Land Trust law is rarely taught in law schools across America.
Attorneys learn trust law; Sure. The problem is there are lawyers who learn about trust laws, receive their degree, and have a false sense that because of this they understand Land Trust laws.
These same attorneys can be intimidating to people like you and me. We do not have our Juris Doctorate. They do. Be assured you don’t have to be intimidated by them. Here is a real-life story to illustrate my point.
The Story Begins
Recently, I was an expert witness in a lawsuit in Illinois. The case involved a Land Trust and the lack of a Letter of Direction authorizing the Trustee to sign a mortgage. A question before the court was whether the Beneficiary was responsible for the mortgage without evidence of a legitimate Letter of Direction from the Beneficiary or Director instructing the Trustee to sign the loan.
What is a Letter of Direction? As I wrote in my Basic course, it is “A piece of paper signed by the Director that tells the Trustee what to do.”
Usually, the Beneficiary and the Director (the entity that holds the Power of Direction) are the same. This is not always the case though. If you would like more explanation, my Beginner’s Guide for Making Money Using Land Trusts goes into greater detail about Beneficiaries, Directors, and the Power of Direction.
My testimony in the lawsuit was, in part, that in my 40 years of experience using Land Trusts, I have never been involved in a situation where the lender did not require proof of a Letter of Direction signed by the Beneficiary (or holder of the Power of Direction) authorizing the Trustee to sign the mortgage.
After testifying for three hours, the opposing counsel asked their final question. It was, “Are you aware of the Illinois Trust & Trustees Act?” I responded, “Yes, but I have not memorized the Act.” The attorney went on to explain that a section of the Act allows a Trustee to rely solely on the power given a Trustee by the Trust Agreement. He asserted that a Trustee does not require a Letter of Direction.
My response was that if the Act actually stated this, it was wrong and should be changed. Otherwise, why would anyone use a Land Trust that gave the Trustee authority to mortgage property without authorization from the Beneficiary?”
When my testimony was over, I reviewed the Illinois Trust Code. I found the section to which the lawyer was referring. Interestingly, the second section of the Act prominently identifies this exemption: “This Code does not apply to any: (1) land trust . . .”
In other words, the statute nullified the opposing counsel’s assertion.
In my experience, the misunderstanding between standard Living Trusts and Land Trusts is common in the legal world. It comes back to the fact that Land Trust law is rarely taught in law school. Who knows? That might be the reason for the opposing counsel’s oversight.
Why You Don’t Have to Be Intimidated
There is a significant difference between most trust laws and Land Trust laws and few attorneys know what it is.
The distinction is that the standard Living Trust is what I call Trustee Driven. This means that the Trustee makes all the decisions on what happens with the Trust. A Land Trust is Beneficiary Driven. The Trustee cannot act without written direction (a Letter of Direction), from the Beneficiary (or, holder of the Power of Direction) especially when executing a mortgage.
The Moral of the Story
When confronted with a purported “fact” about Land Trusts, do your research. Even high-powered $500.00 per hour lawyers can be wrong!
Because Land Trust laws are rarely taught in law schools, you may find you know more about them than 98% of attorneys.