A Florida land trust is a private agreement among different people to operate, manage, and hold legal title to Florida real property. A land trust is a written legal agreement under which you, as the trustmaker, appoints someone else as trustee to hold legal title to a parcel of real estate property for your benefit. You also are a land trust beneficiary, and as such you control the use and sale of the property. You receive all the tax benefits and property appreciation. However, public records show only the trustee and trust as the owner of the property—trust beneficiaries are not disclosed. Your name is not made public. Florida land trusts operate under the Florida Land Trust Act, also known as section 689.071 of the Florida statutes.
Land Trust Benefits
Here are some key benefits of a Florida land trust:
- Privacy. If an adverse party searches the public record to discover property you own, they will not find properties that you purchased through a land trust. Your beneficial ownership interest in land trust property remains hidden from potential creditors and others interested in your wealth or your investments. Investors in residential rental property may wish to conceal their ownership from tenants so that the tenants must direct contacts to your appointed property manager instead of bothering the owner. Also, there are good business reasons why a buyer may wish to hide their identify in real estate purchase negotiations. Sellers may demand more money if they know the prospective purchaser is wealthy or that the purchaser is trying to assemble adjoining land for a particular purpose. Perhaps the most famous example was when Walt Disney purchased thousands of acres in land trusts to conceal the intended purpose of the property.
- Private Transfers of Ownership. If you own property in your own name you can transfer title only by publicly recorded deed or mortgage. You may sell your interest in a land trust property by privately assigning your beneficial interest in the trust. A third party will not be able to discover the transaction or look up the transfer price and the buyer’s name.
- Taxes and Fees. The ability to privately transfer your land trust interest may save transfer taxes. A land trust may also avoid the expense of new title insurance if property is transferred by assignment of trust interests rather than by deed. These potential benefits should be discussed with a real estate attorney or a tax professional.
- Probate Avoidance. Real estate you own in your own name must be administered in court through a probate proceeding at your death. A properly drafted Florida land trust transfers the same property immediately to your successor beneficiaries named in a land trust agreement without the need for a legal probate court proceeding.
- Lien Avoidance. A creditor’s recorded judgment automatically becomes a lien on all real property titled in your name (except your homestead). Your beneficial interest in a land trust is personal property, not real property. Therefore, a judgment creditor will not acquire a judgment lien on the property merely by recording the judgment in the county where the property is located.
- Partnership Alternative. When two or more parties want to invest together in a real property they need a written agreement to express their business arrangement. Typically, the investors form a partnership, write a partnership agreement, and file a partnership certificate with the State of Florida. Real estate investors’ business arrangements can alternatively be expressed by the terms of a land trust agreement that sets forth the obligations and benefits assigned to different land trust beneficiaries. Limited partnerships must be filed with the State of Florida and must pay significant filing fees. Land trusts are not filed with the state and pay no fees.
- Asset Protection. Land trust have no asset protection benefits in the event a creditor obtains a civil judgment against you. You will be required to disclose to a judgment creditor under oath your interest in any trust agreement including your beneficial interest in a land trust that has title to real property. Also, a land trust is a self-settled trust because the trustmaker is also a beneficiary. Self-settled trust property is considered your personal property. There are no legal clauses or provisions in a land trust agreement that can protect your beneficial interest from a judgment creditor. An IRS tax lien automatically attaches to your beneficial interest in a land trust regardless of whether the IRS knows of the trust.
How a Land Trust Works
Florida Statute 689.071 controls land trust agreements and land trust ownership. The statute includes important sections about land trust agreements such as trustee powers, trustee liability, and rights of a beneficiary.
When a prospective purchase of real property wants to own the property through a land trust the first step is to make a written land trust agreement. A land trust agreement should appoint you, the prospective owner and trustmaker, as both the settlor and beneficiary of the trust. The trustmaker must appoint an independent person as trustee. The trustee’s name appears on the public ownership records. The trustee has no obligation to pay money towards the purchase or maintenance of the property, and the trustee has no right to benefit from the property. All property benefits are reserved for the trustmakers and the beneficiaries. The beneficiaries have the power to direct the land trust trustee to act on their behalf, and a land trust agreement gives the beneficiaries control over the property. The beneficiaries reserve the right to remove and replace any trustee.
Once the beneficiaries and trustee execute the land trust agreement the land trust is prepared to purchase the real property. The property seller’s deed conveys legal title to the person named as trustee for the land trust. The beneficiaries contribute money to the land trust, and the trustee uses the money to pay for the property. If there purchase money financing, the trustmaker may have to guarantee the note but only the trustee needs to sign the mortgage.
Typical Land Trust Costs
Our law firm charges $450 to write a basic Florida land trust agreement. The fee includes an initial discussion with our staff to gather information and preparation of a deed from a trustmaker to the trustee. Consultations about legal issues and trust customization is charged at our hourly rates.