what is a collateral assignment of beneficial interest

Q&A: Lender Considerations In Perfecting Security Interests in Illinois Land Trusts

• Share on Facebook
• Share on Twitter
• Share on Pinterest
• Share on LinkedIn
• Share on Tumblr
• Share on Reddit
• Share by Mail

Q:  What steps should a lender take to properly perfect lender’s security interest where the collateral for the loan is held in an Illinois land trust?

A:  In order to properly perfect a lender’s security interest in collateral held in an Illinois land trust, a lender should take a “collateral assignment” of the beneficial interest in the land trust (“ABI”). Since the beneficial interest in an Illinois land trust is personal property, the Illinois Uniform Commercial Code (“UCC”), 810 ILCS 5/9-314, provides that a security interest in the beneficial interest in an Illinois land trust may be perfected by control of the collateral pursuant to 810 ILCS 5/9-107.1, which control is accomplished by service of a Notice of Collateral Assignment on the land trustee and obtaining a written receipt from the land trustee. Many trustees of Illinois land trusts have a standard form for lender’s use in securing the collateral assignment of the beneficial interest in the land trust, and the land trustee will sign the completed collateral assignment form to acknowledge lender’s collateral assignment of the beneficial interest in the land trust.

Q: Should a lender file a UCC-1 financing statement to perfect its security interest in an ABI?

A: 810 ILCS 5/9-312 provides that perfection of a security interest in an ABI may be perfected by filing a UCC-1 financing statement, but filing a UCC-1 financing statement is not necessary to perfect a security interest in a collateral assignment of a beneficial interest in a land trust. Although 810 ILCS 5/9-312 does not require a lender to file a UCC-1 financing statement in order to perfect the lender’s security interest in the beneficial interest in an Illinois land trust, by filing a UCC-1 financing statement, a lender puts third parties on notice of lender’s security interest and better protects lender’s security interest against other parties which may claim a security interest down the road.

Q: What is the benefit of having a collateral assignment?

A:   With a collateral assignment in place, the trustee of the land trust is not able to transfer title to the property held in the land trust or otherwise mortgage or encumber the property held in the land trust without the written consent of lender, as collateral assignee.

In addition, the Illinois Mortgage Foreclosure Law (“IMFL”), 735 ILCS 5/15-1106(a)(3) provides that any collateral ABI may be foreclosed under the provisions of the IMFL; and 735 ILCS 5/15-1106(b) provides that a secured party under Article 9 of the UCC may elect to enforce its security interest in a foreclosure under the IMFL if the security interest was created by a collateral assignment of a beneficial interest in a land trust.

Q: What can a lender do to enhance security?

A:  As belt and suspenders, lenders should also require the land trustee to execute and deliver an original signed and notarized mortgage to be recorded against the real property in the county where the real property is located in order to put third parties on notice of lender’s security interest and to allow lender to foreclose out any subsequent liens on the real property.

This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

Locations in Illinois & Wisconsin

Chicago : 216 S Jefferson St, Suite 303, Chicago, IL 60661 • (312) 382-1600

Milwaukee: 250 E. Wisconsin Avenue, Suite 1800, Milwaukee, WI 53202 • (414) 276-4080

Pleasant Prairie: 10411 Corporate Dr, Pleasant Prairie, WI 53158 • (262) 857-1600

• Search Search Please fill out this field.
• Trust & Estate Planning

Beneficial Interest: Different Types and Examples

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

What Is Beneficial Interest?

A beneficial interest is the right to receive benefits on assets held by another party and is often evident in matters concerning trusts.

Most beneficial interest arrangements are in the form of trust accounts, where an individual, the beneficiary receives income from the trust's holdings but does not own the account.

Key Takeaways

• A beneficial interest is the right to receive benefits from assets held by another party.
• A Crummey trust is often set up by parents for their children where the beneficiary has an immediate interest.
• A beneficiary receives income from a trust's holdings but does not own the account.

How Beneficial Interest Works

A beneficiary interest will change depending on the type of trust account and the rules of the trust agreement. 

A beneficiary typically has a future interest in the trust's assets meaning they might access funds at a determined time, such as when the recipient reaches a certain age.

Trusts for Children

For example, a parent may set up a testamentary trust to benefit their three children upon the parent's death. The trust creator can stipulate the distribution of the account's assets to the children during the parent's lifetime.

Additionally, a beneficial interest can be a house owned by a trust, where a child is a trust beneficiary and can use the house, both income tax and rent-free.

Beneficial interest will alter depending on the rules of a trust's arrangement and the type of trust account.

Parents may set up  Crummey trusts , funded through annual gifts, to take advantage of gift tax exclusions. With Crummey trusts, the beneficiary has an immediate interest and access to the trust's assets for a specified timeframe. For example, the beneficiary may be able to access the trust's funds within the first 30 or 60 days after the transfer of a gift. Those assets fall under the distribution rules governing the trust.

Other Examples of Beneficial Interest

Another example of beneficial interest is in real estate. A tenant renting a property is enjoying the benefits of having a roof over their head. However, the renter does not own the asset.

Beneficiary interests can also be applied to employer-sponsored retirement plans such as 401(k)s and Roth 401(k)s, as well as in individual retirement accounts (IRA) and Roth IRAs. 

