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, and the trustee holds legal title to real estate property for the benefit of the trustmaker (beneficiary). The prospective real property owner is both the trustmaker and a beneficiary. The trustmaker may name other beneficiaries to share the beneficial interest in the trust’s property.
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 show only 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 ownership of real estate. The county public records will show only the name of the trustee of the land trust–not the name of the beneficiary.
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. The trustmaker’s beneficial ownership interest in 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 real estate title 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. This potential benefit should be discussed with a real estate attorney or a tax professional.
- Probate Avoidance. Real estate owned in individual name must 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.
- 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 fees.
- Asset Protection. Land trusts are not a reliable asset protection tool. 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 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.
How a Land Trust Works
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 rights of a beneficiary.
When a prospective purchase 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 both the settlor and trust beneficiary. The trustmaker must appoint an independent person as trustee.
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 beneficiaries reserve the right to remove and replace any trustee. Once all parties execute the land trust agreement the land can purchase real property.
The property seller’s deed conveys legal title to the trustee. 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.
Downsides to a Land Trust
Before you decide on putting your property into a land trust in Florida, you should consider the downsides.
First, if you have a tenant that doesn’t pay, you won’t be able to handle the eviction yourself. You’ll usually have to hire an eviction attorney to take care of it.
Secondly, you’ll need the trustee any time you engage in a real estate transaction, whether that be a rental agreement, property listing, permit applications, contracts, and so on. After all, it is the trustee of the land trust that owns the property. If the trustee is an attorney or CPA, then for each of those transactions you are paying for their time.
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 beneficiary of the trust. A beneficiary’s interest in a self-settled trusts, even if made irrevocable, are not protected from creditors. A land trust is not a good way to protect real estate from monetary judgment creditors.
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 quit claim deed from a trustmaker to the trustee.
- Standard land trust agreement identifying the beneficiaries and provisions of the trust.
In addition, our attorneys may serve as trustee of the land trust for $100 per year. If requested, attorney time for additional work as trustee, trust agreement customization, or other legal services is charged at customary hourly rates. Contact us to get started.