Something as simple as an auto accident or malpractice claim can expose the assets you’ve accumulated over a lifetime to attachment by judgment creditors. For this reason, private owners of real property should consider protecting their real estate investment for the benefit of their families, their business partners or the public at large. They can accomplish this asset protections goal by transferring ownership of real property into a Florida land trust as part of an estate, business succession or charitable giving plan.
Florida is one of a hand full of states in the U.S. that allows ownership of real estate through a Florida land trust for purposes of maintaining ownership and designating control of real estate after the original property owner’s death. If your goal is to preserve future rights to manage and use real property, consider transferring that property to a Florida land trust to plan the transition of property ownership using a structure that will discourage lawsuits against the property and the property owners.
What is a Florida Land Trust?
by an individual or business organization (the settlor) for the purpose of contributing real property to trust to be managed by a chosen agent (the trustee) for the ultimate benefit of settlor’s chosen beneficiaries. More often than not, the settlor-owner of real property is motivated to keep their ownership of the property private. Though land trusts are useful for buying, selling or maintaining investment property in confidence, they are most notably used to stimulate public support for charitable real estate projects.
Who Will Benefit from Transferring Real Property to a Florida Land Trust?
Any individual, for-profit or not-for profit business organization that owns an interest in any of the following types of Florida real property will benefit from contributing that property to a land trust:
- undeveloped land,
- primary residences or second homes, investment or rental property,
- forestland or timberland,
- farmland or ranchland,
- rural land suitable for development,
- beachfront property,
- freshwater wetlands, or
- any land on water bodies.
What are the Advantages of Owning Real Property in a Florida Land Trust?
Keep Real Property Ownership Confidential
Maintaining privacy over personal affairs is one of the primary advantages of owning property through a Florida land trust. Because property bought or sold through a land trust is not recorded in public records, the names of beneficial owners of the trust remain confidential and can not be found when performing asset ownership searches. Although the name of the trustee might be found, the identity of the trustee can still be disguised in the form of a trust, corporation, partnership, limited liability company, family limited partnership, or limited liability partnership whose managing parties are not readily identifiable. It is important to note that this privacy protection is lost if a homestead in transferred into a land trust since a certificate of trust must be recorded with the county in order for a Florida homeowner to continue to claim Florida homestead protection benefits.
Continuous Management of Real Property
When a Florida land trust is formed, the trustee gains “full rights of ownership” of real property transferred to trust (trust property) leaving the beneficiaries with no interest in trust property. In other words, the trustee becomes the legal and equitable owner of trust property. Because real property is supervised by the settlor’s designated trustee, management and maintenance of the property continues without interruption of the probate courts or creditors of the settlor. Although the trustee is deemed the legal owner of trust property, the trust agreement will typically reserve the beneficiaries right to control the property by instructing the trustee when to buy, sell, rent, or repair trust property, as well as, when to execute leases and collect rents from tenants on trust property.
Broad Trustee Protections from Liability
A trustee appointed to manage real property in a Florida land trust has broad protections from liability under Florida law. The law allows the trustee to deny requests to disclose information about parties named in the trust and to deny requests to review the Trust agreement. Additionally, there is virtually no liability for performing administrative duties since Florida law does not require that trustees maintain trust bank accounts, investment records, or perform functions necessary to administer the trust. In general, trustees of land trusts are not liable for their actions with regard to the trust unless (i) the trustee breaches their fiduciary duty under Florida law, (ii) the trust agreement provides for trustee personal liability in certain circumstances, or (iii) the trustee fails to disclose their representative capacity in dealings with the trust. So long as the trustee satisfies their fiduciary duty, they need not be concerned about triggering personal liability in the performance of duties and obligations under trust.
Limited Creditor Remedies Against Beneficiaries
Because Florida land trusts are drafted to give beneficiaries power to direct trustee actions, the beneficiaries will maintain indirect control of trust property and, as a result, retain responsibility for their actions when managing trust property. Beneficiary liability is usually limited to tort exposure due to breach of fiduciary duty or failure to properly manage or care for trust property. An example of this would be if the trustee fails to address a sewage leak on the property at the request of trust beneficiaries that ultimately causes an injury to a 3rd party or leads to significant environmental cleanup costs that could have been avoided. Florida case law supports that creditor remedies against liable beneficiaries are limited to a charging orders granted against that beneficiaries’ interest in trust. Although a charging order may give a creditor the right to receive income distributions paid from the trust to the liable beneficiary, in no case have creditors been able to force the sale of the underlying trust property to satisfy beneficiary debts.