With these employer-sponsored accounts, the account holder may designate a named beneficiary who can benefit from the account funds in the event of the account holder's death. The rules governing beneficiary interest in these cases vary widely depending on the type of retirement account and the identity of the beneficiary.

A spouse beneficiary to an IRA has more freedom over the assets than anyone else. The surviving spouse can treat the account as their own, rollover assets into another plan—if the IRS allows— or designate themselves as the beneficiary. 

A non-spouse beneficiary to an IRA, for example, can't treat the account as their own. Thus, the beneficiary can't make contributions to the account or roll over any assets in or out of the IRA.

• Terms of Service
• Editorial Policy
• Privacy Policy
• Your Privacy Choices

Assignment of Interest In LLC: Everything You Need to Know

Assignment of interest in LLCs happens when a member communicates to other members his/her intention to transfer part or all of his ownership rights in the LLC to another entity. 3 min read updated on February 01, 2023

Updated October 28, 2020:

Assignment of interest in LLCs happens when a member communicates to other members his/her intention to transfer part or all of his ownership rights in the LLC to another entity. The assignment is usually done as a means for members to provide collateral for personal loans, settle debts, or leave the LLC. The member (assignor) and the person assigned (assignee) sign a document called the Membership Assignment of Interest.

Why a Member May Want to Assign Interest

A member may choose to assign interest for a number of reasons.

• The assignment of interest may happen as collateral to a loan to one of the members.
• Some members can assign interest to settle debts. The assignment will be effective until the debt is cleared.
• An assignment of interest can also' be done  to a member's legal heirs , going into effect upon the death of a member. 

The Rights and Limitations of the Assignee

The laws governing LLC membership interest assignments vary considerably from one state to another. 

• Most states prohibit the assignee from participating in the LLC's operations or decisions unless the Articles of Organization have this provision.
• An assignee is protected from liability from the assignor until the assignee becomes a member in most states. However, the law in a few states, including California and Florida, states that the assignee does get the assignor's liability.
• Should the assignee become a member after the assignment, he is only entitled to the rights and restrictions the assignor had.
• The assignment usually gives the assignee the right to receive the assignor's share of the profits — but not necessarily the other rights.

The Rights and Limitations of the Assignor

• In many states, all LLC members have the right to assign membership interest.
• In most states, assigning interest does not necessarily lead to forfeiting of voting and management rights and can be temporary. Texas law, on the other hand, states that the assignor ceases to be a member of the LLC after the assignment.

The Rights and Limitations of Other Members

• All members of the LLC have to be notified of any type of assignment.
• Some states require the assignment of interest to be approved by all members.
• The new person who has been assigned interest does not necessarily become a member even if the assigner has decided to leave the LLC. The other members can decide whether to admit the assignee as a member or not. Should a member assign interest without the input of other members, the interest is normally limited to financial benefits.
• In a two-member LLC, one member can easily transfer the interest to the other. 

The Membership Interest Assignment Document

The LLC's operating agreement should explain the rights of members on issues of transfer of interest, and the agreement should be followed during the assignment process. The Membership Interest Assignment acts as a record of the agreement, and the LLC normally keeps a copy of the document. The law in most states does not provide a formal template of the Membership Interest Assignment document but lists what should be included in the document. The document should have the following details:

• Percentage of interest that will go to the assignee 
• Whether the assignee will have voting rights
• The signatures of the assignor and the assignee

Assignment of Interest Versus Selling Ownership Stake

The assignment of interest is typically different from selling the ownership stake . Selling a member's ownership stake in the LLC requires unanimous approval by the other members. A departing member may also assign his membership to another member.

If a member is being paid to transfer interest, this is treated for tax purposes as a sale, and the selling member's gains might be liable to capital gains tax. Even if a departing member is not paid for his interest, if the departure results in the assignee getting the departing members' share of liability, the departure is seen as an exchange or sale.

Assignment of Interest Versus Abandoning an LLC

If a member wants to withdraw interest in an LLC, he/she can choose to simply legally abandon the LLC in most states. The abandoning member should give some kind of notice to the other members explaining that he is abandoning membership. Abandoning membership does not usually require the approval of other members.

Abandoning an LLC does not absolve the member of liability he/she may have incurred when still a member.

If you need help with the assignment of interest in LLCs, you can  post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

Hire the top business lawyers and save up to 60% on legal fees

Content Approved by UpCounsel

• LLC Membership Interest Transfer Agreement
• What Is the Definition of Assigns
• Assignment of Interest
• Assignment Law
• Assignment of Interest Form
• Assignment of Rights Example
• Assignment of Rights and Obligations Under a Contract
• Assignment Agreement Definition
• Legal Assignment
• Partial Assignment of Contract

§ 33:53. Collateral assignment of beneficial interest | Secondary Sources | Westlaw

§ 33:53. Collateral assignment of beneficial interest

Ilrps § 33:53 illinois real property service land trusts  (approx. 4 pages).

beneficial interest

Primary tabs.

Beneficial interest refers to a right to income or use of assets in a trust . People with a beneficial interest do not own title to the property, but they have some right to benefit from the property. This is to be contrasted with trustees and other agents of the trust who only have managing duties. 

[Last updated in June of 2021 by the Wex Definitions Team ]

Collateral Assignment

Jump to section.

