Real property owners in Florida have different options when it comes to how to hold title to their land depending on their goals. One of those options is a Florida land trust, which is similar to other types of trusts but is specifically used for holding real estate.
This vehicle for holding title comes with its own set of benefits and considerations that are important for people to understand before setting one up for their property. Our article serves as an introduction to the topic of Florida land trusts to give you a better idea of how this ownership structure may or may not be useful in certain situations.
What Is a Land Trust in Florida?
A land trust in Florida is a written agreement that conveys ownership and other responsibilities toward real estate to a trustee for the benefit of one or more beneficiaries. In addition to the written agreement, a Florida land trust will generally require the execution of a recorded instrument (i.e., a deed) with the local county where the underlying property is located. The effect of the land trust structure is its ability to separate the control over a property from those who benefit from its use, financially or otherwise.
Anyone can create a land trust, including individuals, families, other trusts, partnerships, a limited liability company, a corporation, or other legal entities. Additionally, any of those persons or entities can be a trustee or beneficiary under a land trust.
What Is a Land Trust Property?
Land trust property simply refers to the real estate that’s conveyed and held in the land trust. Once the property is placed in a real estate land trust, the stated ownership is technically the trustee named in the written agreement. The terms of the trust agreement are what will determine the future use, maintenance, and care of the property. Land trust property can also include other interests tied to real estate such as leasehold or mortgage interest.
Florida Land Trust Statute 689.071
Florida Land Trust Statute 689.071 is where you can find Florida real estate law concerning this type of real property ownership structure. Amongst other items, it outlines important features, rules, and other requirements for land trusts such as:
- Trustee duties
- Legal formalities for creating a valid land trust
- Appointing successor trustees
- Naming those who may hold a power of direction
How Much Does It Cost to Set Up a Land Trust?
A Florida land trust cost is somewhat variable depending on the complexity of the trust agreement, the parties involved, and the nature of the underlying real property interests. The following are some of the general costs you should consider in establishing and administering a land trust:
Attorney’s fees to draft the written trust agreement and any related legal documents (e.g., corporate consents, bylaws, etc.)
- Filing fees for any recorded instruments
- Administration costs after the initial set up (filing tax returns, accounting, documenting trustee actions, etc.)
Who Purchases the Land in a Land Trust?
Anyone can generally purchase the land that’s held in a land trust so long as the sale is within the power of the trustee under the terms of the land trust agreement. Additionally, the sale will have to comply with the trustee’s fiduciary duties (e.g., the duty of care and duty of loyalty) and be in the interest of the beneficiaries. A trustee can review the terms of the trust agreement with the letter of intent to purchase real estate to determine the permissibility of a proposed sale.
When to Use a Land Trust
A Florida land trust can be useful when there is a concern for confidentiality and privacy. The land trust can separate your business or personal name because the name of the trust is what will appear on public records such as the recorded deed or other instruments.
Some may also set up land trusts to protect their assets or from the creditors of the beneficiaries. A well-drafted land trust can help protect your personal assets by separating them from the real estate, but also protect your real estate from outside personal liabilities.
Pros and Cons of a Land Trust
There are many pros and cons to setting up a land trust. While these pros and cons refer to the general concepts, the overall value of each Florida land trust will differ from case to case depending on the goals of the parties involved. To help you better understand if a land trust is the right choice for you, we break down each benefit and drawback of a land trust.
Benefits of a Land Trust
We’ve mentioned one of the major land trust benefits includes confidentiality and asset protection. Let’s explain that in detail:
Privacy
When your property is in a Florida land trust, any third-party (adverse or otherwise) will not easily be able to search for your name’s connection to the property. This comes in handy in a leasing situation where the owner of the property wishes to maintain their identity private and undisclosed to their tenants. In this case, the tenant deals directly with a rental property manager instead of contacting the owner. A land trust also allows a person to privately transfer the interest of the property to different beneficiaries through the trust.
Probate Avoidance
Similar to a Revocable Trust, any property held in a land trust avoids the need and cost of a probate administration. Probate is the process where you administer a deceased’s estate through the accounting of assets, payment of liabilities, and distribution to heirs under law or other instrument (i.e., a will). A land trust, however, is separate from the deceased person, which allows the property it holds to pass outside of the probate process. In the event of death, a well-drafted Florida land trust can immediately transfer that property to succeeding beneficiaries who are named in the land trust agreement.
Lien and Other Creditor Avoidance
The Florida Land Trust Statute provides some protection from judgments and liens against prior owners, trustees, or beneficiaries of a trust. Generally, creditors (other than creditors of the trust) will have a hard time placing liens or foreclosing on the trust’s property to collect debts against those who benefit from the trust’s structure.
Drawbacks of a Land Trust
Drafted correctly, a land trust can provide asset protection. But the common misconception is that the land trust protects the owner from any personal and real estate liabilities. That isn’t always the case, and we’ll explain why.
Asset Protection
While land trusts can protect your assets to a certain extent, they’re not bulletproof. Even though the land trust can shield your information from the public, your information may become known to a judgment creditor if you become a judgment debtor.
