What Is a Florida Land Trust and How Does It Work?

What Is a Land Trust?

A Florida land trust is a legal arrangement where a trustee holds the title to real property for the benefit of designated beneficiaries. The trust allows for privacy and simplified property transfers. Beneficiaries retain control and can direct the trustee on property management decisions.

Only the name of the trustee is revealed in the public records. Florida land trusts operate under state laws that cover various provisions, including trustee powers, trustee liability, and beneficiary rights, that allow the property to be owned privately.

How a Land Trust Works

In Florida, the prospective real property owner can be both the trustmaker and a beneficiary of a land trust. The trustmaker may name other beneficiaries to share the beneficial interest in the trust’s property, and they may name successor beneficiaries. 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 and the property’s beneficial ownership. The legal ownership is vested in the trustee’s name, while the beneficial ownership is owned by the beneficiaries appointed by the land trust agreement.

A typical land trust agreement provides that the beneficiary controls the use and sale of the property. The beneficiary receives all tax benefits, income,  and property appreciation. The agreement directs the trustee to implement investment decisions communicated by the beneficiaries. However, public records only show the trustee and trust as the property owner —trust beneficiaries are not disclosed.

Florida Land Trust Benefits

The primary benefit of a land trust in Florida is the confidentiality of real estate ownership. The county public records show only the name of the trustee of the land trust– public records do not show the beneficiary’s name.

The benefits of a Florida land trust include:

• Makes Ownership Private
• Private Transfers
• Low Taxes and Fees
• Avoids Probate
• Avoids Liens
• Provides a Partnership Alternative
• Provides Asset Protection
• Qualifies for the Homestead Exemption

Makes Ownership Private

An adverse party that searches the public record will not find properties that someone purchased through a land trust. If the trustmaker names a different person or legal entity as the trustee, the trustmaker’s beneficial ownership interest in the land trust remains hidden on the public record from potential creditors and others interested in the trustmaker’s assets. For example, 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

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 see the transaction and, in the case of a sale, will not know the transfer price or the buyer’s name.

Low 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 the 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.

Avoids Probate

Real estate owned by an individual in their own name must be administered through a probate proceeding after the owner’s death. A properly drafted Florida land trust transfers the beneficial interest in the same property immediately to successor beneficiaries named in a land trust agreement without a probate court proceeding.

Avoids Liens

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. A creditor with a final judgment against a land trust beneficiary will not acquire a judgment lien on the land trust property by recording the judgment in the county where the property is located. In this way, Florida Statutes provide protection of land trust property from judgments and liens recorded against individual beneficiaries.

Provides a Partnership Alternative

Two or more parties that invest together in a real property typically have a written agreement to express their business arrangement. The investors form a partnership, write a partnership agreement, and file a partnership certificate with the State of Florida. Limited partnerships must be filed with the State of Florida and must pay significant filing fees. 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.  Land trusts are not filed with the state and pay no comparable fees.

Provides 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, for example, automatically attaches to your beneficial interest in a land trust regardless of whether the IRS knows of the trust.

Qualifies for the Homestead Exemption

The beneficiaries of a Florida land trust still qualify for the Florida homestead exemption, both for tax purposes and for protection from forced sale by a judgment creditor.

Land Trust Agreements

Ownership of a property through a land trust begins with drafting a written land trust agreement. A land trust agreement should appoint the equitable property 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 themselves 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 beneficiary.

Beneficiaries

The beneficiaries have 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., The trust can purchase real property once all parties execute the land trust agreement.

The property is titled in the trustee’s name in their 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 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., The trustmaker may have to guarantee the note if the trustmaker is using purchase money financing; 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.

Using an LLC as Trustee

The trustee of a land trust can be an LLC. A Florida resident can use their own LLC as trustee of their land trust. That way, the Florida resident controls both the beneficial interest and the role as trustee.

The typical problem with using your own LLC as trustee is that, in Florida, the name of the manager and registered agent of the trustee is publically searchable. However, a resident can instead use an LLC formed in another state, such as Delaware or Wyoming, to serve as trustee. The name of the manager of LLCs in those states cannot be searched online. In that way, the property owner enjoys the privacy benefits of the land trust while also being able to serve as trustee through their own LLC.

Land Trust Disadvantages

There are possible disadvantages to property ownership in a land trust. First, in the case of a rental property, the individual beneficiary cannot handle the eviction if the tenant doesn’t pay rent. The trustee will bring an eviction action on behalf of the land trust. The beneficiary does not directly control the eviction process.

Secondly, the trustee must be involved in all real estate transactions, such as rental agreements, property sale listings, permit applications, contracts, and so on. 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 for real estate. Some property investors establish land trusts where the beneficiary is an LLC, with the investor having an ownership interest in the LLC.

Lawsuits Against Beneficiary

Suppose a client is concerned about their personal liability as the beneficiary of a land trust. The client owns several rental properties in various Florida counties. The client wanted to protect the confidentiality of their property ownership, and for that reason, they took purchased each property in the name of a separate Florida land trust. They are in a legal dispute with a commercial tenant of one of their properties. The client wants to know whether the tenant could sue them personally as land trust beneficiary or hold them 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 them to do with respect to the trust property.

The hypothetical client is afraid that if he, as beneficiary, is the true economic owner of the property and that a lawsuit could make them 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 their 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 the 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.

Land Trust Costs

The close of a land trust is $1,250. 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. There may be additional fees for significant customization of your trust agreement.

In addition, we may serve as trustee of the land trust if there is no mortgage on the property. Contact us to get started.

FAQs about Land Trusts

How does a land trust work in Florida?

When a property is owned through a Florida land trust, a third-party trustee holds legal title to the property and is the public-facing owner. The equitable ownership of the property belongs to the beneficiaries of the land trust. The names of the land trust beneficiaries are not public information.

Are Florida land trusts revocable?

Yes, Florida land trusts are revocable by the trust grantor. The grantor can direct the trustee to deed the property back into the grantor’s name.

How is a Florida land trust taxed?

Any income generated by property held by a land trust flows through to the beneficiary of the land trust. The land trust itself does not file or pay taxes.

Can you homestead a land trust in Florida?

Yes, property in the land trust can qualify for the Florida homestead exemption as long as the trust and deed are drafted appropriately.