What are Land Trusts?
- A Land trust is a vehicle for holding title to real property.
- Land Trusts are creatures of statute in Florida. See Florida Statute §689.071.
How are Land Trusts created?
Two things are required to form a Land Trust: 1) A deed in trust (Trustee’s Deed)- where the property is conveyed to the Trustee and 2) Trust Agreement- the agreement under which the Trustee acts.
Common Terminology in Land Trusts?
- Trust Agreement– the agreement entered into between the Trustee and the beneficiary which establishes the trust.
- The Trustee– is the party designated in the trust agreement to hold legal and equitable title to the land trust property.
- Beneficiary- the party designated in the trust agreement that has complete management of the property plus full power to direct the trustee with respect to title
- Power of direction– the right to control the trustee’s disposition of title to the trust power and the execution of trust documents affecting the trust property.
- Deed in Trust– The instrument which conveys title to the real property into the land trust.
- Trustee’s Deed-An instrument by which a land trustee conveys title to the trust real property to another party
- Beneficiary Agreements– other collateral agreements among beneficiaries which relate to the relationship among beneficiaries.
What are the advantages of creating a Land Trust?
- Homestead Protection
- Privacy: The interests of all beneficiaries are private unless disclosed by order of the court.
- Asset Protection: Judgments against land trust beneficiaries do not affect the legal title to the real property held in a land trust. Thus, the land held in trust can be freely sold, conveyed, or otherwise pledged without problems.
- Certainty: Interest in a land trust cannot be partitioned.
- Favorable Tax Treatment: The beneficial interest in a land trust is personal property. Use of land trust as a vehicle for holding title to real property permits the preservation of tax benefits under IRS. All of the tax advantages of individual ownership may be retained when a land trust is properly used to hold title to real property.
- Continuity: The death of a beneficiary does not terminate the trust and testamentary dispositions can be made in the trust agreement
- Ease of Management with Multiple Owners: The trust agreement establishes a management plan, can set forth buy-out provisions, and should anticipate and resolve potential disputes before they become a problem.
- Avoidance of Probate: Property held in a land trust is not subject to costly and time consuming probate. The beneficial interest in the land trust is personal property (so nonresidents can avoid ancillary administration also)
- Simplification of making gifts: the $14,000/year tax free gift exclusion becomes easier.
- Beneficiary retains full power of management of the property.
- Trustee receives full rights of ownership over the real property when the deed is properly drafted.