Guide to Land Trusts for Estate Planning in Arizona

An Arizona land trust is a way to keep property ownership private, mitigate the tax consequences of buying, owning, and selling property, and manage real estate in multiple jurisdictions. An experienced estate planning attorney can advise you on the suitability of a land trust for your estate plan based on your specific situation and craft the legal documents necessary to create one.

What are Land Trusts, and What Do Land Trusts Do?

In a land trust, a property owner transfers ownership of their property or specific property rights to a trustee, who manages the property or the property rights on behalf of the trust and its beneficiaries. Land trusts protect the property for the benefit of the designated beneficiaries. These trusts can provide privacy for property owners, facilitate cost-effective development, or preserve land for environmental purposes, affordable housing, or other goals.

How Do Land Trusts Work in Arizona?

In Arizona, land trusts usually involve three parties:

• The grantor/settlor – The grantor is the property owner who creates the trust or transfers their property to the trust.
• The trustee – The trustee is the party who serves as the legal representative of the trust. In many land trusts, the trustee becomes the title holder for the property.
• The beneficiary – The beneficiary is the person who benefits from the trust assets. For example, the property owner who creates the trust may also become one of its beneficiaries. Alternatively, the property owner may name their family members, loved ones, or other parties of their choosing as beneficiaries.

To create a land trust, a property owner must execute a trust document that appoints a trustee, names one or more beneficiaries, and outlines the trustee’s duties and responsibilities. After the trust’s creation, the property owner transfers their property or property rights to the trustee. The trust may give the owner most of the rights of ownership, including the ability to lease or mortgage the property. The trustee protects the property for the benefit of the beneficiaries.

Although Arizona does not have specific laws that allow or govern land trusts, Arizona law does not explicitly prohibit them.

Types of Land Trusts

Common types of land trusts used in Arizona estate planning include the following.

Title-holding land trusts

Generally, the name of the owner of real property is public record. People may use title-holding land trusts to purchase and own property and real estate investments anonymously, which can help protect one’s privacy. For example, a public figure might use a title-holding land trust to avoid having a seller increase their asking price for a property or to prevent people from discovering through land records that the public figure owns a specific piece of property. Developers may also use title-holding land trusts as they acquire smaller parcels of property to prevent sellers from increasing their prices upon learning of the developer’s plans.

In a title-holding land trust, the trustee holds legal title to a parcel of real estate, with the beneficiary of the trust (the effective owner of the property) retaining use and control of the property. Thus, the trustee’s identity goes on the public land records for the property, while the beneficiary’s identity remains private in the trust document. An experienced attorney can explain when to use a land trust of this nature to meet your objectives.

Conservation land trusts

Parties may create conservation land trusts to preserve the environment or natural resources. A property owner may place their property into a conservation land trust either by donating the property in its entirety or entering a conservation easement with the trust, under which the property owner transfers development rights to their property to the trust.

Under conservation easements, landowners retain title and can continue to access and use their properties for specific purposes, such as farming or raising livestock, while also ensuring the land remains protected, as the trust can enforce the easement to protect the property from future development. Landowners who enter conservation easements with trusts may receive various state and federal tax deductions or incentives and other estate tax benefits.

Community land trusts

Individuals and organizations may form community land trusts to acquire and preserve land for a local community. In most cases, a community land trust acts as a non-profit organization that develops property for community benefits, such as creating affordable housing. A community land trust can help make homeownership more affordable by entering into long-term leases of residences (such as an automatically renewable 99-year lease) rather than selling properties to buyers. Homeowners who sell their residences receive part of the increase in the property’s value, with the remainder going to the trust to maintain affordable housing for future residents.

Realities and Benefits of Land Trusts

Property owners considering setting up a land trust should understand their benefits and limitations. First, while land trusts can offer privacy to property owners, they do not automatically provide liability protection to owners. For example, a creditor may still reach an owner’s property in a land trust by “piercing the veil” if the creditor proves that the owner still retains effective control over and use of the property. Second, even when a property owner structures a land trust to protect assets, they might not have the ability to place all types of real estate assets in the trust.

Those caveats aside, land trusts also offer the following benefits:

• Managing the tax implications of buying and selling property or bypassing probate when passing property after death
• Ensuring privacy in property ownership by safeguarding your identity, as the trustee can serve as the listed owner on public land records
• Facilitating easier management of property located in different jurisdictions by placing real estate under a trustee’s protection

While there is a general assumption that land trusts only benefit the wealthy, people with large estates, or those who own extensive tracts of land, individuals who don’t necessarily fit into these categories can also benefit from the anonymity and privacy these instruments afford.

Navigating International Estate Laws

Owning property in multiple countries can become challenging, as each property is subject to the laws of the nation in which it resides. Land trusts can streamline the process of buying, holding, and selling property in Arizona and other jurisdictions. However, property owners can best protect their rights and interests by seeking legal counsel who can help them retain the use and control of the property that they need.

Seizing Opportunities in the Desert Landscape with Our Arizona Trusts Attorney

Incorporating land trusts into your cross-border estate planning strategy provides Canadian residents and international investors with a versatile tool to navigate the intricacies of the U.S. real estate market. As you explore the neighborhoods of Surprise, Buckeye, and Sun City West from a global perspective, land trusts stand as a beacon of efficiency, protection, and opportunity. Embrace the potential of cross-border estate planning with land trusts and embark on a journey toward securing your international real estate legacy. Contact Pennington Law, PLLC today for an initial consultation to learn more about our land trust asset protection services.