A land trust is an agreement whereby a trustee agrees to hold real estate in trust for the benefit of a beneficiary. In a traditional trust, the trustee holds legal title and the beneficiary holds equitable title. By contrast, in land trusts, the trustee holds both legal and equitable title, and the beneficiaries right is personal property.
So What Does That Actually Mean?
In jurisdictions where there is official support for land trusts through legislation or judicial decisions the benefits are sweet. Here are a few of the advantages:
- Judgments against the beneficiaries of a land trust are not liens on real property. This is because the beneficiaries interest in the real estate is personal property and not real property.
- Transfer taxes can be minimized since transfers of beneficial interest take place off the land records. Goodbye closing costs!
- Pass through taxation like an LLC.
- Anonymity. The trustee’s name is on the deed and trustee contracts on behalf of the beneficiaries in the name of the trust.
- Avoid probate because the trust instrument controls the land. Save more money!
- A beneficiary cannot force the sale of the home or single-handedly dissolve the trust.
- If a beneficiary dies and does not pay death taxes, the taxes do not create a lien on the property that must be paid off before the house is sold. This is because the beneficiaries interest is defined as personal property and not real property.
But What About The Title of Your Post?
Unlike Florida, Illinois, and Virginia, Maryland does not have legislation or judicial decisions that give land trusts official support. This does not necessarily mean that land trusts are illegal or ineffective in Maryland. In fact, I’ll happily form LT for my current clients and I’ll probably shift my practice to solely running LT company when I grow tired of the day to day lawyer grind. It just means Maryland is silent on it. We won’t know for sure whether or not land trusts in Maryland have all of the purported benefits until either case law develops or we get a statute that officially recognizes them. Until then, we are in unexplored territory.
There is a lot of hype surrounding land trusts online, and for good reason. If you decide to form one in Maryland, just know that you are in unexplored territory and to use a land trust attorney that knows how to navigate the ins and outs of your jurisdiction.
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