What Is a Land Trust?
A land trust is a legal entity that takes ownership of, or authority over, a piece of property at the behest of the property owner. Like other types of trust, each land trust's terms are unique.
- Land trusts are organizations that take legal ownership, stewardship, or partial control over property at the behest of the landowner.
- Title-holding land trusts, also known as Illinois land trusts, protect landowner anonymity and keep property out of probate.
- Conservation land trusts are tasked with the management of undeveloped land to maintain natural resources, historical sites, and public recreational areas for future generations.
- Landowners who use conservation easements to transfer development rights to a conservation land trust can receive a tax deduction for their charitable donation.
- Due to some instances of fraud, some conservation easement donations and the land trusts that accept them have come under increased scrutiny.
How a Land Trust Works
Start by understanding the two types of land trust.
- A title-holding trust allows the property owner to anonymously maintain all rights over the property and direct the actions of the land trust. These trusts are also commonly called 'Illinois land trusts' because they were first popularized in Chicago during the 1800s. At that time, property owners were not allowed to vote on city projects in the same places they owned land. To circumvent this law, wealthy businessmen and politicians would use land trusts to purchase land anonymously, thereby protecting their voting rights.
Not all 50 states have a legal structure in place for a title-holding land trust. However, most states defer to the Illinois land trust laws if they don't have their own, meaning that any individual can form an 'Illinois-style' land trust in any state with proper legal guidance.
- A conservation land trust, on the other hand, requires that the property owner give up some rights over land use and development. The goal of a conservation land trust is to protect wildlife, historical or cultural sites, and natural resources from commercial development or other activities that may lead to disruption or pollution.
Title-Holding Land Trusts (aka Illinois Land Trusts)
In a title-holding land trust, the landowner signs a document called a Deed in Trust, which transfers legal ownership of the property. When setting up the trust, the landowner (who is both the trust grantor and the beneficiary) can specify how the land is to be managed, who has control over it, and how any income it produces is distributed. This means that while the trust is the title-holder on paper, the landowner maintains complete control over the property.
Title-holding trusts are used as a way for property owners to maintain anonymity and keep valuable assets out of probate. They can also provide a number of other estate planning benefits and protect assets from judgments or liens. This can be especially useful for the very wealthy, celebrities, and large companies who may want to keep development plans under wraps.
A case in point: The famous Walt Disney World Resort in Orlando, Fla., was initially purchased in 1965 using a title-holding land trust. The original owners of the Florida swamplands upon which the resort is built had no idea that Disney, already a household name at the time, was behind the purchase. Had they been aware of the buyer's identity, they likely would have increased their asking price.
Conservation Land Trusts
In a conservation land trust, the trust doesn't necessarily take over the land title unless the property is donated in its entirety. Instead, a landowner can enter into a legally binding agreement, called a conservation easement, thereby "donating" their development rights to the trust. The trust is tasked with ensuring the easement is enforced and, in some cases, managing the property.
Conservation easements can be tailored so that the landowner retains ownership and usage rights—such as the right to continue farming or raising livestock—while still ensuring that the land remains undeveloped in perpetuity. Conservation easements "follow the land," which means that the terms of the easement remain in force even if the land is sold or passed to heirs.
The total number of acres of undeveloped land managed by 1,300-plus private conservation land trusts throughout the U.S.
There is one other important distinction between title-holding and conservation land trusts: a donation to the latter could earn you a big tax break.
If a landowner donates their development rights to a conservation trust, they can receive a tax deduction equal to the difference between the value of the land as encumbered (with the easement in place) and what it could be worth if it were developed for its "highest and best use." In some cases, this deduction can be worth millions of dollars.
Typically, landowners are either farmers and ranchers who have owned the property for generations or very wealthy individuals, families, or businesses that can afford to buy tracts outright. Recently, however, a new investment niche has developed designed to open up the tax benefits of conservation to a larger portion of the population.
Investing in conservation easements...
Using a multi-member partnership (or 'syndicate'), these investment companies allow multiple accredited investors to pool their money to purchase land for conservation. After donating the property development rights to a land trust via a conservation easement, the members of the partnership split the tax deduction pro rata. Thanks, in part, to these conservation partnerships, it is estimated that land conservation increased by 175% between 2005 and 2015.
...And the controversy over conservation easement investing
Of course, any time there's the potential for profit, someone will abuse the system. There have been some high-profile cases of people taking very large deductions for donating easements on golf courses, housing developments, and other properties that don't actually have much ecological or cultural value.
In response, there has been an aggressive backlash against syndicated investments, specifically, and the land trusts that accept their easement donations. However, this singular focus may not paint a complete picture of the issues at play. Whether donated by farmers, billionaires, or syndicated investors, it is clear that conservation easement donation laws require a closer look to ensure that the risk of abuse is minimized without removing the incentive to conserve.