A land trust is designed for you to hold property in a trust, while a living trust can be any number of assets. A land trust is essentially a type of a living trust with a more specific purpose. 

But how do the different types of trusts work? What type would be best for your estate planning? 

Land trusts and living wills are two common types of trusts, both fulfilling their own role and offering different benefits. Here we will discuss an overview of these trusts comparing them, discussing their functions and considerations between the two. We hope that by the end of this article, you’ll understand exactly which trust works for your situation. 

Overview of Trusts

But wait, do you know what a trust is? Do you know how it works? Why would you have one? 

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I’m going to assume that you know everything, but it’s important to have some basic foundational knowledge here. Let’s just quickly cover what a trust is before going on to land and living trusts. 

What is a Trust?

A trust is a fiduciary relationship which allows a third party to hold and manage assets for a beneficiary. That’s a fancy way of saying, but it’s your assets held by a third party, all for the benefit of your loved ones. 

Trusts can fall into a number of categories, and it all depends on revocability, purpose, or type of assets. You might have heard of revocable living trusts, irrevocable trusts, land trusts and testamentary trusts are all common examples. Each type serves its specific uses and benefits, all based on your goals as the grantor.

For example, a revocable living trust permits the grantor to maintain control of assets during their lifetime.  On the other side of the coin, you have an irrevocable trust, which offers superior asset security and some attractive tax advantages. But we’re getting ahead of ourselves here. Let’s stay basic with our terms so we don’t confuse you. 

Why Trusts Are Such a Big Part of Estate Planning

We love to use land trusts and living trusts as ways of estate planning. That simply means making a plan for what will happen to your estate after you die. Remember that your estate includes everything you own – property, businesses, collectibles, money, investments, and so on. 

Trusts are a great tool for asset management because they let you determine when and how your assets are distributed. Also, trusts come with extra perks such as privacy, tax benefits and creditor protection. For instance, assets owned in a trust are usually not part of the public probate process, so most details of the estate will remain private out of sight from others. Handy, right? 

Trusts are used to avoid probate, which can take time and be competently expensive. Trusts can also be used to help take care of minor children or disabled family members. You can safely provide long-term care without disrupting benefits or worrying about their future livelihood.  

Similarly, trusts can be tailored to schedule out distributions based on certain conditions, like an age target or after graduation. This would, hopefully, encourage some responsibility among your beneficiaries. Trusts offer a lot of control and customization for your estate planning. With the right trust, you can take a long view about where your money will go after you’re gone.

Introduction to Living Trusts

With those basics out of the way, let’s now get into the specifics of the living trust. The living trust is a broad category of trusts that you create while you are alive. The opposite of a living trust would be a testamentary trust, which only comes into effect after you die. A living trust starts today. 

What Are Living Trusts and Why Would You Want One?

The living trust, or what is sometimes referred to as a revocable living trust, lets you manage your assets during your life. You can still designate how and when your assets will be distributed after you die. 

A living trust can own any type of asset, including bank accounts, investments, personal property, businesses, and heirlooms. 

A living trust is a powerful tool to transfer your assets smoothly after you die without going through probate. The main difference here from a will is that a living trust keeps your privacy intact while everything in a will can be public knowledge after going through probate courts. 

Living trusts also provide flexibility since the grantor can change or undo the terms if they are still alive. This flexibility is what makes living trusts more desirable for those who might have major life changes (such as marriage, divorce or the birth of children). Hey, things change, and if they do, you need a trust that can change with you.

How Living Trusts Work

A living trust is created when the grantor decrees a trust document that specifies and details the terms of the trust, outlining who will receive what and who shall be the trustee. Now, here’s the key difference. The grantor can also be the trustee, guiding and managing all trust assets while you’re still alive.

If the beneficiary meets all of the specified terms and conditions in a trust document, then they are eligible to receive any distributions. This might be investment dividends, income from businesses, or a straight transfer of assets. 

Assets (and asset income) can be passed in an orderly and efficient manner without court interference. This gives you privacy and security. Plus, it saves you substantial probate fees.

 In addition to this, living trusts can also offer some protection in cases of incapacity. Let’s say you become incapacitated and you can’t make legal decisions. You can appoint a successor trustee who will manage the assets on your behalf. Even in hard times, your trust remains intact and effective.

Introduction to Land Trusts

Within that broad category of living trusts, you have the land trust. But why make a specific type of trust? And what does a land trust offer that a living trust doesn’t? Let’s cover that here.  

What is a Land Trust?

A land trust is a type of trust that mostly exists to hold the title to real estate. In a land trust, the holder of title to real estate (who is also called the grantor) conveys that title to the trust company but they are still a beneficiary. This structuring allows for confidentiality around the ownership and makes it easier to transfer. For this reason, it’s often called a title-hold trust. 

So, why choose this ultra-specific niche of trust? The main reason for setting up a land trust is to have efficient management of real estate properties. The key advantage is that land trusts can be excellent at transferring land without public notice. This means that property owners are well hidden and nothing is disclosed about who owns what property.  