A collateral assignment involves granting a security interest in the asset or property to a lender. It is a lawful arrangement where the borrower promises an asset or property to the lender to guarantee the debt repayment or meet a financial obligation. Moreover, in a collateral assignment, the borrower maintains asset ownership, the lender holds the security interest, and the lender has the right to seize and sell the asset in event of default. This blog post will discuss a collateral assignment, its purpose, essential considerations, and more.

Key Purposes of a Collateral Assignment

Collateral assignment concerns allocating a property's ownership privileges, or a specific interest, to a lender as loan collateral. The lender retains a security interest in the asset until the borrower entirely settles the loan. If the borrower defaults on loan settlement, the lender can seize and market the collateral to recover the unpaid debt. Below are the key purposes of a collateral assignment.

• Enhanced Lender Protection: The primary purpose of the collateral assignment is to provide lenders with an added layer of security and assurance. Also, by maintaining a claim on the borrower's properties, lenders lower their risk and improve the probability of loan settlement. In case of default, the lender can sell the collateral to recover the unpaid balance. This security authorizes lenders to offer loans with lower interest rates, as the threat associated with the loan is reduced.
• Favorable Loan Terms: Collateral assignment allows borrowers to access financing on more favorable terms than unsecured loans . However, the terms of the loan will vary depending on the borrower’s creditworthiness and the value of the collateral. Generally, lenders are more willing to extend larger loan amounts and lower interest rates when they have collateral to fall back on. The presence of collateral reassures lenders that they have a viable means of recouping their investment, even in case of default. This increased confidence often leads to more competitive loan offers for borrowers.
• Unlocking Asset Value: Collateral assignment enables borrowers to leverage the value of their assets, even if those assets are not readily convertible into cash. For instance, a business owner with valuable machinery can assign it as collateral to secure a business loan. This arrangement allows the borrower to continue utilizing the asset for operational purposes while accessing the necessary funds for expansion or working capital. Collateral assignment, thus, enables the efficient allocation of resources. However, the collateral will still be considered in determining the loan amount and terms.
• Access to Higher Loan Amounts: When borrowers promise collateral against a loan, lenders can present greater loan amounts than for other unsecured loans. The worth of the collateral serves as a reassurance to lenders that they can recover their investment even if the borrower fails to settle the loan. Therefore, borrowers can obtain higher loans to finance important endeavors such as purchasing property, starting a business, or funding major projects.
• Diversification of Collateral: Collateral assignment offers flexibility for borrowers by allowing them to diversify their collateral base. While real estate is commonly used as collateral, borrowers can utilize other valuable assets such as investment portfolios, life insurance policies, or valuable personal belongings. This diversification allows borrowers to access financing without limiting themselves to a single asset, thereby preserving their financial flexibility.

Steps to Execute a Collateral Assignment

A collateral assignment is a financial procedure that involves utilizing an asset as security for a loan or other responsibilities. Below are the essential steps involved in the collateral assignment process.

• Assess the Need for Collateral Assignment. The initial step in collateral assignment is determining whether collateral is necessary. Lenders or creditors may require collateral to mitigate the risk of default or ensure repayment. Evaluating the value and marketability of the proposed collateral is crucial to ascertain if it meets the lender's requirements.
• Select Appropriate Collateral. The next step involves choosing a suitable asset for collateral assignment. Common classifications of collateral comprise stocks, real estate, bonds, cash deposits, and other valuable assets. The collateral's value should be sufficient to cover the loan amount or the obligation being secured.
• Understand Lawful and Regulatory Requirements. Before proceeding with collateral assignment, it is essential to comprehend the lawful and regulatory provisions specific to the jurisdiction where the transaction happens. Collateral assignment laws can vary, so seeking advice from legal professionals experienced in this area is advisable to ensure compliance.
• Negotiate Provisions. Once the collateral is recognized, the collateral assignment provisions must be negotiated among the concerned parties. It includes specifying the loan amount, interest rates, repayment terms, and any further duties or limitations associated with the collateral assignment.
• Prepare the Collateral Assignment Agreement. The collateral assignment agreement is a lawful document that typically includes details about the collateral, the loan or obligation being secured, and the rights and responsibilities of both parties. It is highly advised to engage the services of a legal specialist to prepare or review the contract.
• Enforce the Collateral Assignment Agreement. After completing the collateral assignment agreement, it must be executed by all involved parties. This step ensures that all necessary signatures are obtained and copies of the agreement are distributed to each individual for record-keeping objectives.
• Notify Relevant Parties. To ensure proper recognition and recording of the collateral assignment, it is important to notify all relevant parties. It may involve informing the lender or creditor, the custodian or holder of the collateral, and any other pertinent stakeholders. Sufficient documentation and communication will help prevent potential disputes or misunderstandings.
• Record the Collateral Assignment. Depending on the nature of the collateral, it may be necessary to record the collateral assignment with the appropriate government authority or registry. This step provides public notice of the assignment and establishes priority rights in case of multiple claims on the same collateral. Seeking guidance from legal professionals or relevant authorities can determine if recording the collateral assignment is required.
• Monitor and Maintain the Collateral. Throughout the collateral assignment term, it is crucial to monitor and maintain the value and condition of the collateral. This includes ensuring insurance coverage, property maintenance, and compliance with any ongoing obligations associated with the collateral. Regular communication between all parties involved is essential to address concerns or issues promptly.
• Terminate the Collateral Assignment. Once the loan or obligation secured by the collateral is fully satisfied, the collateral assignment can be terminated. This involves releasing the collateral from the assignment, updating relevant records, and notifying all parties involved. It is important to follow proper procedures to ensure the appropriate handling of the legal and financial aspects of the termination.

