Understanding Florida Land Trusts: A Cursory Guide

Florida land trusts are a useful tool for estate planning and asset protection management. Such trusts allow property title to be held by a trustee while the equitable/beneficial interest is to be held by someone else.

The advantages to this arrangement cause it to be a popular means by which Florida property owners protect their privacy while maintaining ownership of real property within the state.

This article examines the benefits, structures and relevant Florida laws related to land trusts. 

What is a Florida Land Trust?

A Florida Land Trust is a legal structure specifically established to own the title of real property. This form of ownership separates the legal title, usually held by the Trustee, from the beneficial interests, traditionally owned by the Beneficiary, of the property.

The trust itself outlines the responsibilities and powers of the trustee, the rights of the beneficiary, as well as, any procedures for managing or transferring the subject property.

The Florida Land Trust Act, codified in Chapter 689 of the Florida Statutes, provides the legal framework within which Florida land trusts may be created, managed or terminated.

How to create a Florida Land Trust?

As with any other legal document, particularly those involved in estate planning, there are several important steps involved with drafting a valid Florida land trust.

First, the terms and intentions of the grantor of land trust must be determined. The trust agreement is the foundational document that outlines the roles and responsibilities of the trustee, any rights given to the beneficiary and the specific process for managing the property held by the land trust. A Florida land trust must be in writing and signed by both the trustee and the beneficiary.

It is very important to select a trustworthy and competent trustee to manage the trust and follow its terms. A Florida land trust trustee may be a trusted individual (usually a family member), a financial institution such as a bank or a trust company. The beneficiary, on the other hand, holds the beneficial interest in the trust which allows them to instruct the trustee, receive income from the property, and to benefit from the proceeds of any sale of the property. Similarly, however, the beneficiary may be an individual, a business entity or another trust.

After the trust agreement is in place, and the trustee and the beneficiaries are identified, the property subject to the trust must be transferred to the trustee.

Typically, this is done by executing a deed that transfers the title from the current owner to the trustee. Thereafter, the deed must be recorded in the public records of the county in which the property is located. It should be noted, however, that the Florida land trust itself is not recorded in public records or publicized, thereby maintaining the anonymity of the beneficiaries.

Benefits of creating a Florida Land Trust

 There are several benefits to creating a Florida Land Trust. They include:

• Privacy of Ownership: Privacy is perhaps the most common reason for creating Florida Land Trust. With such trusts, the identity of the beneficiaries is kept confidential as it does not appear in public records making it difficult for others to identify the actual owner of the property. However, the name of the trustee remains publicized.
• Ease of Transfer of Interest: Another common reason for creating a Florida Land Trust is the ability to easily transfer the beneficial interest without the need to record a deed. This is particularly beneficial for transfers amongst family members or upon the death of a beneficiary without the need for probate.
• Control and Flexibility: Despite the legal title being held by a trustee, the beneficiary retains complete control over the property. The beneficiary directs the trustee to take specific actions without the need for additional approvals.
• Probate Avoidance: In Florida, avoiding probate is pivotal to most estate plans. A large benefit of the Florida land trust is that upon the death of a beneficiary, the land trust may be transferred to intended heirs without the need for probate court intervention. This advantage allows for a smooth and seamless transfer of assets.
• Asset Protection: Although a limited benefit, Florida land trusts provide a small degree of asset protection by separating the legal title from the beneficial ownership. The Florida land trust makes it more difficult for creditors to seize the subject property, albeit it not impossible.

Disadvantages of a Florida Land Trust

A Florida land trust carries with it potential pitfalls that should be considered prior to being drafted.

• Insufficient Asset Protection: The lack of adequate asset protection is perhaps the most cited reason for avoiding a Florida land trust. In Florida, creditors may still attach to the property held in the land trust if there is an outstanding judgment against the named beneficiary.
• Trustee Misconduct: Given that the trustee holds legal title opens the door to mismanagement or misconduct by the trustee. As a result, it is important to appoint a trustworthy trustee, as well as include provisions for the removal of such trustee if needed.
• Potential Complexity: It is paramount that the Florida land trust agreement must be properly drafted to avoid potential complexity when transferring title to a new beneficiary or when selling the property. Having clearly outlined procedures for managing and transferring beneficial interests helps with avoiding disputes.

Noteworthy tax considerations regarding a Florida Land Trust

Prior to utilizing the Florida Land Trust as an estate planning tool, it is very important to examine the tax consequences of creating one:

The Internal Revenue Service (IRS) considers Florida land trusts as a “grantor trust” for income tax purposes. Therefore, the beneficiary of the trust is treated as the owner of the property for federal income taxes who must report all income and expenses on their returns.

In Florida, property held in a Florida land trust is assessed like any other property for property tax purposes. Consequently, homestead exemptions may apply if the beneficiary otherwise qualifies for the deduction.

Conclusions on the Florida Land Trust

Florida land trusts are a very useful tool for various reasons. However, it may not be appropriate for all scenarios.

Therefore, it is essential to seek professional advice to ensure that the trust meets your specific needs and complies with Florida law.

To learn more about how we may be able to guide you through the process of drafting your Florida land trust, contact us here.