Florida Land Trust

What Is a Florida Land Trust?

A Florida land trust is a legal arrangement in which real estate is held by a trustee at the direction of the beneficiaries who retain control over the property and its management.

It offers privacy since the property ownership is recorded under the name of the trust rather than the individual beneficiaries.

It also allows for easier transfer of interest without needing to record a new deed, and provides liability protection, as the trust itself is the legal owner of the property, not the beneficiaries.

Quick Summary

1. A Florida land trust lets keeps a property owner’s name out of the public records.
2. A land trust divides property ownership into legal title and an equitable interest.
3. Upon the owner’s death, the land trust property can be passed to beneficiaries without going through probate.

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 Florida Land Trusts

1. Privacy of Ownership: One of the most appealing features of a land trust is that it allows the property owner to remain anonymous. The public records will show the trust as the owner of the property but will not list the beneficiaries. This can be particularly advantageous for those who wish to keep their real estate holdings private.
2. Ease of Transfer: Transferring property through a land trust can be simpler and faster than the traditional methods. Since the trust owns the property, transferring ownership of the property can be accomplished by assigning beneficial interests in the trust, without the need to record a new deed. This not only maintains privacy but also reduces the costs and complexities associated with recording deeds.
3. Probate Avoidance: Similar to a living trust, a land trust can help avoid probate proceedings upon the death of the beneficiary. Since the property is titled in the name of the trust, it passes directly to the successor beneficiaries designated in the trust agreement, bypassing the probate process.
4. Liability Protection: While not as comprehensive as the protection offered by an LLC or corporation, a land trust does provide some level of liability protection. Since the legal title is held by the trustee, any lawsuits or judgments related to the property are generally directed at the trust, not the beneficiaries.

Setting Up a Florida Land Trust

Creating a Florida land trust involves several steps:

1. Draft the Trust Agreement: This document outlines the terms of the trust, including the powers and duties of the trustee, the rights of the beneficiaries, and the specific instructions for handling the property.
2. Choose a Trustee: The trustee can be an individual or a corporate entity. The name of the trustee will be in the public records.
3. Transfer Title: The property must be legally transferred to the trust by deed.

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.

Beneficiaries

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.

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.

FAQs about Land Trusts