Easy Transferability Without Recoding a Deed
When more than one person owns an interest in real property, each owner must agree to the sale of the property and sign a warranty deed that will be recorded in public records. When property is transferred to a Florida land trust, the trustee becomes the sole legal and equitable owner of trust property and will be the only person needed to sign legal documents authorizing the sale or assignment of trust property. This convenience allows beneficiaries to maintain their ownership in private and avoid disclosing their ownership when negotiating the purchase or sale of trust property. Furthermore, if a beneficiary chooses to assign their interest in the trust, they can do so easily without the consent of the other beneficiaries. This is because land trusts are drafted to allow a change of beneficial ownership with the consent of the trustee and the signature of the selling beneficiary on a simple purchase/sale or assignment agreement that does not require witnesses or notarization.
Reduce Property Taxes and Avoid Documentary Stamp Taxes
Florida ad valorem property taxes are based on the market value and best use of real property. The enforcement and collection of property taxes occurs at the county level. The determination or assessment of property taxes occurs each time property is sold or assigned by its owners and a deed is recorded in public records. Because the sale of an interest in a Florida land trust is not a matter of public record, the sale of trust property by land trust beneficiaries will avoid property tax reassessment since no deed is recorded when trust property is sold. Therefore., when trust property is assigned, acquired or disposed of using a Florida land trust, property taxes will not be assessed and the property’s tax basis not increased since the sale will occur in private and not as a matter of public record. Furthermore, state law provides that the conveyance of real property from an individual into their own revocable land trust will not trigger documentary stamp tax liability since there is no real change in beneficial ownership of the trust property.
Judgment Against One Beneficiary Does Not Affect the Other Beneficiaries
If more than one beneficiary owns on interest in real property, there is a risk that one or more of the beneficiaries will have a lawsuit initiated against them. When real estate is owned by a land trust, although a single beneficiary can have judgments levied against them, these judgments will not affect the other beneficiaries’ interest in the trust property. Because a judgment against a beneficiary does not constitute a judgment on the trust property itself, only that beneficiary’s interest in Trust will be subject to attack by judgment creditors. In addition, if a judgment is entered against one beneficiary, it will not automatically attach to the underlying Trust property since trust property is legally owned by the trustee and not any party with a beneficial interest in the trust.
Estate Tax and Creditor Protection Benefits if Florida Land Trust is Made Irrevocable
Florida land trusts are effective at keeping trust property protected from claims of creditors of the Trust’s settlor, trustee and beneficiaries. The ability of these individuals to avoid creditor claims is primarily dependent upon the terms of the Trust and the level of control granted to each party in the trust agreement. If the settlor retains power to revoke or amend the Trust or is named as a beneficiary of trust, the trust property will remain within the settlor’s control and, as a result, will be included in the settlor’s estate. To reduce liability, the settle should consider making the trust irrevocable when formed by nominating a 3rd party trustee, who is someone other than the Trust’s settlor, to manage and control trust property. If the land trust is made irrevocable, the settlor will no longer has any “incidence of control” over the trust property and, therefore, will reduce their estate tax exposure to the extent of the fair market value of real property contributed to trust, as well as, place the real property out of the reach of the settlor’s creditors.
Notable Uses of Land Trusts In Florida
- Walter M. Disney used land trusts to acquire, maintain and develop land for most of Walt Disney World in Orlando Florida.
- The Community Land Trust of Palm Beach County, formed in 2006, has used land trusts to address the affordable housing needs of residents in Palm Beach County.
- The Davie Area Land Trust completed its first community project in August 2008 landscaping the Town of Davie’s 8th Street Park with a matching grant from Broward County’s “Broward Beautiful” program.
- The Trust for Public Land was formed in December 2005 by private owners in Collier County to assist with the County’s with the purchase of land to be preserved and redeveloped for the Naples Zoo and central park.
- The Alachua Conservation Trust in Gainesville, Florida was formed to help local government agencies negotiate a lower purchase price, obtain financing and minimize transaction costs for land purchased for use and benefit of local taxpayers.
Click here for the PDF version of the Firm’s May 2009 Newsletter.