Key Terms for Collateral Assignments

• Security Interest: It is the legal right granted to a lender over the assigned collateral to protect their interests in case of borrower default.
• Collateral Valuation: The process of determining the worth or market value of the assigned collateral to assess its adequacy in securing the loan.
• Release of Collateral: The action taken by a lender to relinquish its claim over the assigned collateral after the borrower has fulfilled the loan obligations.
• Subordination Agreement : A legal document that establishes the priority of multiple creditors' claims over the same collateral, typically in the case of refinancing or additional loans.
• Lien : A legal claim or encumbrance on a property or asset, typically created through a collateral assignment, that allows a lender to seize and sell the collateral to recover the loan amount.

Final Thoughts on Collateral Assignments

A collateral assignment is a valuable instrument for borrowers and lenders in securing loans or obligations. It offers borrowers access to profitable terms and more extensive loan amounts while reducing the risk for lenders. Nevertheless, it is essential for borrowers to thoughtfully assess the terms and threats associated with collateral assignment before proceeding. Seeking professional guidance and understanding the contract can help ensure a successful and beneficial financial arrangement for all parties involved.

If you want free pricing proposals from vetted lawyers that are 60% less than typical law firms, click here to get started. By comparing multiple proposals for free, you can save the time and stress of finding a quality lawyer for your business needs.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

Meet some of our Collateral Assignment Lawyers

Versatile, analytical, detail-oriented California barred corporate attorney with a comprehensive real estate, transactional and finance background as in-house counsel to large real estate developers, asset and property management companies, Fortune 500 quick service retailers/restaurant franchisors and international energy franchisors (retail and gasoline/mini market). Strong analytical and problem-solving skills, work ethic and integrity. Enthusiastic and quick mastery of new responsibilities, technologies and business strategies.

I have been in corporate practice for over 14 years dealing primarily with complex engineering, construction, and project management contracts as well employment contracts.

Attorney licensed in New York and New Jersey with over 15 years of experience in Real Estate, Property Law and Collection/Debt Defense Law.

Practiced civil litigation and bankruptcy law for 30 years.

Jocelyn A. Walters-Hird focuses her practice on conservation law and other real estate matters. She has provided counsel on dozens of conservation easement transactions as well as fee sales and acquisitions, including the structuring, negotiating, and closing of such projects. Prior to joining the conservation community, Jocelyn worked as a litigator, which has informed her approach to drafting workable documents and resolving post-transaction issues. With both in-house counsel and private practice experience, Jocelyn has a unique skillset allowing her to problem solve and provide sound legal advice to land trusts, landowners, and other organizations. She is the former Sr. Staff Attorney at the Minnesota Land Trust, where she led the legal team of the state’s largest non-profit land trust. She also worked as Attorney for Conservation Partners, LLP, a nationally-recognized boutique law firm that has assisted land trusts and landowners in protecting hundreds of thousands of acres of land. Jocelyn now serves as Contracted Counsel for the firm.

Hi, I'm Umar from CounselX. I started off doing domestic and international corporate law work at the world's largest law firm Dentons and then moved in-house as Head of Legal of an investment bank before starting my own firm in 2012. We have been a trusted legal resource for founders since our inception. My team has helped over 1,000 startups launch, grow and thrive. When it comes to corporate and commercial law matters, you need an attorney that not only has a deep understanding of the law, but is passionate about your companys continued success. Whether it's helping to get your business off the ground or handling tough negotiations in a pivotal transaction, I'm available to provide insightful legal counsel and trustworthy guidance. To learn if I'm the right fit, schedule a free 15-minute introductory call with me.

As an esteemed attorney based in Washington, D.C., I bring a wealth of experience and expertise to the legal arena, specializing in a broad spectrum of legal areas including contract drafting, legal research, motions drafting, family law, and criminal law. I earned my Juris Doctor degree from the University of the District of Columbia, where I honed my skills and knowledge in the intricacies of the law. With a solid foundation in both theoretical understanding and practical application, I am equipped to handle the diverse needs of my clients effectively. Throughout my career, I have demonstrated a steadfast commitment to delivering exceptional legal services tailored to each client's unique circumstances. Whether it's crafting airtight contracts, conducting thorough legal research, or advocating vigorously in court, I am dedicated to achieving favorable outcomes for those I represent. My passion for justice, coupled with my dedication to upholding the principles of fairness and integrity, drives me to provide top-notch legal representation for individuals and businesses alike. With a keen attention to detail and a strategic approach to problem-solving, I am well-equipped to navigate the complexities of the legal system and advocate tirelessly on behalf of my clients. I take pride in my ability to build strong, trusting relationships with my clients, guiding them through every step of the legal process with compassion and professionalism. Whether you're facing a challenging legal issue or seeking proactive legal guidance, I am here to provide the skilled representation and personalized attention you deserve. Contact me today to schedule a consultation and take the first step toward resolving your legal matters effectively and efficiently.

