describe specific procedures for compelling disclosure.
Iowa’s main concern with regard to privacy of property is the possibility of concealing property ownership by nonresident aliens. Under Iowa law (see Rights of Aliens under Iowa and Federal Law, 47 Iowa L. Rev. 105) a non-resident foreigner may not own more than 640 acres located outside the city or town company boundaries (see Iowa Code Ann. 567.1 ). However, the nonresident alien ownership ban in Iowa talks about “acquiring the rights to or holding” real estate. It is unclear whether indirect ownership (ie through a Land Trust or nominee) is prohibited. It is also interesting that the Iowa law does not specify penalties for non-compliance!
What’s interesting about some states that seek to control LT information (and compel disclosure) is that their laws are event-based. The event that triggers the disclosure is a transfer of title into or out of the trust. Events following transfer to the trust, such as a change in beneficiary or amendment to the trust agreement, need not be disclosed.
There is an inherent conflict between those who wish to privately own property and the interests of the general public (and some government agencies). While it’s true that some bad characters will try to use the land trust to circumvent code requirements, tax reassessments or sell clauses, most won’t. Most people who take advantage of land trusts do so with good intentions. (i.e. estate planning, privacy concerns, asset protection, etc.).
Of course public officials may not use land trusts to deceive the public (and building code violators should be held accountable), but in a typical residential real estate sale transaction, the buyer is protected through disclosure laws of the seller, the holding company and the attorneys involved. in transactions (regardless of whether a land trust is used or not). Furthermore, responsibility for property held in land trusts flows to the beneficiaries. While an LLC or other entity can be the beneficiary of a land trustee, ultimate responsibility is unavoidable by using a land trustee.
Because our American legal system is poorly run and attorneys with contingency fees abound, I do not support the free flow of information relating to property ownership. Because there are no Federal land trusteeship laws (only state by state), the possibility of legally compelled LT beneficiaries voluntarily disclosing information about the ownership or condition of their property is unlikely in most states, if any.
