Form a land trust by owning land, designating an entity or person to hold the land, selecting someone to benefit from the land, and executing a trust agreement transferring the land into a trust, according to HowStuffWorks. A land trust agreement has four parties: the land is the principal or trustres; the land owner is the settlor, or grantor; the trustee holds legal title to the land; and the beneficiary benefits from the trust.
Like other trusts, in land trusts, the land owners retain control of the land, but for legal purposes, the trustees are the owners, explains HowStuffWorks. Land owners in land trusts are anonymous but have the right to rent, sell, develop or bequeath the property. Real estate trusts shield owners from tax exposure and certain legal proceedings and enable simple transfers of the property. Land trusts can be revocable or irrevocable. Revocable trusts, such as Illinois land trusts, give land owners complete freedom to change or cancel the trusts, but irrevocable trusts are permanent.
During the 1800s in Chicago, Illinois, businessmen, railroad tycoons and politicians developed revocable land trusts to purchase property in the city, notes HowStuffWorks. City rules prevented public officials from voting on municipal development projects if they owned property in the area. Creating the Illinois land trusts gave the land owners a legal loophole. As of 2016, several other states permit revocable land trusts, including Florida, Ohio, Virginia, California and Hawaii.