Find the best lawyer for your project

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

How It Works

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer

Financial lawyers by top cities

• Austin Financial Lawyers
• Boston Financial Lawyers
• Chicago Financial Lawyers
• Dallas Financial Lawyers
• Denver Financial Lawyers
• Houston Financial Lawyers
• Los Angeles Financial Lawyers
• New York Financial Lawyers
• Phoenix Financial Lawyers
• San Diego Financial Lawyers
• Tampa Financial Lawyers

Collateral Assignment lawyers by city

• Austin Collateral Assignment Lawyers
• Boston Collateral Assignment Lawyers
• Chicago Collateral Assignment Lawyers
• Dallas Collateral Assignment Lawyers
• Denver Collateral Assignment Lawyers
• Houston Collateral Assignment Lawyers
• Los Angeles Collateral Assignment Lawyers
• New York Collateral Assignment Lawyers
• Phoenix Collateral Assignment Lawyers
• San Diego Collateral Assignment Lawyers
• Tampa Collateral Assignment Lawyers

Contracts Counsel was incredibly helpful and easy to use. I submitted a project for a lawyer's help within a day I had received over 6 proposals from qualified lawyers. I submitted a bid that works best for my business and we went forward with the project.

I never knew how difficult it was to obtain representation or a lawyer, and ContractsCounsel was EXACTLY the type of service I was hoping for when I was in a pinch. Working with their service was efficient, effective and made me feel in control. Thank you so much and should I ever need attorney services down the road, I'll certainly be a repeat customer.

I got 5 bids within 24h of posting my project. I choose the person who provided the most detailed and relevant intro letter, highlighting their experience relevant to my project. I am very satisfied with the outcome and quality of the two agreements that were produced, they actually far exceed my expectations.

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Find lawyers and attorneys by city

Beneficial Interest in Property: What Is It & How To Prove It

In England and Wales, when it comes to who owns a property, there are actually two parts to it. 

First, there’s the legal ownership . This is who officially owns the property as registered with the Land Registry.

Second, there’s something called the beneficial interest , or beneficial ownership. This is about the people who have the right to live in or enjoy the property or the money if it’s sold. Legal owners and beneficial owners might not be the same people. 

The reason this split exists is because the law in England and Wales says that all properties are held as trust. This makes sure everyone’s interests are protected when it comes to property, and it is clear who has what housing rights in the event of a relationship breakdown .

What is beneficial interest in property?

Beneficial interest in a property means you have the right to live in or own a part of a property, even if you're not the legal owner. This often comes up when more than one person is involved with a property, like couples, family members, or friends.

Imagine you and your partner are both chipping in money to buy a house, but only your partner's name is on the official ownership papers. Legally, your partner owns it. But, because you both contributed money and had an agreement, you might still have a a share in the house even if you're not the legal owner.

Beneficial interest can be established in a few ways. Sometimes, it's through a written agreement that clearly says who gets what. Other times, if you've put money into the property, it's assumed you own a share based on your investment. It can also happen if you've contributed in non-money ways, like taking care of the property.. 

Beneficial interest vs. legal ownership

Legal ownership is when a person's name is officially on the property deed. This means they have the legal rights to the property, and they are in charge of it. They can decide to sell or rent it to others. The legal owner's name is recorded on the title register at HM Land Registry , which is the public record of property ownership.

On the other hand, beneficial interest is about the financial or occupancy rights that someone has in a property, even if they aren't the legal owner. So, if you have a beneficial interest, it means you have certain rights, like a portion of the rent from the property, the right to live in it, or a share of its value. 

However, the name of the beneficial owner isn't necessarily listed on the public property register at HM Land Registry. 

How to establish a beneficial interest in property

Sometimes, it’s not easy to prove for sure whether a beneficial interest in property exists. Couples might disagree about what happened or what their intentions were regarding the property. When there’s such a disagreement, the only way to resolve it is to go to court and ask for a declaration. 

In this the court will examine the facts and make a decision, but they can be cautious about finding a beneficial interest. So, it’s a good idea to seek the opinion of a property lawyer who is experienced in these matters.

If a partner who doesn’t legally own a home wants to establish a beneficial interest, they an initiate legal proceedings in either the County Court or the High Court under section 14 of the Trusts of Land and Appointment of Trustees Act 1996.

Heterosexual couples engaged in the last three years can use section 17 of the Married Women’s Property Act 1882 , and same sex couples who have had a civil partnership agreement in the last three years can use section 74 of the Civil Partnership Act 2004 to clarify their beneficial interests in property. 

Express declaration of interest 

An express declaration of trust is a clear and documented agreement between people about who owns what in a property. This is the most common way to show that someone has a beneficial interest in a property.

This kind of trust is usually written down in a contract, a declaration, or a deed. It involves the legal owner, who is called the trustee, signing the document to confirm the beneficial interest. These express trusts are legally binding, meaning they are official and clear about who gets what rights in the property.

Example: Jack and Jill live in a house together, but Jill is the sole owner. She paid for the deposit and handles all the mortgage payments. But Jill signs a trust deed saying that Jack should have a 50% share in the property. This agreement is legally binding and would be enforced by the courts as long as it’s valid. 

For an express trust to be valid, it needs to have:

Clear intention : It must be clear that the person created the trust intended to make it. 

Defined subject matter: It should be crystal clear what’s part of the trust and what isn’t. 

