REAL ESTATE INVESTMENT: Florida Land Trust
I have always been fond of trusts generally and, when it comes to real estate investment, a land trust can be an ideal solution in many situations. The only real drawback is that a lot of people are unfamiliar with trusts and it takes a good deal of explaining to get them to the necessary comfort level.
The purpose of this article is to highlight the key advantages of a Florida land trust so, whether you are a realtor or a buyer, you can better understand the options and make smarter decisions.
Establishing a Land Trust
Florida Land Trusts are simple to create and are an excellent planning tool for residents and nonresidents alike. In Florida, we actually have a land trust act, which creates a statutory right to utilize this vehicle. Many states do not have such legislation, which can lead to a certain amount of uncertainty.
There is no need for any nervousness with a Florida land trust because the state legislators have clearly given it their blessings, along with concrete guidelines in the form of the Florida land trust act.
Benefits of a Land Trust
While Florida has long been a destination of choice for retirees, it is nevertheless one of the worst states when it comes to probate of one’s estate. The process is expensive and time consuming. One of the biggest advantages of a land trust is that you can avoid probate of your real property. With a land trust, you simply designate the beneficiaries in the trust document, and the rest takes care of itself. That is, since the land trust will be the owner of the property, and the land trust never dies, the trust property need never pass through the probate court.
In this regard, the trust document acts kind of like an insurance policy. When you decease, the trust property will be governed by the provisions of the trust document. Specifically, your beneficiaries will receive the trust property in the manner you see fit.
So, just as important as the cost savings is the control you can exercise over the trust property. For example, you get to decide whether you want the land trust to continue to own the property, paying monthly or quarterly rent to the beneficiaries, or liquidate the property and give the sale proceeds to the beneficiaries. Or, you can liquidate a portion of the assets and hold the rest, transfer assets to some beneficiaries but leave other assets in the trust until beneficiaries reach a certain age, etc.
The possibilities are as boundless as your imagination. The point is you get to decide, not a judge.
Managing Trust Property in the Event of Incapacity
Sooner or later we all get old. At some point, you will be unable – or simply unwilling – to manage the Trust Property. No problem. You can name a Successor Trustee in the trust document, who can take over whenever the need arises.
If you are mentally fit but just ready for a break, then all you have to do is resign as trustee. If you are not mentally or physically incapacitated, a well-drafted trust document will have provisions that cause your Sucessor to be appointed without involving the courts.
Again, you are in control of the governance of your estate, not a judge.
My firm caters to foreign investors, so this issue comes up often. If you are from Venezuela, China, Argentina, or any other country with a rather authoritarian government, then you are interested in keeping your US holdings private. No problem.
As you may know, Florida companies are not particularly private. In fact, you can easily discover the owners and managers of any company by simply checking the state department’s website at sunbiz.org. That’s not ideal.
However, unlike a corporation or limited liability company there is no public record of trusts. That is, there is no requirement to register the land trust with the State Department, so nothing appears on the website.
Further, title to the property will be in the name of the trust, so there is no transparency there.
If you want complete anonymity, then you will want to name someone else as the trustee – like your lawyer, for example. That way, you do not even sign any paperwork related to trust property.
This is very handy for internationals and anyone who wants to maintain confidentiality.
Avoid Judgments & Liens
If you have judgments hanging over you head that would allow creditors to attach proceeds from sale of real property, then pay attention. If you set up the trust correctly – and, I would not recommend you do this without an attorney—then, legally, the property the trust buys and sells is not yours and your creditors cannot touch it.
There may be some tax implications, which we can discuss in a consultation, but at least you are back in business. You can buy and sell property without worrying about creditors taking all the profit.
Trusts have long been a great vehicle for asset protection, and the land trust is perfectly suited for protection of real property and the capital gains.
Facilitation of Multiple Owners
If you belong to an investment group, it can be cumbersome to involve all the investors in every transaction. You could, of course, nominate a president or chair person to sign on behalf of all investors, but then you have to deal with the politics of choosing the empowered one.
With a trust, it is more comfortable to assign signatory rights to one individual because that comes as a built-in feature of a trust.
The trustee is the one and only person who will sign off on all trust transactions. If you want extra checks and controls, you can create a board of trustees. But, if you are looking for simplicity, then hiring an attorney or a trust company to represent the trust is a very efficient solution.
The same is true for foreign owners who cannot be present for every trust transaction. Having a trustee in the local forum obviates any need for travel, apostilles, etc.
Facilitation of Dispute Resolution or Succession
Like companies, a trust can stipulate to the terms of resolution in case of a dispute between owners or beneficiaries. This can be extremely important since litigation is expensive. So, for example, the trust document can state that disputes must be resolved through binding mediation. You can even name the person you want to act as the mediator.
You make decision right at the start – when everyone is happy – and then there is no need for unnecessary complication or expense should disagreements arise in the future.
Ease of Maintenance
Unlike corporations or limited liability companies, land trusts do not require annual filing fees with the state. So, besides saving the annual fee, you do not have to worry about missing the deadline for renewal, filing amendments, etc.
Additionally, depending upon how you set up the trust, you may not even need to obtain a separate tax I.D. or file a separate tax return.
Ease of Changing Beneficiaries
I am not saying I recommend this, but some people actually use a land trust in place of a will. One advantage of the land trust is that you can amend the trust document at any time without having to change the deed. There is no requirement to record the trust document, so the amendments are simply done privately, just as you would a will.
Also, from a tax standpoint, be aware that transfers among beneficiaries do not trigger the Florida documentary transfer tax.
Land trusts can be an excellent estate planning tool to gift assets out of an estate, minimizing estate tax without sacrificing equity.
Favorable Tax Rate
Unlike a corporation, beneficial owners of a land trust – including foreign nationals – are only taxed at the favorable individual capital gain rate. Depending upon the situation, you may choose for the trust to file its own tax return, which may result in a higher tax rate. Otherwise, you will enjoy the same tax rate as you would individually.
Moreover, if at least beneficiary of the trust is a Florida resident, then the land trust can qualify for the homestead exemption, which provides excellent asset protection and tax benefits. Section 689.071 was recently amended to reflect that the principal residence of a beneficiary held in a Land Trust qualifies for the Homestead Tax Exemption.
I realize a land trust might sound somewhat exotic, but you really should take the time to learn more about it. It is almost certainly the most flexible, useful, and advantage vehicle available to you.