Illinois Land Trusts
By Randy Hughes
There is no federal land trust law. Each state either has a Land Trust Statute or trust laws that govern the validity of using a Land Trust to hold title to real estate. In past articles I have covered; Florida, Virginia and California. This issue of my Land Trust University newsletter will detail the Illinois Land Trust (Chapter 760 ILCS of the Code of the State of Illinois) and its benefits/challenges.
Illinois is the granddaddy of Land Trust Law. This is the reason why most Land Trusts throughout the USA are referred to as “Illinois-type Land Trusts.” Chicago Title formed the first Land Trust made in the United States to help a builder develop and sell lots for a suburb of the City of Chicago, Illinois. While Illinois does not have a specific Land Trust Statute, it does have over 100 years of case law that most other states default to when deciding Land Trust cases. As a point of interest, Barak Obama, holds title to his house in the suburbs of Chicago in a Land Trust (his attorney is the Trustee). While I cannot prove it, some say that 90% of the commercial property in Cook County, Illinois (Chicago), is held in Land Trusts. Needless to say, Land Trusts are very popular in Illinois. This fact produces good news and bad news when using Land Trusts in Illinois.
The good news is that because Illinois Land Trusts have been around so long and used to such a large degree within the State, it is easy to find legal help with Land Trust issues AND title companies are very familiar with insuring Land Trusts. Furthermore, most property insurance companies are also accustomed to correctly insuring a Land Trust (making the Named Insured the Trustee and the Trust).
The bad news is, Illinois law has plugged the benefit’s hole to some degree. For example, Illinois has a law that any transfers of the beneficial interest in a Land Trust are NOT VALID unless reported to the local taxing bodies. However, there is a good lesson in this tale because if you read the law carefully you discover that the law ONLY applies to counties of 3 million or more in population. There is only one county in Illinois that holds that many soles…Cook County! The rest of the State of Illinois is exempt from this law (it always pays to read the fine print).
Illinois law also requires that the Trustee perform certain “duties” to validate the Trust Agreement. I do not want my trustee to have ANY duties other than to hold and convey title (at the minimum). As discussed in previous newsletters, other states (e.g. Virginia) do not require any duties of a trustee other than to hold title.
Despite these obstacles, many historical benefits to the use of Illinois Land Trusts remain. The principal attraction of a Land Trust is its ability to confuse and hide ownership of property and ease of transferability. Other benefits are:
1. Insulation from liens and judgments (can be seized or transferred by court order)
2. Ease of transfer of interest (button, button…)
3. Avoidance of probate (allows for one to control the management and distribution of an estate for generations)
4. Ease of management by multiple owners
5. Keeping sales price confidential
6. Fracturing interests for multiple owners (don’t become a general partner… form two trusts)
7. Ease of linkage to other asset protecting entities
8. Confusion/expense to adversaries
9. Flow through tax consequences
10. Limited liability
11. Non-judicial repossessions of real estate sold on an installment contract (buyer can’t encumber the fee simple title)
12. Form 1099 not required for transfers (personal property is not subject to real estate regulations)
13. Ease of operating across state lines
Other issues to consider when forming an Illinois Land Trust are:
Note #1: In Illinois when a beneficial interest is assigned as collateral for a loan, it must be recorded under the Land Trust and Recordation and Transfer Tax Act. Taxes need not be paid on collateral transfers, only on all other transfers. They also want the trust document or a facsimile to be recorded along with the collateral assignment.
Note #2: Illinois land trust statute (75 ILCS 435) requires that holders of the Power of Direction owe fiduciary duties to holders of the Beneficial Interests. This is not the case in most other states that have Land Trust statutes.
Note #3: Effective January 1st, 2011 House Bill 5282 is now PA 96-1145. The Act adds language to section 1c of the Joint tenancy Act (765 ILCS 1005/1c):
Note #4: In Illinois trusts are generally spendthrift trusts by default.
(735 ILCS 5/2-1403) (from Ch. 110, par. 2-1403) Sec. 2-1403
No court, except as otherwise provided in this Section, shall order the satisfaction of a judgment out of any property held in trust for the judgment debtor if such trust has, in good faith, been created by, or the fund so held in trust has proceeded from, a person other than the judgment debtor.
Where the homestead is held in the name or names of a Trustee or Trustees of a revocable inter vivos trust made by the settlors of such trust or trusts who are husband and wife, and the husband and wife are the primary beneficiaries of one or both of the trusts so created, and the deed or deeds conveying to the homestead to the trustee or trustees of the trust or trusts specifically state that the interests of the husband and wife to the homestead property are to be held by Tenants By The Entirety, the estate created shall be deemed to be Tenants By The Entirety.
The new law also amends section 12-112 of the Code of Civil Procedure (735 ILCS 5/12-112). As amended the second sentence of that section now reads as follows:
Any real property, or any beneficial interest in a Land Trust, or any interest in real property held in a revocable inter vivos trust or revocable inter vivos trusts crated for estate planning purposes, held in Tenancy By The Entirety shall not be liable to be sold upon judgment entered on or after October 1st, 1990 against only one of the tenants, except if the property was transferred into tenancy with the sole intent to avoid the payment of debts existing at the time of the transfer beyond the transferor’s ability to pay those debts as they become due.
Remember from my previous articles, it is possible to form a Land Trust in one state to hold title to property in another state. This is a very foreign concept to most attorneys and is confusing to most everyone. Consequently, holding title in an out-of-state Land Trust is a good asset protection technique.
I encourage you to learn more by going to my FREE online training at: www.landtrustwebinar.com/411 and text “reasons” to 206-203-2005 for my free booklet, “Reasons to Use a Land Trust.” You can also reach me the old fashion way by calling me at 866-696-7347 (I actually answer my own phone unlike most other businesses in America today).
Randy Hughes, Mr. Land Trust
If you want to learn more about the wonderful world of trusts, please go to: www.landtrustsmadesimple.com for more information. Or, if you would like to attend one of my FREE Land Trust Webinars, go to: www.landtrustwebinar.com/411 Also, feel free to call me with any questions. I actually answer my phone! 1-866-696-7347
