3 . Similarity of Parties Result in Application of the Merger Doctrine –
Attorneys are averse to venturing into uncharted waters for fear of liability .
1 . Dry Trust is Created –
2 . Limited Trustee Duties Create a Passive Trust –
1 . Create an Active Trust –
2 . Use More Than One Individual –
3 . Properly Fund the Trust –
ERRONEOUS LAND TRUST ADVICE HOW TO SPOT IT CLINT COONS
3 . Similarity of Parties Result in Application of the Merger Doctrine –
Attorneys are averse to venturing into uncharted waters for fear of liability .
A trust will automatically terminate when the same person serves or becomes both the sole trustee and the sole beneficiary of a trust . The trust is ignored and the law views the beneficiary as the owner of the property regardless of how title is held .
These problems can be avoided with proper drafting of your land trust : limitations typically referred to as “ Statute of Uses ”. This common law doctrine will defeat most attempts to create a land trust unless careful consideration is given to certain principles when drafting your trust document . Three common errors are as follows :
1 . Dry Trust is Created –
If a land trust is not properly funded with real estate the trust will not hold any assets . Thus , the trust becomes null and void and will not be recognized .
2 . Limited Trustee Duties Create a Passive Trust –
A trustee must be given active duties to perform with respect to the trust assets otherwise the trust will fail . States such as Illinois , have adopted land trust statutes with the specific purpose to nullify the “ Statute of Uses ”. In these states , a trustee can be appointed for title holding purposes only without any power over the trust assets . All powers are reserved to the beneficiaries . ( This is why most attorneys get it wrong when discussing the use of land trusts . They incorrectly assume this is the type of trust you are creating .)
1 . Create an Active Trust –
Give the trustee of your land trust some duties over the assets of the trust . An Illinois style trust , wherein the trustee has no or limited powers should only be used in Illinois . The trustee of your land trust should have the power to collect rents , contract for repairs , pay taxes , and pay for expenses .
2 . Use More Than One Individual –
A single investor should never create a land trust wherein he holds both the beneficiary and trustee position . A single investor should always appoint a third party to serve as the initial trustee . After the trust is funded and the beneficial interest is assigned to a limited liability company , the third party trustee should resign . Upon resignation the investor will become the trustee . If a married couple is creating a land trust , one spouse will serve as the trustee and both can be beneficiaries .
3 . Properly Fund the Trust –
Shortly after a land trust is created and before an assignment of beneficial interest to an entity , the investor should deed the investment property into the name of the trust . When preparing the deed it is