Land Trusts Explained
Formation of the Land Trust
A land trust is created when the beneficiary or beneficiaries decide to purchase a property or make a mortgage loan to someone. They choose someone to act as their trustee. The trustee will hold the legal title to the property, meaning that the trustee's name is the one that will appear on the deed and in the public records. The trustee will also hold equitable title to the property, meaning that the trustee has the complete authority -- as far as third parties know -- to lease, sell, encumber and convey the real property without anyone else's involvement. The beneficiaries enter into an agreement (the trust agreement) with the trustee. The trust agreement spells out exactly what the trustee is permitted to do with the property, and when and how he can do those things. It is a very important document that gives the trustee extremely powerful authority to do anything with the property. Therefore, it is imperative to choose a trustworthy trustee. The parties then direct that the real estate or the mortgage shall be taken in the name of the trustee, and special statutory language is included in the deed or mortgage to give public notice of the trustee's authority over the property. The trustee executes all purchase and sales contracts, leases, permit applications, notices of commencement and termination, and any other document related to the management and disposition of the property so long as the trust exists. The beneficiaries' names are never made public except in rare circumstances that usually require a court order.
Asset protection is very important to most active real estate investors. An important component in any good asset protection plan for a real estate investor is the Florida Land Trust. Such trusts are authorized by the Florida Land Trust Statute found in section 689.071, coupled with section 689.073 of the Florida Statutes. Under this statute, if specific language is included in the deed that conveys the property into the trustee, and there is a proper trust, then there is no reason anyone should ever have reason to review the trust agreement itself. If third parties have no reason to review the trust agreement, then they will not know the identity of the beneficiaries (the owners) of the trust itself. This means that a real estate investor can use an unrelated third party to act as a trustee of the property, and only the trustee's name will appear on public records. When an asset search is conducted, the real estate investor will appear to own nothing. Further, by placing each property into its own separate trust, the real estate investor can effectively isolate each property from the judgments and other liabilities associated with the investor's other properties, including code enforcement liens.
The land trust also provides ease of tranfer of ownership, privately, since the beneficiary is free to convey the interest in the trust to another party with simply one or two documents. While documentary stamp taxes must be paid on such transfers, they are often much cheaper than full closings that involve the transfer of the title to the property via a deed. Further, the purchase price of the beneficial interest will not appear on the tax records. While a report will be made to the county's property tax appraiser regarding the transfer of the beneficial interest, this report will not be made public.
Finally, the land trust facilitates management of the property when there are multiple owners, while avoiding the possibility of partition by one of the co-owners. One beneficiary may be given the "power of direction" over the trustee. Therefore, while there may be multiple owners of the trust, the trustee will only answer to one who holds the power of direction, and that one will answer to the beneficiaries.
The Florida land trust is a unique relationship between the trustee and beneficiary that protects the identity of the property's true owner. When used properly, the land trust provides privacy of ownership, ease of management, isolation of liabilities, and easier transferability of ownership. Contact us today to discuss how the land trust could work for you.