What Is a Florida Land Trust?
A Florida land trust is a legal arrangement where a trustee holds the title to real estate for the benefit of the beneficiaries, who retain control over the property and its management. A land trust provides privacy, as the beneficiaries’ identities are not public record, and simplifies property transactions, potentially avoiding probate and easing the selling or transferring of the property.
Land trusts operate under section 689.071 of Florida law, also known as the Florida Land Trust Statute or the Florida Land Trust Act. The land trust statute governs important features of Florida land trust agreements, including trustee powers, trustee liability, and beneficiary rights.
Key Points About Land Trusts
- A Florida land trust lets a property keep their name out of the public records.
- A land trust divides property ownership into legal title and an equitable interest.
- Upon the owner’s death, the land trust property can be passed to beneficiaries without going through probate.
How to Create a Land Trust in Florida
To create a land trust in Florida, you must select a trustee to hold legal title, enter into a written agreement, and deed the property to the trust. Setting up a land trust in this way allows a person to hide property ownership from the general public.
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How Do Land Trusts Work?
A Florida land trust is a revocable grantor trust that separates legal title into two parts. A trustmaker appoints another person to serve as trustee to hold legal title to real estate property for the benefit of the beneficiary (typically the same trustmaker). Only the name of the trustee is public.
A real property owner can be both the trustmaker and the 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 Florida 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.
Land trusts are for privacy. If your primary concern is instead making sure your home transfers without probate to beneficiaries, then you should consider a lady bird deed instead.
Key Features of a Florida Land Trust
A Florida land trust is a unique legal entity used primarily for hiding the identity of property owners in the state of Florida. Here are the key features of a Florida land trust:
- Privacy: When real estate is held in a Florida land trust, the public records generally display the trust (or trustee’s name) as the holder of the title, not the beneficial owners. This setup offers privacy to the true owners of the property.
- Beneficial Interest: In the Florida land trust, the beneficiaries hold the beneficial interest, which means they retain rights to the property’s use, income, and sales proceeds. They have an equitable title to the property.
- Power of Direction: The trustee holds the legal title but acts on the direction of the beneficiaries. Beneficiaries maintain control and can instruct the trustee regarding property management, sales, or financing. The trustee’s actions are typically indemnified by the beneficiaries.
- Asset Protection: Holding real estate in a land trust can offer protection against potential liabilities related to the property. For example, if there’s a lawsuit concerning the property, the trust might be the defendant rather than the individual beneficial owners.
- Ease of Transfer: Beneficial interests in a land trust can be transferred more easily than direct real estate ownership. Such a transfer doesn’t require a change in the property title, streamlining the process and often avoiding transfer taxes or fees.
- Avoiding Probate: Upon the death of a beneficiary, the interest in the property can be transferred to heirs or successors without going through the probate process if structured correctly.
- Simplification of Transactions: When real estate is jointly owned, every transaction may require consent and signatures from all owners. With property in a land trust, the trustee, acting on the beneficiaries’ direction, can execute transactions on its own, which can make it easier to get things done.
- Tax Treatment: For federal tax purposes, Florida land trusts are often treated as “grantor trusts.” Consequently, all tax events (e.g., income or deductions) related to the property typically pass directly through to the beneficiaries, and the trust itself isn’t a separate taxable entity.
- Continuity of Ownership: In cases where a beneficiary dies, becomes incapacitated, or undergoes bankruptcy, the trust continues to hold the property without disruption, ensuring stability and continuity in the property’s ownership and management.
- Flexible Ownership Structure: A Florida land trust can have individuals, corporations, partnerships, or other entities as its beneficiaries. This flexibility allows for tailored estate planning and investment strategies.
Land Trust Agreements
Ownership of a property through a land trust begins with drafting a written land trust agreement. The trust agreement names a trustee to hold legal title. The trustee’s name will appear on the public record. The trustee may be an individual or legal entity.
The trustmaker must appoint an independent person as trustee. 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.
A properly drafted land trust agreement ensures 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 land trust beneficiary.
Land trust beneficiaries have the power to direct the land trust trustee to act on their behalf so that the trust beneficiaries effectively control the trust’s property. The land trust trustee is a fiduciary who is contractually 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 land trust 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 note. The land trust agreement typically provides that the beneficiaries indemnify the trustee for their 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.
The land trust beneficiary is entitled to gain from the property investment, and the beneficiary bears the risk of economic loss from bad investment.
Add privacy to your ownership.
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Using an LLC as Trustee
The trustee of a land trust can be an LLC. A Florida resident can form an LLC and then 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.
One problem with using your own LLC as trustee is that, in Florida, the name of the manager and registered agent of the trustee is publicly searchable. Alternatively, 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.
Florida Land Trust Advantages
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 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 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 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 see 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. The assignment of beneficial interests may not properly evade 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 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.
- 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. A creditor’s 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.
- 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 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 filing 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. 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.
- Homestead Exemption. The beneficiaries of a Florida land trust still qualify for the Florida homestead exemption if they reside on the trust’s property. They qualify for the homestead exemption both for tax purposes and for protection from forced sale by a judgment creditor.
Land Trust Disadvantages
There are possible disadvantages to property ownership in a land trust. First, in the case of a rental property, the individual named as beneficiary cannot handle the eviction if the tenant doesn’t pay rent. The trustee must bring any eviction actions 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.
Lawsuits Against Beneficiary
Consider an individual Florida investor who is concerned about their personal liability as the beneficiary of a land trust. The individual owns several rental properties in various Florida counties. The individual wanted to protect the confidentiality of their property ownership, and for that reason, he purchased each property in the name of a separate Florida land trust. The person becomes involved in a legal dispute with a commercial tenant of one of their properties. The hypothetical investor is afraid that if he, as beneficiary, is the true economic owner of the property, a lawsuit could name him as a defendant in a lawsuit filed by this problem tenant.
Florida law protects land trust beneficiaries from claims asserted against a Florida land trust. Legal actions against a land trust must be filed against the trustee of the trust and not the trust beneficiaries. The proper defendant is the individual or entity trustee in their capacity as trustee, not individually. 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 the property. Both the land trust beneficial ownership and membership interest in an LLC are considered the owner’s personal property. Neither the trust beneficiary nor LLC member holds legal title to property nor any part of a real property interest. A person asserting a claim related to a particular real 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 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 in a multi-member LLC is limited to a charging lien against LLC distributions payable to the debtor-member, if any. 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.
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.
How much does it cost to set up a land trust in Florida?
We charge $1,000 to set up a typical Florida land trust.
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.
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