Q: What is a land title trust and what are the tax consequences and investment strategies?

A: The correct name is land trust. It is a method of owning real estate by which title of record is held by a trustee, but beneficial title (all the rights of ownership) is held by a beneficial owner (called a beneficiary). It's evidenced by a recorded title in the name of the trustee, and an unrecorded trust agreement that defines the rights and obligations of the trustee and the beneficiary.

The trustee holds title for the beneficiary. He deals with the title only upon written directions from the beneficiary, who retains complete control over the real estate.

A land trust is used in only a few states. In these states, it has become a method to hold real estate favored by syndicates, subdividers, builders, partnerships, corporations and professional groups or societies. The identity of the beneficiary is not revealed unless authorized by the beneficiary or required by law. A land trust has other attributes that make it popular with the groups I've mentioned.

The tax consequences are similar to those of any other real estate held in trust. Depreciation for income tax purposes is allowed the beneficiary in the same way as for depreciable real estate not held in trust, providing the relationship among the beneficiaries (if there's more than one) is not such that they're treated as a corporation for income tax purposes.

Investment strategies do not differ materially from those used in investing in real estate (primarily income-producing real estate) generally. The real estate should be fundamentally sound physically and of good quality construction.