August 3, 2018
Buying Florida Real Estate in a Florida Land Trust
Trusts are “vehicles” normally formed (drafted) by lawyers to achieve certain objectives for their clients including, but not limited to, estate tax planning, court probate avoidance, and facilitation of ownership transfers. They are normally drafted uniquely for each client, to meet that client’s needs. Such trusts are often referred to as “living trusts”, “inter vivos trusts”, or “revocable trusts”, or in tax terminology “grantor trusts” when they are formed for living individuals who wish to continue to control the assets in the trust.
A Florida land trust is different because it is drafted by the lawyer to include specific requirements, and therefore, benefits of the Florida Land Trust Act.1 Thus, there is at least a minimal standardization to each Florida land trust. The trust agreement confers to the trustee the powers described in Florida Statute 689.073(1), under which the trustee has no duties other than:
- The duty to convey, sell, lease, mortgage, or exercise other powers, in each case as directed solely by the beneficiaries,
- The duty to dispose of the property on termination of the trust, and
- The duty to perform administrative functions delegated to the trustee by the beneficiaries in the trust agreement.
What Are Some Benefits of a Florida Land Trust?
When the trust agreement and the proper deed are drafted in accordance with the Florida Land Trust Act, and the trustee complies with the provisions of the trust agreement, the trustee is protected from liability with respect to contracts he causes the trust to enter into.2 This appears to be considered a primary benefit of a Florida land trust because it may provide some anonymity for the actual owner of the property where that anonymity is considered important to the owner. For example, the owner can engage a trusted third party as trustee, and the government’s public real property ownership records will show only the name of that trustee. An additional benefit of a Florida land trust is that the purchaser of the property is not required to review the terms of the trust agreement to confirm the power of the trustee to sell and convey it.
The remainder of the common advantages of a Florida land trust to a living individual requiring continuing control over his/her property, seem equally available through the use of a normal “living trust”, or “inter vivos trust”. These advantages include:
- Simplicity of change in ownership interests (change in beneficiaries),
- Description of the terms of the relationship between the beneficiaries that depend on future actions, or results, and
- Avoidance of court probate on death.
What Florida Land Trusts and Living Trusts Do Not Do
Florida land trusts, and living trusts, (i.e. inter vivos trusts/revocable trusts) do not protect you from third party liability. Creditors may still attack your beneficial interest.
These trusts also do not protect you from filing a U.S. income tax return if you sell your interest in the trust, or the trust sells its property, or potentially from U.S. FIRPTA withholding tax if you are a foreign beneficiary of the trust. 3
Further, if you are a nonresident alien, your estate must still file a U.S. estate tax return for you, if you pass away while having a US real estate interest in the trust exceeding $60,000.
Caution: If there is excessive business activity in the trust, the IRS may treat the trust as a U.S. corporation for US tax purposes, with unexpected U.S. tax consequences that may conflict with any foreign tax planning you undertake.
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1 The Florida Land Trust Act (Florida Statute 689.071)
2 Florida Statutes 736.1013 and 736.08125
3 IRC §1445(e)(5)