Similarly, investors and developers who want to stay anonymous can still manage their property portfolios without any attention. In fact, they can be used to safeguard your properties from liens or judgments against you as the grantor because the trust becomes the legal owner of the asset and not you.

How Land Trusts Work

A land trust is created when a grantor signs a trust agreement, ceding all responsibilities to a trustee. The trustee holds the legal title to the property until such time as specified in the trust agreement. And the property can be transferred to beneficiaries without any court intervention. 

The grantor usually reserves any rights to the property as a beneficiary. You can keep the rights to use and enjoy the property, to sell it, or to mortgage it. You should know that when the trustee acts on behalf of the grantor, the trustee does not have ownership rights.

As a side note, land trusts are effective living trusts for conservation efforts. If you put land in a trust, you can save land for future generations in its natural state or as intended. So, let’s say you want a family farm to stay a family farm. If you put it in a land trust, you can preserve the intended use of that land parcel.

Land Trust vs. Living Trust Comparisons

With some of the basic knowledge about these trusts, let’s put them side by side. 

Similarities of Land Trusts vs. Living Trusts

Land trusts and living trusts differ in important respects, but they also have a number of things in common. In either case, the trust involves a legal contract drafting the trustee to administer assets for beneficiaries.

• Avoid Probate Courts
  Each can protect privacy and have benefits in avoiding probate courts when passing assets down to heirs.
• Asset Distribution
  Both types of trust permit some control over how and when the assets are given out.
• Estate Planning
  Both provide asset management and estate planning advantages like the transfer of titles and beneficiary rights. 

Furthermore, land trusts and living trusts are good vehicles to protect assets from creditors. When assets are put in a trust, they may be out of reach from various lawsuits and potential claims. Mind you, it’s not as effective as an irrevocable trust, but you do have some benefits. 

This means that your intended beneficiaries can get what you want them to get without outside risks. Not only does this work as a shield, it is extremely important for high-risk occupations. Additionally, each trust is fully customizable and can be written to fulfill your objectives and wishes.

Differences between Land and Living Trusts

The differences between land trusts and living trusts are based on your purpose and goals.

• Type of Assets Held:
  Living trusts can hold assets — including real estate, savings accounts, and investments — while land trusts are exclusively for holding real estate.
• Purpose and Usage:
  Where land trusts concentrate on the privacy of property hold and transferring ownership, a living trust is more about an estate planning strategy to handle various types of assets without probate involvement.
• Revocability:
  Most living trusts are also revocable, meaning a grantor can change the trust during his or her lifetime. By comparison, land trusts are more often revocable (they can be changed) but change less frequently after formation.

Additionally, you have to consider the tax consequences of each type of trust because they can be quite different. This really matters when you consider the income generated from properties held in a land trust compared to assets in a living trust. If you set it up correctly, your tax rate could be lower as assets aren’t considered as part of your personal wealth. This applies to both you and your beneficiaries.  

Living Trust vs Land Trust: What Works Best For You

Whether a land trust or living trust is right for you will depend on your unique goals and situation. Here are some important questions to ask yourself before deciding which trust works for you.

• What type of assets do you want to protect in a trust?
• Is property ownership privacy a concern for you?
• What do you want to happen with your estate? (EG: Do you want to keep probate costs low?)
• How involved do you want to be in the day-to-day administration of the trust? Or should you appoint a trustee?

Pros and Cons of Land Trusts

Land trusts are a financial tool and, like all tools, land trusts have good points and not-so-good points.

Pros:

• Keeps property ownership private.
• Real estate transfers don’t need to be cumbersome and costly.
• Protects legal claims for property.

Cons:

• Real estate asset standard restricted.
• Ongoing management, which can be complex at times, 

Living Trust Pros & Cons

The same is true for living trusts: they tend to have their pluses and minuses.

Pros:

• Avoiding probate - provides quick transfer of all assets, not just property.
• Offers versatility and control over different assets while you’re alive.
• May contain terms for minor beneficiaries and special needs beneficiaries

Cons:

• Initial costs of implementation and maintenance could be higher.
• Assets must be retitled to properly fund the trust.

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Land Trust vs Living Trust: Your Decision

In conclusion, here’s what you need to remember. 

A land trust is a great vehicle if you own property and you want to keep your personal details out of public record. That could be a win-win if you don’t want to raise questions or attract the wrong kind of attention about your real estate interests. 

Further, a land trust can offer clear avenues for owning property (behind the shield of a trust) while sensitive personal situations get resolved outside of your hands.

But on the other hand, living trusts provide more a comprehensive estate planning solution. They cover more than just real property. A revocable living trust can own bank accounts, investments, personal property, business interests and other assets. 

That flexibility empowers people to create a more well-rounded estate plan that can build a financial legacy for generations to come. 

So, if you’re simply looking for property protection and privacy, the land trust is the better choice. But if you need an overall solution, the living trust offers much more flexibility and control. 

Still unsure what to do? That’s why we’re here. Reach out by filling in this simple form below. We’ll reach out and discuss your specific goals and requirements. And we can help you secure your assets and your future. It’s as easy as filling in this form to get started on your future today. 

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