This is when the land trust will not be able to protect your beneficial interests as you are obligated to disclose your possible interest in the property.
Although the mere recording of the judgment will not allow the creditor to place a lien on your property, there are other ways they can pursue your personal property interest (i.e., your interest in the trust).
Additional Tax Return Filing Upon Death of Beneficial Owner
In the event of the beneficial owner’s death, the IRS requires the trustee or fiduciary to obtain an Employer Identification Number and file the tax form 1041 every year. This may cause difficulties to some trustees depending on their situation.
Homestead Exemption but With Reduced Privacy
Parties that are named beneficiaries in a Florida land trust can qualify for Homestead Exemption for creditor protection purposes.
While you can claim a Homestead Exemption on the real estate that’s in the land trust, the exemption holder’s name will be displayed on the property appraiser’s website in the country where the property is located. So even though the land trust provides ownership privacy, the owner’s name will be available in public records should they decide to claim a Homestead Exemption.
Though there are exceptions to redacting ownership information, the circumstances are limited. For example, you can redact the ownership information if the owner is a registered guardian, government employee, victim of a violent crime, a law enforcement professional, or a public defender or prosecutor.
How To Create a Land Trust in Florida
Typically, the first step to setting up a Florida land trust is to prepare and execute two main documents. These are the:
- Recording instrument (e.g., deed, deed of trust, etc.)
- The written land trust agreement
In preparing these documents, you need to identify and select certain parties and terms to incorporate them into the agreement and create a valid trust. We explain each necessary part in more detail below.
Grantor
The grantor is the current owner(s) of the real estate. It is important to properly identify the current owner with accuracy in your documentation to avoid clouded title or other issues with a transfer of the property into the land trust.
Principal or Trust Corpus
This is the property that the grantor transfers into the land trust via deed and trust agreement. The principal could be the real estate property along with other related real estate interests such as those from a lease, mortgage, or deed of trust.
Trustee
This is the party responsible for executing and administering the terms of the trust for the benefit of the beneficiaries. The trustee should be someone the grantor feels will dutifully uphold the purpose of the land trust and execute the grantor’s intent. As mentioned above, the trustee can be an individual, business, another trust, or some other legal entity.
Beneficiaries
These are the names of individuals or legal entities that will benefit from the assets in the trust. This may also include the successor beneficiaries.
How to Move Property into a Land Trust
The property is automatically moved into the land trust once you have signed the trust agreement and recording instrument (and filed it with the proper county office). Afterward, the trustee will hold legal title to that property. This means the trustee’s name will appear on the deed and in public records.
Where To Get Florida Land Trust Forms
As land trusts are complex legal structures to set up, you would typically hire a legal firm or a real estate professional to help you. In this case, your lawyer or real estate professional can provide you with the necessary Florida land trust agreement forms. You will also need a land trust deed form in addition to the Florida Land Trust agreement form.
Need A Land Trust Attorney to Assist with Florida Land Trust Setup?
Florida land trusts involve various legal terms that may not be easily understood by everyone. You don’t want to be caught in real estate scams in Florida when setting up your land trust.
It’s advisable to seek assistance from qualified land trust attorneys. Cueto Law Group is a business law firm specializing in contracts, litigation, international business, and civil rights. Our team of attorneys will be able to help you correctly set up your land trust in Florida at an affordable price.
Need help setting up a land trust in Florida? Contact us and we’ll walk you through the entire process.
FAQs
What Is a Land Trust Agreement?
The Land Trust Agreement is a written and binding agreement that establishes and governs the land trust. This agreement will name all the parties involved, include any amendments throughout the setup process, and include relevant signatures and dates. The trust agreement will also provide a structure for the trustee.
What Does a Trust Agreement Look Like?
A Land Trust Agreement will look like most other contracts. It will begin by naming the parties and continue with other sections that state important terms for handling the trust’s property and distributing income, principal, or other interests to the beneficiaries. The end will have signature blocks and key exhibits.
Living Trust vs Land Trust – What’s The Difference?
A land trust is a type of living trust. However, a living trust usually holds any type of asset in contrast with a land trust that can only hold real estate or real estate interests (e.g., leaseholds). Land trusts also give property owners some control through power of direction.
How Long Does a Land Trust Last?
Land trusts can exist for any definite or indefinite period under the terms of the trust agreement. How long your land trust will last usually depends on your goals. You may wish to terminate the trust once beneficiaries are a certain age or for longer to benefit future generations.
What The Florida Land Trust Does Not Do?
While Florida land trusts provide many benefits to property owners and real estate investors, there are certain limitations. For example, you cannot use the land trust to avoid any kind of tax consequences related to income, gifts, or transfers. Avoiding these tax rules can constitute a real estate scam.
You also cannot use the land trust to avoid any due on sale clause in promissory notes secured by the property. In this case, you should have your law firm carefully review your loan documentation to ensure you’re complying with the terms of your mortgage and promissory notes.
