What is a Land Trust in Florida?
A Florida land trust is a private agreement among several people to operate, manage, and hold legal title to Florida real property. Florida land trusts operate under section 689.071 of Florida law, also known as the Florida Land Trust Statute or the Florida Land Trust Act.
A land trust agreement is a legal agreement under which the trustmaker appoints another person to serve as trustee with the trustee holding legal title to real estate property for the benefit of the beneficiary (typically trustmaker).
Understanding a Florida Land Trust
The prospective real property owner can be both the trustmaker and a beneficiary. The trustmaker may name other beneficiaries to share the beneficial interest in the trust’s property. A land trust may hold title to more than one property, and beneficiaries may hold different beneficial interests in each of the land trust properties. A land trust trustee may be an individual or a legal entity such as an LLC or corporation.
In legal terms, the land trust divides property ownership between the property’s legal ownership in the trustee’s name and the property’s beneficial ownership, which is owned by the beneficiaries appointed by the land trust agreement. The beneficiary controls the use and sale of the property. The beneficiary receives all tax benefits and property appreciation. However, public records only show the trustee and trust as the property owner —trust beneficiaries are not disclosed.
Land Trust Benefits
The primary benefit of a land trust in Florida is to provide confidentiality over your real estate ownership. The county public records will show only the name of the trustee of the land trust–not the beneficiary’s name.
The benefits of a land trust include:
- Privacy. An adverse party that searches the public record will not find properties that someone purchased through a land trust. If the economic owner names a different person or legal entity as the trustee, the trustmaker’s beneficial ownership interest in the land trust remains hidden from potential creditors and others interested in the trustmaker’s assets. Owners of residential rental property may wish to conceal their ownership from tenants so that the tenants must deal with a property manager instead of bothering the owner. A buyer may want to hide their identity and their other real estate interests during real estate purchase negotiations. Sellers may demand more money if they know a prospective purchaser is wealthy, or that the purchaser is trying to assemble adjoining land for a particular purpose. Walt Disney purchased thousands of acres in land trusts to conceal his plans for Disney World.
- Private Transfers of Ownership. Typically, a person can transfer title to real estate only by publicly recorded deed or mortgage. Alternatively, a person may convey their stake in a land trust property by privately assigning , by sale or by gift, their beneficial interest in a land trust. The public will not be able to discover the transaction and, in the case of a sale, will not know the transfer price or the buyer’s name.
- Taxes and Fees. 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. Land trusts and assignment of beneficial interests may not properly avoid payment of government recording and transfer fees. These issues should be discussed with a real estate attorney or a tax professional.
- Probate Avoidance. Real estate owned by an individual must be administered through a probate proceeding after the owner’s death. A properly drafted Florida land trust transfers the same property immediately to successor beneficiaries named in a land trust agreement without the need for a probate court proceeding.
- Lien Avoidance. A creditor’s recorded judgment automatically becomes a lien on all real property titled in the debtor’s individual name (except your homestead). A beneficiary’s interest in a land trust is personal property, not real property. Therefore, a judgment creditor will not acquire a judgment lien on the property owned in a land trust merely by recording the judgment in the county where the property is located. Florida Statutes provide protection of land trust property from judgments and liens recorded against individual beneficiaries.
- 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 comparable fees.
- Asset Protection. Land trusts are not reliable asset protection tools. Although a land trust hides ownership from public record, a judgment debtor is required to disclose to a judgment creditor under oath their beneficial interest in any trust agreement including the debtor’s beneficial interest in a land trust. Also, a land trust is a self-settled trust because the trustmaker is also a beneficiary. There is a well-established policy in Florida law that a creditor may levy upon the debtor’s interest in any self-settled trust. There is nothing in a land trust agreement that can protect your beneficial interest from a judgment creditor. A creditor has a variety of remedies to assert against a debtor’s personal property interest in a land trust. An IRS tax lien automatically attaches to your beneficial interest in a land trust regardless of whether the IRS knows of the trust.
- Homestead Exemption. The beneficiaries of a Florida land trust can still qualify for the homestead exemption, both for tax purposes and for protection from forced sale by a judgment creditor. A Florida homestead may be owned by a land trust.
How Does a Land Trust Work in Florida?
Florida Statute 689.071 controls land trust agreements and land trust ownership. The statute covers important features of land trust agreements such as trustee powers, trustee liability, and beneficiary rights.
When a prospective purchaser 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 the prospective owner and trustmaker as the beneficiary. The trustmaker must appoint an independent person as trustee. The trustee may be an individual or legal entity. The purchaser should not name himself as both beneficiary and trustee. The dual appointment may merge the legal and beneficial ownership and collapse the trust.
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 person who is the trustmaker or beneficiary.
The beneficiary has the power to direct the land trust trustee to act on their behalf so that the trust beneficiaries effectively control the property. The land trust trustee is a fiduciary who is legally required to follow the beneficiary’s directions. The beneficiaries reserve the right to remove and replace any trustee. Once all parties execute the land trust agreement, the trust can purchase real property. Property is titled in the trustee’s name in his fiduciary capacity, such as “John Doe, Trustee.” The “trustee” designation alerts the public that the trustee owns the legal title on behalf of an underlying trust and that other persons hold the beneficial interest in the property. The trustee may be compensated as agreed by the parties and as expressed in the trust agreement.
The beneficiaries contribute money to the land trust, and the trustee uses the money to pay for the property. If the trustmakers are using purchase money financing, the trustmaker may have to guarantee the note, but only the trustee signs the mortgage. The trustee has no personal liability to pay a purchase money mortgage. All income and gain from the property investment are owed to the beneficiaries, less any cost and expense incurred by the trustee.
Potential Disadvantages to a Land Trust
Before you decide on putting your property into a land trust in Florida, you should consider possible disadvantages.
First, in the case of a rental property where the tenant doesn’t pay, the individual beneficiary cannot handle the eviction. The trustee will likely have to pay an eviction attorney to bring an eviction action on behalf of the land trust.
Secondly, the trustee will have to be involved in all real estate transactions, whether that be a rental agreement, property listing, permit applications, contracts, and so on. The trustee is the legal and public owner. Most land trust agreements provide for payment to the trustee for actions on behalf of the trust. CPAs or attorneys acting as trustees will charge the trust and beneficiary at their professional hourly rates.
Some people mistakenly believe that a land trust provides personal asset protection. A land trust is a “self-settled” trust meaning that the person who establishes the trust is also the trust’s beneficiary. A beneficiary’s interest in a self-settled trust, even if made irrevocable, is not protected from creditors. Other legal entities, such as LLCs, provide better asset protection. Some property investors establish land trusts where the beneficiary is an LLC, with the investor having an ownership interest in the LLC.
Land Trust Costs
Our firm charges $700 for a Florida land trust. The fee includes:
- A brief discussion with an attorney to gather information and explain generally how the trust works.
- If needed, preparation of a quitclaim deed from a trustmaker to the trustee.
- A standard land trust agreement identifying the beneficiaries and provisions of the trust.
In addition, we may serve as trustee of the land trust as long as there is not a mortgage on the property. The cost is $100 per year. Contact us to get started.