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History of Land Trust Law
Land Trusts Under the Common Law.
1. In the middle ages, the features of feudal tenure, primogeniture and forfeiture for treason very often resulted in transfers of land to family friends for the benefit of the grantor.
2. The Statute of Uses, adopted at the time of Henry VIII, was adopted so as to execute these kinds of arrangements. The result of execution of a trust, under the Statute of Uses, was to vest the holder of the use with the legal estate.
3. After the enactment of the Statute of Uses, English courts found that is was inapplicable to active trusts and the concept of trusts became, and remains, part of present day law.
4. English rule brought the Common Law to the United States with it the Statute of Uses. The Statute of Uses continues as one of the problems in the legal background of land trusts. The Statute of Uses in Florida is found in Florida Statutes Section 689.09. The Statute of Uses as adopted in Florida reads as follows:
"By deed of bargains and sale, or by deed of lease and release, or of covenant to stand seized to the use of any other person, or by deed operating by way of covenant to stand seized to the use of another person, of or in any lands or tenements in this state, the possession of the bargainer, releaser or covenant or shall be deemed and adjudged to be transferred to the bargainee, releasee or person entitled to the use as perfectly as if such bargainee, releasee or person entitled to the use had been enfeoffed by livery of seizin of the land conveyed by such deed of bargain and sale, release or covenant to stand seized; provided, that livery of seizin can be lawfully made of the lands or tenements at the time of the execution of the said deeds or any of them."
5. It is important to note that the land trust differs significantly from trusts as they were contemplated under the Statute of Uses. In a land trust, the trustee receives both the legal and equitable title to the real property and is generally given some purely administrative duties. Robinson v. Chicago National Bank, 176 N.E.2d 659, 661 (Ill. 1961).
6. Land trusts had their beginning in the state of Illinois and for that reason the land trust is many times referred to as the "Illinois Land Trust". Hart v. Seymour, 147 Ill. 598 (Ill. 1893), is generally regarded as the first case recognizing the existence of land trusts.
7. In a later case, Schumann-Henk v. Folson, 159 N.E. 250 (Ill. 1927) the court equated the land trust to the Massachusetts business trust from which the land trust undoubtedly evolved. However, it is important to note that unlike a Massachusetts business trust, a land trust is generally viewed as a vehicle for holding title to real property rather than as an operating business entity. As we will see later, there are important tax implications to treating the land trust as an operating business entity.
8. In jurisdictions in which the Statute of Uses is strictly construed, there are difficulties in establishing land trusts, see Janura v. Fencl, 261 Wis. 129, 52 N.W. 2d 144.
a. The liberal interpretation of the Statute of Uses by Illinois courts has made the land trust possible in that state.
b. The court in Illinois has held that the trustee's duty to deal with the title, on the direction of the beneficiary, and to sell the property, if any property remains at the end of twenty years, is sufficient to create an active trust and to avoid the operation of the Statute of Uses. Chicago Title and Trust Company v. Mercantile Bank, 300 Ill. App. 328 (1939).
c. Florida Courts have held that the Statute of Uses does not void a land trust created under Florida law. Gramer v. Ramon, 174 So.2d 443 (Fla. 2nd DCA 1965).
d. Land trusts are widely used in the State of Illinois. The court in Chicago Federal Savings and Loan Association v. Cacciatore, 25 Ill. 2d 538 (1962), stated:
"The law of this State and the reviewing Courts for more than eighty years have encouraged public reliance upon the real property concept exemplified in the land trust now before us. Millions and probably billions of dollars have been and are now invested in similar trust arrangements and thousands of titles depend thereon for their validity."
e. In states such as Wisconsin, where the Statute of Uses is strictly construed, it may still be possible to use land trusts by expanding the duties of the trustee. Doing so will impose additional duties on the trustee, in other respects the trust agreement would be the same as the standard form.
(1) An example of language to include in the standard trust agreement is "land trustee is empowered to manage the trust estate for the best interests of the beneficiaries, to make and modify lease agreements, to incur expenses in the printing of the trust instruments, certificates and books of record, to borrow funds and to compromise and settle claims"
(2) It is important to review these matters with a title underwriter in states such as Wisconsin to make sure that title will be insured in the trustee under these circumstances.
f. In other states, land trusts have been recognized, some by statute and some by court case.
(1) Land trusts have been codified in the State of Virginia in a similar manner as they are in Florida. Illinois recently codified its extensive body of case law in a statute.
(2) Courts in states such as Kansas and California have moved in the direction of acknowledging land trusts by case law.
(3) A chart with a state by state analysis of land trusts is attached to these materials as Exhibit H.