The September 17 Show:

Land Trusts and Revocable Grantor Trusts



The September 17 Lakeshore Lawyer program began with an extremely interesting change of format: the extended interview of the former long-time United States Attorney for the Central District of Michigan, John Smietanka. The main topic of that discussion was the recurrent problem of criminal convictions of persons who are “actually innocent” of the crimes of which they have been convicted, in other words, persons who have not in fact not committed those crimes.


Instead of attempting to recap the entire interview in this blog, I have posted it on the same website. Again, my email address is thelakeshorelawyer@lakeshoreptv.com, and the blog site is thelakeshorelawyer.blogspot.com.

On the completely different subject of land trusts, I noted that they are useful for purposes of protecting good title to real estate from claims against the beneficial owners of such trusts and that they facilitate the fractionalization of interests in those trusts (for gifting purposes, for example) while at the same time permitting the centralization of control. However, I also noted that all those same benefits are available through the use of limited liability entities such as LLCs, which also provide asset protection. Land trusts, by contrast, provide no asset protection at all.

In addition, in Indiana (although not in Illinois), interests in land trusts owned by a husband and wife do not qualify as tenancies by the entireties property. Thus, the use of land trusts by spouses to hold their homes or other real estate is not only nonbeneficial from an asset protection standpoint but actually detrimental.

In response to Chris’s question, I added that land trusts of this typical sort (where the land trustee does nothing except hold title and follow the directions of the holder of the “power of direction”) are to be distinguished from irrevocable charitable land trusts such as the Shirley Heinze Land Trust. Irrevocable trusts in general (a huge subject) will be the subject of the October program, with an emphasis on asset protection.

Finally, I touched on revocable grantor trusts, i.e., what most people mean when they say “living trusts.” Revocable grantor trusts should, in my opinion, be the foundation of most estate plans even though they (like land trusts) provide no asset protection against the claims of creditors of their owners. They by no means eliminate the need for powers of attorney, pourover wills, and other estate planning devices, and they can only have effect to the extent that they are “funded” with assets. Subject to those qualifications, though, they are, in my opinion, far superior to wills in most cases and, for that matter, beneficiary designation in many cases where the beneficiary is not a trustee, as a means of passing on asset-protected estates. Also, they provide for the management of their owners’ estates during periods of disability, which instruments that only take effect at death can not.

Revocable grantor trusts involve no income tax issues at all during their owners’ lives: as grantor trusts, under the grantor trust rules of the Internal Revenue Code, they are treated as if they do not exist for federal income tax purposes.

They are also, in these days, relatively inexpensive. Trusts are in short no longer reserved for the wealthy.