Land Trust Fiduciary Duties Act P.A. 91-0433

The Illinois Legislature has recently made retroactive changes to the liability of administrators of land trusts. In Swain v United States, 147 F 3d 564 (7th Cir. 1998), the plaintiff created two Illinois land trusts, but did not record the transfers on the federal estate tax return. The Internal Revenue Service (IRS), pursuant to Section 2038(a)(1) of the Internal Revenue Code, deemed that the above transfers should have been included in the calculation of the plaintiff's gross estate because the plaintiff had power of direction that could have been exercised to affect other beneficiaries' enjoyment of the transferred property. The deficiency was paid, and the estate filed suit, claiming that Section 2038(a)(1) covered only the powers to revoke, whereas the plaintiff had only a power of termination. Both the district and appellate courts agreed with the federal government, stating that the power of direction is included under Section 2038(a)(1).

The Land Trust Fiduciary Duties Act (Act) codifies this ruling, stating that holders of a power of direction have fiduciary duties to the holders of the beneficial interest in land trusts, unless specifically mentioned in the land trust agreement. For purposes of Section 2038(a)(1), all land trusts should be included in the gross estate if the client has retained a power of direction. Since this is a clarification of existing law regarding land trusts, it has retroactive application.

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