Method of Conversion

• To convert a land trust into an LLC, the exact procedure involved may vary from state to state. However, the most basic way of doing this would be for the beneficiaries of the land trust to form a new LLC in which they are all members. After doing this, they must instruct the executor of the land trust to transfer all land trust assets to the LLC. Once the executor has done this, he and the beneficiaries can close the land trust.
  
  

Reasons for Conversion

• In some cases, a seller who is personally financing a piece of land may create a land trust in which both he and the buyer are beneficiaries. This ensures the seller will not fully relinquish the property until the buyer has paid for it completely. Once the buyer has paid for the land, he may take full ownership of it by moving it into the possession of an LLC. Another reason that beneficiaries may move land trust holdings to an LLC would be the matter of liability. For instance, if someone receives an injury while walking on the land, this could result in a civil suit. Land trusts do not provide liability protection for their beneficiaries, while LLCs do provide liability protection for their members.
  
  

Disadvantages of Conversion

• One of the principal benefits of forming a land trust is that it hides the identity of its beneficiaries from public view. All property transactions go through the executor, who does not actually own the land. The identities of land trust beneficiaries are only visible to government entities. In converting a land trust to an LLC, however, this identity protection no longer exists.
  
  

Alternative to Conversion

• Instead of transferring land trust assets to an LLC, and thereby trading the benefits of having a land trust for the benefits of having an LLC, the beneficiaries of a land trust can utilize the advantages of both types of legal entities. They may do this by setting up a situation in which they are members of an LLC that is the sole beneficiary of a land trust. By going through both a land trust and an LLC, property holders can enjoy the identity protection of a land trust and the liability protection of an LLC.