A
land trust is a legal device for holding any interest in real property in which
legal and equitable title is transferred to a Trustee. There are several
advantages to holding property in a land trust. Among the most prominent are:
·
Probate
avoidance
When property
is placed in trust it is no longer legally owned by the trustor (original
property owner who placed the property in trust). Therefore, when the Trustor
dies, the trust property does not constitute property owned by the Trustor at
death. Instead, it will pass and be governed solely by the terms of the trust,
as opposed to facing a lengthy and costly estate and administration process.
·
Privacy
The placing
of property in a land trust is done by deed from the Trustor to the Trustee.
Oftentimes, the Trustor is also a beneficiary of the land trust, however, only
the name of the Trustee is associated with the property in the county
recorder’s office. Land trusts are nifty ways of keeping a property owner’s and
beneficiary’s status shielded from the public eye.
·
Tax benefits
Property
placed in a land trust may be taxed by that initial transfer, but there are
specific provisions in the Internal Revenue Code providing for exceptions. In
any event, all subsequent transfers occurring thereafter to successor
beneficiaries while the property is held in trust are shielded by the trust
from further taxation.
·
Simpler
transfers
Trust
agreements can provide specific terms regarding how and when property is to be
transferred and the Florida Land Trust Act accommodates for multiple
beneficiaries and the various ways they can share title to the same property. Properly
drafted trust agreements, tax benefits, and probate avoidance are all further
reasons as to why transferring property held in a trust is much simpler than if
it were held otherwise.
·
Easy
management
Property interests held in a land
trust can be easily financed, sold, or otherwise managed without the formality
of deeds, notaries, seals, or county recording.
There
are a series of other benefits to hold property in a land trust. Our attorneys
are happy to answer your questions and assist you in maximizing your goals
through a land trust.
THE FLORIDA LAND TRUST ACT - §689.071, Fla. Stat. (2013).
Land
trusts in the State of Florida are created by statute under the Florida Land
Trust Act (FLTA). All land trusts executed in the State of Florida must comply
with the terms of this statute. The FLTA addresses the specific rights,
liabilities, and duties of trustees and beneficiaries, appointment of successor
trustees and beneficiaries, applicability of other law and the Uniform
Commercial Code, perfection of security interests, and the type of interests
held by trustees and beneficiaries in land trusts, among other topics. Contact
our attorneys to learn how your goals in a land trust are impacted by the FLTA.
Here
is a link to the Florida Land Trust Act:
ARE ANY LAND TRUSTS NOT GOVERNED BY THE FLORIDA LAND TRUST ACT?
Yes.
The Florida Land Trust Act lists four specific powers and authorities to be
accorded to a Trustee in a land trust. If these powers and authorities were not
accorded to a Trustee, the trust is not a land trust governed under FLTA.
If
a trust was created before June 28, 2013, it will be governed by FLTA if the
trust instrument confers on the Trustee the powers and authorities mentioned
above and either expressly provides that the trust is a land trust or
demonstrates the intent of the parties for the trust to be a land trust. If
trusts created prior to June 28, 2013 state they are to be governed by chapter
736 or any other trust code or law besides FLTA, or the intent of the parties
demonstrates so, the trust will be out of the purview of FLTA.
WHAT CAN I HOLD IN A LAND TRUST?
A
land trust is intended to hold interests only in real property. This does not
mean that you must have full ownership rights over a piece of property to place
it into a land trust. The FLTA defines a beneficial interest as “any interest,
vested or contingent and regardless of how small or minimal such interest may
be, in a land trust which is held by a beneficiary.” Thus, leaseholds to mortgagee
interests to full perfect title can be held in a land trust.
I ALREADY HAVE REAL PROPERTY IN ANOTHER TRUST. SHOULD I TRANSFER
IT TO A LAND TRUST?
It
depends. Any trust, including a land trust, can be revocable or irrevocable,
and there are a series of advantages and disadvantages associated with each.
Depending on the status of your current trust, your general donative intent,
and, if applicable, your testamentary scheme, holding property in a land trust
as opposed to another may or may not be a wise decision. Among other things,
and revocability aside, holding real property in a land trust might be more
advantageous if you are concerned with property being held under your name or
if there are multiple owners or business transactions related to the property
so as to keep the subject property in exclusive management under a single land
trust. Call our office to learn from our attorneys whether a land trust is the
best option for you.
HOW DO I CREATE A LAND TRUST?
