One of our clients is concerned about his personal liability as the beneficiary of a land trust. The client owns several rental properties in various Florida counties. The client wanted to protect confidentiality of his property ownership, and for that reason he took purchased each property in the name of a separate Florida land trust. He is in a legal dispute with a commercial tenant of one of his properties. The client wants to know whether the tenant could sue him personally as land trust beneficiary or hold him personally liable to pay a judgment against the land trust.
A Florida land trust separates legal title and equitable ownership of a parcel of land. The land trust beneficiary is the individual who establishes the land trust and who contributes or borrows money to acquire the property. The land trust beneficiary is the economic owner of the property. The beneficiary is entitled to income and gain from the property investment, and the beneficiary bears the risk of economic loss from bad investment. The land trust names a trustee. The trustee holds legal title to the property in a fiduciary capacity. The trustee is responsible under the trust agreement to follow the direction of the land trust beneficiary. The beneficiary makes all investment related decisions and instructs the trustee to implement these decisions on behalf of the trust. The trustee hold legal title as a fiduciary. The land trust agreement says that the trustee does what the beneficiary tells him to do with respect to the trust property.
My client is afraid that if he, as beneficiary, is the true economic owner of the property and that a lawsuit could make him bear liability from a judgment against the land trust. My client’s concern is understandable, but in fact, my client is legally protected under Florida land trust law.
Legal actions against a land trust must be filed against the trustee of the trust. The defendant is the individual or entity trustee in his capacity as trustee, not individually. Florida law protects land trust beneficiaries from claims asserted against a Florida land trust. The Florida Land Trust Act, and specifically Florida statute 689.071(8) provides that a land trust beneficiary is not liable, solely by being a beneficiary, under a judgment, order, debt, or other liability of the land trust. Subsection 689.071(8)(d) provides that a lien, judgment, or other encumbrance attaching to a land trust does not attach to a beneficiary’s interest, and a judgment or lien against a beneficiary personally does not attach to the land trust’s legal title to the property. There are several Florida court decisions that protect a land trust beneficiary from lawsuits brought against the land trust trustee based on these statutory provisions.
A land trust provides the beneficiary legal protection comparable to the protections afforded a member of a limited liability company that owns property. Both the land trust beneficial ownership and a membership interest in an LLC are considered the owner’s personal property. Neither the beneficiary or member holds legal title to property nor any part of a real property interest. A person asserting a claim related to the property is required to sue the land trust trustee or the LLC itself, but the claimant cannot sue the beneficiary or the individual holding LLC membership interest. Both the land trust and the LLC shield the economic owner from lawsuits against the person holding legal title.
An LLC, however, is better than a land trust in protection of the owner’s interest against “outside liability” from claims unrelated to the particular real estate. If a creditor gets a judgment against the individual beneficiary or member from a debt or contract claim unrelated to the property the creditor will seek to satisfy the judgment from the individual debtor’s investment assets. The creditor’s remedy against a membership interest is limited to a charging lien against LLC distributions, if any, with a multi-member LLC. There is no limit or restriction on the creditor’s remedies to go after the judgment debtor’s personal property interest created by a land trust.