Named beneficiary : The person who will benefit from the trust must be definite and certain, with no doubt. 

Resulting Trust

A resulting trust comes into play when the law assumes that there should be a beneficial interest in the property, even if there is no written agreement. 

For example, if Simon and Dave buy a property together, but the legal ownership of that property is only in Simon's name. Dave's financial contribution may mean he should have a beneficial interest in the property that’s proportionate to the amount he contributed.

A resulting trust can also come about if someone tries to give away a property but doesn’t do it correctly. In these cases, ownership can revert back to the original owner. 

Constructive Trust

A constructive trust happens when the court considers that one party should act as a trustee for another party based on their behaviour. This can happen in a situation known as ‘common intention trust.’ where both parties agree on how ownership of a property should work, but they don’t create a written declaration of trust . If one of the parties relies on this agreement and faces loss as a result, a constructive trust can be applied. 

For this to work, the terms of the informal agreement need to be clear enough for the court to recognise a constructive trust. 

To establish a constructive trust, usually three things need to happen: 

Both parties must have a shared intention that the non-owner will have a beneficial interest in the property; 

There must be evidence of discussions that show this shared intention (i.e. letters, emails or text messages); 

The non-owner must have acted to their disadvantage based on the belief that they would both have a beneficial interest.

For example, if Leon gives up his secure tenancy and job to live in his partner’s, Christina's, house and take care of her children, he may have a case for a constructive trust even if he didn’t financially contribute to the property’s purchase. 

Can you transfer a beneficial interest in a property?

Yes, you can transfer a beneficial interest in a property to someone else, but there are specific conditions you need to follow. To make this transfer, the property must be held as tenants in common .

With tenants in common, co-owners have defined shares in the property, which allows for the transfer of their interests. If the property's legal owners are already set up as tenants in common and there's a document like a deed of trust in place, transferring a beneficial interest to someone else involves using a specific document called a deed of assignment.

Things can become more complex when there's no written agreement or document that spells out how the property shares are divided or the ownership terms. In these cases, the court might need to step in to sort things out.

Once the property is correctly set up as tenants in common, you can transfer all or part of the beneficial interest in the property to a new beneficiary. However, things can get trickier, especially if there's a mortgage on the property because you might need the lender's permission to go ahead with the transfer. 

How to prove beneficial interest in a property

Proving beneficial interests in a property can be challenging as they aren’t always put down in writing, and this can lead to disputes between owners or partners over their financial contributions, ownership, or intentions.

If the court gets involved to determine the existence of a beneficial interest, they’ll look at: 

Documented agreements: If there's a written agreement, declaration of trust, or a deed of trust, these documents can provide strong evidence of a beneficial interest.

Financial contributions: Records of financial contributions, such as mortgage payments, property upkeep, or renovation costs can help prove interest.

Witness statements: Statements from witnesses who can confirm the agreements and contributions can strengthen a case.

Emails and correspondence: Any written communication discussing the property's ownership can be useful evidence.

Self detriment: If someone acted to their own disadvantage, thinking they would acquire a beneficial interest, such as contributing to mortgage payments, home improvements, or contributing to family life related to the property, this can prove a beneficial interest in property, too.  

How are shares in a property decided if beneficial interest is established?

Basically, the court decides how shares in a property should be split if beneficial interest is established based on the agreements, intentions and actions of both parties. 

If the partner who doesn’t legally own a home successfully shows they have a beneficial interest, then the court can determine how much of the property each party owns based on its value. This calculation of their shares should be decided when the property is sold or if one party buys the couple out, not when the couple stops living together. 

If one person stays in the property and spends money on improvements that increase the value of it, the court may take this into account when deciding on shares. 

The court will also consider any clear declaration about the property shares made by the parties. If that doesn’t exist, they may look for evidence of a common intention regarding the property shares.

Tax on beneficial interest in Property

Taxation of beneficial interest in property can be complex and is subject to various factors and circumstances. The tax implications depend on the specific type of beneficial interest, the parties involved, and how the interest is acquired or disposed of.

1. Capital Gains Tax (CGT)

Capital Gains Tax is typically a significant consideration when dealing with the transfer or disposal of beneficial interests in property.

Transfer of Beneficial Interest

When a beneficial interest in property is transferred from one person to another, it may be subject to Capital Gains Tax. The tax is calculated based on the gain in value from the original acquisition to the transfer. However, there are exemptions and reliefs that may apply, such as the Principal Private Residence Relief, which can exempt a primary residence from CGT.

Multiple Owners

If multiple individuals jointly own a property and one of them transfers their beneficial interest to another, this could trigger CGT. The extent of the tax liability depends on various factors, including the proportion of the interest transferred.

If a person gifts their beneficial interest in a property, it is treated as a disposal for CGT purposes. The donor may be liable for CGT on any gain in the property's value since its acquisition. However, if the property is a primary residence and meets certain conditions, it may qualify for full or partial CGT relief.

2. Inheritance Tax (IHT)

Inheritance Tax may apply when beneficial interests in property are passed on through inheritance. The value of the property is included in the deceased person's estate for IHT purposes. However, there are tax-free allowances and reliefs available, such as the Residence Nil Rate Band, which can reduce the IHT liability on the family home.

