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