Converting Florida Homestead To Income Producing Rental Property

One of my clients owned a Florida homestead which he wants to convert to a rental property. He plans to himself rent a smaller home and live on net rental income from the former homestead. He suggested to me transferring the homestead to an LLC that he would own with his brother whom he trusts completely.

The transfer of the property to an LLC would not be a fraudulent transfer because the homestead is an exempt asset. It is important that the client convey the property while he is still residing at the property. Once he moves, the property loses its homestead status immediately, and any subsequent conveyance could be attacked as fraudulent against creditors.

Titling the property in an LLC is not the best answer. The client’s creditor can get a charging lien against his interest so that the client could not draw net income earned by the LLC from the rental property.  Assuming complete trust in his brother, the client could  deed the homestead to his brother’s name. The brother can then rent out the property. His brother would be taxed on the net income, and he could then spend the after tax income for the client’s benefit or pay the net income to the client. Again, this is not a fraudulent transfer because the homestead is now an exempt asset. The problems with this solution are that the property would be vulnerable if his brother had creditor issues and .the client would not control the income or the property.

I think a better  plan is for the client to transfer the property to his brother, and then have the brother contribute the property to an irrevocable trust for the client’s benefit. The trust would protect the property from the brother’s creditors and the client’s creditors. The trust would ensure that the property and net income is preserved for the client. The client can name as trustee his brother or any other third party; client could serve as his own trustee. No fraudulent transfer involved from client’s transfer of exempt asset or brother’s conveyance to trust.

Last updated on May 22, 2020