One type of trust that we sometimes deal with in title transactions is a land trust or passive trust. Land trusts aren’t legal in Minnesota, but they are used in other states (mostly on the East coast). In this article, we are going to explore the difficulties of dealing with land trusts in Minnesota title transactions.
The Importance of Reviewing Trusts Before Recording
Because land trusts are illegal in Minnesota, it’s important for the title insurance company to review the trust documents before recording. We have seen land trusts get recorded before in Minnesota because the parties involved weren’t aware of the state laws restricting land trusts. When that happens, the owner has a significant problem to clean up.
What is a Land Trust?
So what is a land trust and how does it differ from other trusts? A land trust isn’t a true trust. In a true trust a trustee controls the administration of the trust assets. The trustee is the one who determines whether to sell, mortgage, or dispose of the property held by the trust. The beneficiaries don’t control administration of the trust. In a land trust, the trustee really doesn’t have much power. Instead, the beneficiaries are the ones in control of the disposition of assets. The trustee has to get permission from those parties in order to take any actions with trust property.
A lot of attorneys in other states don’t realize that land trusts aren’t legal in Minnesota. Accordingly, when we are working with attorneys in states where land trusts are legal it can be very confusing.