3. Stamp Duty Land Tax (SDLT)

If a beneficial interest in property is transferred, and there is a significant change in the ownership structure, Stamp Duty Land Tax may apply. The amount of SDLT depends on the value of the property and the consideration paid (if any) for the transfer.

4. Income Tax

Income Tax may come into play if a beneficial interest is acquired and generates rental income. The recipient of the beneficial interest could be liable for Income Tax on the rental income they receive.

Get legal help with beneficial interest in property

At Lawhive, our property solicitors are here to provide you with affordable and accessible legal help online. If you have questions or concerns related to beneficial interest in property, whether as an owning or non-owning party, contact us today for a no-obligation fixed fee quote. 

We are dedicated to assisting you in understanding and addressing your legal matters concerning property rights. Tell us about your case , and we'll be happy to get you started on the right path.

More articles about Property

What does vacant possession mean, is it illegal to cover a drain cover, can leaseholders install cctv at their flat, why would anyone buy a leasehold property, need help with property.

Lawhive solicitors can help property owners online for affordable fixed fees.

Get legal help the hassle-free way

We have expert solicitors ready to resolve any type of legal issue in the UK.

Remove the uncertainty and hassle by letting our solicitors do the heavy lifting for you.

Takes less than 5 mins

We pride ourselves on helping consumers and small businesses get greater access to their legal rights. Lawhive is your gateway to affordable, fast legal help in the UK. Lawhive uses licensed solicitors you can connect with online for up to 50% of the cost of a high-street law firm. Lawhive Ltd is not a law firm and does not provide any legal advice. Our network includes our affiliate company, Lawhive Legal Ltd. Lawhive Legal Ltd is authorised and regulated by the Solicitors Regulation Authority with ID number 8003766 and is a company registered in England & Wales, Company No. 14651095. Lawhive Legal Ltd is a separate company from Lawhive Ltd. Please read our Terms for more information.

What we can help with

• Agricultural
• Commercial Property
• Construction
• Conveyancing
• Immigration
• Landlord & Tenant
• Medical Negligence
• Money, Tax & Debt
• Neighbour Disputes
• Personal Injury
• Small Business
• Wills, Trust & Probate
• How it works
• Work with us
• Knowledge Hub
• Knowledge Archive
• Data Insight
• Privacy Policy

Find us on socials

• Twitter Twitter
• LinkedIn LinkedIn
• Facebook Facebook

Version: 4d70677

Contact Land Trust Customer Service:

888-878-7856

Frequently Asked Questions

What are the benefits of a land trust, succession & probate.

Under a land trust agreement, the party creating the trust can retain sole control over the property during his or her lifetime. The succession in ownership provided for in the trust agreement then becomes effective upon death without the expense of going through probate proceedings. This can be especially helpful to those who live out of state but own real estate in this state. They will not have to institute separate probate court proceedings but can have the land trust property administered in their home state.

Identity Protection/Privacy Of Ownership/Internet Privacy

Under a land trust, unless required by law, the identity of the real owner is not disclosed to the public, keeping parties involved confidential. This can help keep an owner’s personal, financial information out of the public record and off the internet.

Litigation & Liens

If the property in trust is owned by more than one individual, the title to the property may become faulty and unmerchantable because of death, legal disability, divorce, judgments and many other types of litigation affecting one of the co-owners. When the property is held in a land trust, a judgment against one of the beneficiaries does not automatically constitute a lien upon the real estate held in trust. Thus, a beneficiary is provided with an extra measure of protection against lawsuits.

Ease of Conveyance

A land trust provides a convenient means of mortgaging and selling a trust property without having to obtain deeds from all of the beneficiaries and their spouses. This is especially helpful in situations where numerous parties have an ownership interest or the involved parties are living in different states.

Disposing Of Part Interest

The disposition of a partial interest in property may be advantageous for estate planning or other purposes. A land trust simplifies the common problem of disposing of a partial interest in a property since the beneficial interest under a land trust can be transferred by assignment. The assignment of the beneficial interest eliminates the necessity of a deed.

HOW DO I ESTABLISH A LAND TRUST?

The following is a basic explanation of setting up a land trust. Please contact your attorney or our office if you need assistance.

A trust number should be reserved. This can be done over the phone by calling our Customer Service Unit toll-free at (888) 878-7856 . Please be prepared to provide the following information:

READ MORE >>

• Property address
• Type of property
• Value of property
• Name and phone number of the attorney of record

Along with a trust number, you will be given a quote of your acceptance and annual fees.

The Trust Agreement must be drafted and executed by all beneficiaries and parties with power of direction. The Trust Agreement and W9, along with a copy of a government issued picture identification for each beneficiary and power of direction holder, should be submitted to Chicago Title Land Trust Company for acceptance.

You or your attorney must also complete and record a Deed in Trust (Warranty or Quit Claim) at the recorder’s office in the county in which the property is located.

Trust Agreement including W9 and Deed in Trust forms can be downloaded from the Forms section of this website or can be faxed to you by our Customer Service Unit. Please contact them at the number listed above.

If you want future tax bills and other notices from the county to come to Chicago Title Land Trust Company for forwarding by us to you, contact our Customer Service Unit toll-free at (888) 878-7856 for specific routing instructions.

FREQUENTLY ASKED QUESTIONS

(Click question to show and hide answer.)