There
are two documents required to create a land trust: a deed and a trust
agreement. When one creates a land trust, he or she transfers, by deed, real
property to the trustee to be held in trust and executes a trust agreement that
outlines who the Trustee(s) and Beneficiary(ies) are, the scope of the Trustee’s
authority, and the general terms of the trust, including how the subject
property is to be managed and among other instructions and conditions. The deed
must be recorded and the Trustee must be conveyed specific powers and
authorities laid out in the Florida Land Trust Act.
We
encourage you meet with one of our attorneys to discuss the creation of a land
trust. Given the particularity of the FLTA and its distinction from the
ordinary Florida Trust Code, it is important to make sure a land trust is
created properly and governed under the appropriate provisions of Florida law. Our
firm can assist you with executing a deed in trust and trust agreement that
will clearly outline the rights and duties of designated trustees and
beneficiaries, fulfill your needs and goals, and properly manage any risk
associated with your property.
WHAT IS A TRUSTEE AND WHO CAN BE ONE?
A
Trustee is the person or entity responsible for managing the trust property.
There can be multiple Trustees (or Co-Trustees) to the same trust. A Trustee
can be a natural person or a business entity. A Trustee holds legal and
equitable title to the trust and is the only person who can take any action
concerning the property. A Trustee can only act under the direction of the
beneficiary(ies) and has no authority to make any decisions concerning the
trust property on his or her own accord. In essence, the Trustee is a fiduciary
who holds legal and equitable title to the real property for the benefit of the
beneficiary and acts according to the direction of the beneficiary assigned to
the trust. The Trustee acknowledges that he or she understands the rights and
responsibilities as a fiduciary to the Trust and beneficiary(ies) and,
accordingly, that the Trustee should file I.R.S. Form 56 notifying the I.R.S.
of the creation of a fiduciary relationship under section 6903 and giving
notice of qualification under section 6036.
Our
firm provides Trustee services for land trusts so you can ensure your trust
property is managed by an entity that is responsive, reliable, and
knowledgeable about land trusts and the FLTA.
WHAT IS A SUCCESSOR TRUSTEE?
A
Successor Trustee is the person or entity who is next in line to serve as
Trustee in the event the Trustee is unable or chooses not to serve as Trustee.
The Successor Trustee has no authority or title to the trust while still a
Successor Trustee.
WHAT IS A BENEFICIARY AND WHO CAN BE ONE?
A
beneficiary is the person who holds a beneficial interest in the land trust.
Unlike an ordinary family trust where the Trustee has mandatory or
discretionary authority according to the terms of the trust, the Trustee in a
land trust has no authority except to follow the directions of the
beneficiaries regarding the handling of the trust property. This is what the
Florida Land Trust Act calls the “power of direction,” and it rests only with
the trust beneficiaries. The Beneficiary is also fully entitled to all
beneficial interests of the trust property, such as earnings and other proceeds
the property generates while in trust and the option to occupy or otherwise
possess the property.
The
beneficiaries of a land trust can be anyone the trustor (creator of the trust)
chooses, even the trustor him/herself. It is usually in the best interest of a
beneficiary to hold his or her beneficial interest in the name of a business
entity, such as a corporation or limited liability company, so the beneficial
interest can have the same protections offered those entities should the
beneficiary ever face the risk of liability.
REAL OR PERSONAL PROPERTY INTERESTS – DOES IT MATTER?
One
of the unique features of a land trust is the ability of a beneficiary to hold
either a real or personal property interest in real property held in the land
trust. According to the Florida Land Trust Act, any land trust conferring
personal property interests to the beneficiaries must explicitly state so in
the trust documents. If there is no specification as to the type of beneficial
interests in the trust, Florida law will presume they are real property
interests.
The
main incentive for a beneficiary to have a real property interest in a land
trust is if the trust property is the beneficiary’s homestead. Holding property
in a land trust does not interfere with qualification for the homestead tax
exemption. In most other circumstances, personal property interests are
preferred. If the interest is personal property, beneficiaries can easily
assign their interests without a deed, the trust property cannot be partitioned,
and ancillary probate administration for out-of-state residents can be avoided.
Personal property interests provide other tax and asset-protection benefits, as
well.
HOW ARE TRUST INTERESTS PROTECTED?
Under
the Florida Land Trust Act, Trustee and Beneficiary interests are “separate and
distinct” from one another, unless another law specifies otherwise. Thus, any
actions or encumbrances affecting one have no effect on the other.
