Florida Land Trusts are in my opinion, the best vehicle to hold title to real property in Florida for both foreign and U.S. citizens. For foreign buyers, the trust is slightly modified to comply with Internal Revenue Code Section 2501(A)(2) to avoid gift tax upon subsequent transfers. Land Trusts are designed, among other things, to provide flexibility as well as avoid the cost and inconvenience of probate or guardianship.
For Non-US Citizens, if the shares of the land trust are properly transferred in escrow to your successor beneficiaries potential estate tax, if any, may be avoided as well as the need to obtain tax releases in the event of death. Another benefit is that ownership within a Land Trust provides the lowest possible individual tax rate upon sale. Below are some of the most frequently asked questions regarding creating a Florida Land Trust.
WHO IS THE OWNER OF THE LAND TRUST?
As a general rule, the party who sets up the Land Trust is typically the owner/beneficiary. Most often the trust is jointly together with your spouse, if applicable. You can transfer the beneficial interest at any time and not be subject to documentary tax or adversely affect your title insurance.
HOW DOES MY LAND TRUST ACQUIRE AND DISTRIBUTE PROPERTY?
After you have signed your Land Trust documents and presumably have established yourself as Trustee, it is crucial that your real estate be transferred into your name as Trustee. Fortunately, the transfer of property is less difficult than it sounds. It merely requires your signature, notarization, and recording in the County Record’s office with the appropriate language on the deed.
WHO IS THE TRUSTEE OF MY LAND TRUST?
During your lifetime most likely you will be the Trustee. During any incapacity or after your death, the person(s) you name as your Successor Trustee will take over control of the property. The number of Successor Trustees is limited only by the number of people you name and the type of contingency plans you wish to make.
WILL MY LAND TRUST AVOID PROBATE?
One of the biggest advantages of a Land Trust is that in the event of death, you can avoid the time and expense of the very convoluted probate process that exists in Florida. Because a Land Trust is a separate legal entity, it continues to hold title to your property until your trust is terminated. The most usual method of termination of the Trust is in accordance with the terms you specified. The duties of the Successor Trustee DO NOT require the supervision of a probate court. The Successor Trustee passes title by transferring the beneficial shares (if not previously transferred) to the person(s) you have designated. This is similar to checking a box for a beneficiary on a life insurance policy.
DOES MY LAND TRUST AVOID GUARDIANSHIP?
Yes. If you are incapacitated, mentally or physically, without a Land Trust, it most likely would be necessary to apply to the Probate Court to have someone appointed to manage your affairs including real estate. All of the problems of Probate, particularly the expense, time, and public knowledge of your affairs also apply to guardianships. A Land Trust will avoid this possibility.
DOES MY LAND TRUST AVOID TAX?
A Land Trust minimizes tax and in many instances, can avoid estate tax. In the event of sale, you are taxed at the lowest possible individual rate as opposed to a corporate rate. While you are alive, any income or capital gain the Land Trust receives upon sale is reported by you, and appropriate tax is paid by you. It is not necessary to obtain a new Federal Tax ID number for your trust, everything will continue to be reported under your individual name and Tax ID number or social security number, if a U.S. citizen.
Presently, there are no Federal Estate Taxes for properties owned in the U.S. unless your total worldwide assets exceed Twelve Million Nine Hundred Twenty Thousand Dollars ($12,920,000.00) individually if you are single and Twenty Five Million Eight Hundred Forty Thousand Dollars ($25,840,000.00) if you are married.
HOW SHOULD THE PROPERTY BE INSURED?
Unfortunately, many insurance companies do not fully understand land trusts as a legal entity. Therefore, some companies may refuse to insure the property or alternatively charge a premium if the Land Trust is listed as the lost insured. As a result, you should avoid mentioning the word Land Trust and simply list the beneficial owners as the insured owners. Similarly, all utilities should be placed in your respective individual name(s) and not the Land Trust. A Land Trust’s sole limited purpose is to hold title for your benefit.
WHAT HAPPENS TO MY TRUST WHEN I DIE?
When you created your Land Trust, you named a person or persons to act as successor trustee(s). This designation can be changed at any time by you to conform to circumstances at that particular time. Your Successor Trustee is required to carry out the wishes in your Land Trust the same as you would if you were able. Your trust becomes a will substitute and your Successor Trustee will distribute your interest in the property as you specify-quickly, privately at no cost avoiding the court system entirely.
HOW DO I AMEND MY LAND TRUST?
Your Land Trust is a fluid document. It may be changed or amended at any time you are alive and well and can be amended to reflect changes in your marital status or in your circumstances. Furthermore, your Land Trust is revocable at any time circumstances indicate you no longer desire or need to have it in place. This flexibility is an advantage that is missing in other forms of planning.
CAN I ADD ADDITIONAL PROPERTIES TO MY LAND TRUST?
Yes. Through simple amendments as set forth above, your Land Trust can add or subtract properties at any time.
Please remember that, although the property is formally “owned” by the Land Trust, as trustee(s) and beneficiaries of your trust, you will have the same control over the property as if you owned it individually. Please feel free to contact me with follow-up questions you may have.