Q: What is required to set up a land trust?

Q: what is required to set up a land trust.

A. A signed original of our Trust Agreement and a Recorded Deed In Trust. For more information, please refer to "HOW DO I ESTABLISH A LAND TRUST?" .

Q: How can I hold the beneficial interest?

A. Single – 100% interest; Various individuals having percentage interest, totaling 100%; as Trustee of a Living Trust; Joint Tenants; Multiple Owners; Tenants by the Entirety; Corporation; Partnership; LLC (Limited Liability Company).

Q: How can I keep my name off of the public tax bill records?

A. To keep your ownership private, you may wish to have your tax bills sent to the land trust. Chicago Title will forward your tax bill to you, thus allowing your name to remain out of the public tax records. There is a nominal tax bill forwarding fee for this service.

Contact your county assessor to obtain their local form to change the tax assessee (taxpayer) and have future tax bills addressed as follows:

CTLTC (Insert customer number) 10 S LaSalle, #2750 Chicago, IL 60603

• Fax to (312) 223-4139
• Scan and email to: [email protected]
• Mail the request to: Chicago Title Land Trust Company 10 S LaSalle, Ste 2750 Chicago, IL 60603

Q: Can I put multiple properties in the same trust?

A. Yes. A single land trust can hold title to multiple properties. Any assignments of beneficial interest or contingent beneficiary provisions in your trust will apply to all properties held in that trust. Your annual fee will be based on the total value of the properties held in your trust

Q: Is it better to combine my properties into one trust or have an individual trust for each property?

A. It depends on your specific situation. When properties are in a single trust, the terms of the trust such as the beneficial interest apply to all properties in that trust.

You may also consider that if the trustee is required to provide information pursuant to a subpoena or citation, the trustee would be required to provide information about all of the properties in your trust

Q: Why do I pay an annual fee?

A. The annual fee is charged much like a vault box or credit card fee. Even if you don't have any other activity, you still have the protection of having your property in a land trust.

Q: How do I request a copy of my trust agreement?

A. Please provide a signed written request which includes your trust number or customer number and instructions on where and how to send your copy. Please be advised that your account will be billed an administrative fee for this service. To send your request you may:

Q: How can I designate who will receive my property upon my death?

A. Use the Amendment of the Contingent Beneficial Interest TO COMPLETE THIS FORM: SAVE the blank form to your computer BEFORE entering your information and then SAVE AGAIN after completing the form. form. To assist, you may wish to review the Suggested Beneficial Interest Designations. Since this a legal document you may wish to consult with your attorney.

Q: Why do I need to sign an Extension to the Trust Agreement?

A. Without getting into a great deal of legal history, suffice it to say that over the years it has been established that a land trust must have a definable term of existence. The reason goes back to the common law and the cases on trusts from the Stuart period in England that became the basis for laws in the United States. The period of twenty years has been used by land trustees as a safe duration to not run afoul of this long body of trust law. Prompt attention to it keeps your trust in effect with no room for dispute and can prevent possible issues for your contingent beneficiaries when they take their interest in the future.

Q: What is the difference between an Amendment of the Trust Agreement and an Assignment of Beneficial Interest?

A. Both instruments change the trust agreement. The Assignment of Beneficial Interest (ABI) changes the beneficial ownership whereas the Amendment of the Trust Agreement merely changes terms such as power of direction, contingent beneficiaries, and duration of trust.

Q: How do I take my property out of my land trust?

A. A Direction to Convey TO COMPLETE THIS FORM: SAVE the blank form to your computer BEFORE entering your information and then SAVE AGAIN after completing the form. must be completed and signed by all people holding Power of Direction, and any Collateral holders, if applicable. A Trustee's Deed will be prepared based on your direction. You or your attorney must record the Deed with the county.

Q: What is the fee for removing my property out of my land trust?

A. Please call our Customer Service Unit toll-free at (888) 878-7856 to inquire about our fees.

WHAT IS A LAND TRUST?

Any person or entity that is capable of entering into a contract may establish a land trust–an individual, a group of individuals, a partnership, joint venture, corporation, or limited liability company; or even a personal trust. Under a land trust agreement, the beneficiary retains complete control of the real estate in the same manner as if the recorded title were in his or her name. The beneficiary may terminate the trust whenever desired and may add additional property to the trust at any time. The trustee executes deeds and mortgages and deals with the property only when directed in writing by the beneficiary. When the title to real estate is held in a land trust, the interest of the beneficiary, under the terms of the trust agreement, is personal property. Since the beneficiary’s interest is personal property, he or she may transfer it by assigning that interest without the formality of executing and acknowledging a deed. The beneficiary of a land trust changes his or her interest in the property from real estate (title to property) to personal property (ownership of the beneficial interest). Even though the beneficiary retains complete management and control over the property itself, he or she is not burdened with many of the legal characteristics of real estate when dealing with the property. Since the beneficial interest is considered to be personal property, it is treated in much the same manner as a car, bank account, or other tangible property. Consequently, the beneficial interest can be sold, pledged or assigned in a simpler fashion than a conveyance of realty.

*The statements made on this web page and any page that follows within the Chicago Title website are not intended, and shall not be construed to expressly or impliedly issue or deliver any form of written guaranty, affirmation, indemnification, or certification of any fact, insurance coverage or conclusion of law.