The Land Trust Overview

The “Illinois type” title-holding land trust (a revocable, inter vivos, beneficiary directed trust) in conjunction with the NARS Equity Holding Trust Transfer System™ (NEHT™) allows the Seller (Settlor) to vest both the legal and equitable title of Subject Property with the trustee of a land trust to be created; and to then subsequently transfer a beneficial interest in that land trust as a Co-Beneficiary.

This approach results in a personal property interest in the trust being conveyed without an unauthorized transfer of the real estate title, and without a violation of an existing mortgage lender’s “due on sale clause” or other “alienation” clauses (FDIRA 12USC1702j-3). The NEHT™ system allows Sellers to provide advantageous Seller-financing terms, by way of preserving attractive existing mortgage terms to pass through – while avoiding the inherent risks of other types of seller-financing arrangements (lease-options, wrap-around financing, contract-for-deed, or equity sharing, etc.).

The time-tested (since 1986) NEHT™ system is a meticulous, straight-forward process of transaction documentation that incorporates:

1) A title-holding Land Trust Agreement between the Settlor and a Trustee; followed by
2) An Assignment of a Beneficial Interest to a Buyer; in conjunction with
3) A Beneficiary Agreement (analogous to a joint venture agreement) between Seller and Buyer; along with
4) An Occupancy Agreement (i.e., a tenancy agreement whereby a Co-Beneficiary ‘leases’ the corpus real estate from the trust, rather than holding an equity interest in the real property itself); and when circumstances dictate,
5) A Limited Power of Attorney from the Settlor to Buyer for handling the management of the property according to the dictates of the Trust Agreement, and the Beneficiary Agreement between the Co-Beneficiaries.

When combined with a land trust, the NEHT™ documents effectively afford a would-be buyer all the benefits of homeownership, including income tax deductions…without the necessity of a transfer of title ownership. The NEHT™ system effectively protects the “seller”, as well as the second and/or any third beneficiary (investor and/or resident beneficiaries) from any untoward personal or legal action by or against the other parties.

Utilizing the NEHT™ system, the Seller’s property rights are fully protected, and Seller’s equity, if any, is safely preserved. In addition to the important benefits described above, the land trust also provides an effective buttress for the Seller’s real estate ownership against threat of lawsuits, creditor claims, IRS tax liens, bankruptcy and legal claims in marital dissolution, probate proceedings, etc.

Unlike other types of trusts, the Beneficiaries of a land trust retain full direction and control of all trust decisions. As an additional safeguard, Equity Holding Corp. (formed in 2000 to function exclusively as a non-profit corporate trustee for Illinois-type land trusts) functions as the trustee. EHC has extensive experience in this capacity, acting as trustee on behalf of hundreds of property owners and investors nationwide. (See attachments regarding Selecting A Trustee, and Designated Trustee & Disclosure).

Though many real estate agents, lenders, and attorneys are not entirely familiar with them, Land trusts (particularly “Illinois-type” title-holding Land Trusts) have been used for real property ownership and transfer in the U.S. since the early twentieth century. Land trusts are authorized and/or accepted in every state throughout the U.S. at this time.

While setting up and operating the land trust does require a lot of paperwork, a careful review of the process demonstrates that the Equity Holding Trust Transfer System™ is less complicated than a typical 1031 exchange or wrap-around transaction, while also generally offering more advantages for all parties, and their representatives.

("Reprinted and used with Permission of the Author - 5-2008")