How Can Miami Real Estate Investors Effectively Plan for Property Transfers?

What Makes Real Estate Investment in Florida a Good Choice?

Florida is not only a great place to retire but also an attractive location for real estate investors. With no state income tax, it is a tax-friendly environment with a strong real estate market and a wide range of investment options, including commercial real estate, vacation rentals, residential properties, and real estate investment trusts (REITs). For real estate investors, estate planning requires special consideration for property transfers.

What Are Florida Land Trusts?

Land trusts are a popular tool for maintaining privacy while protecting real estate investments. They are legal arrangements formed under the 2018 Florida Statutes, Title XL, Real and Personal Property, Chapter 689, Conveyances of Land and Declarations of Trust. With a land trust, the owner transfers his or her interest in real estate to a trust. The designated trustee holds title to the property on behalf of the named beneficiaries, who retain ownership rights, such as receiving income and making decisions concerning the property. A land trust must be in writing, properly executed, and recorded with the county where the property is located.

How Does a Florida Land Trust Work?

Land trusts are revocable trusts by which the grantor (person making the trust) appoints another person to serve as trustee and hold title to the property for the benefit of the beneficiary (who is often the grantor). The grantor may name co-beneficiaries or successor beneficiaries in case of his or her passing. The trust may hold title to more than one property. Only the name of the trustee is made public. Under this arrangement, legal ownership of the property is vested in the trustee, while beneficial ownership belongs to the beneficiaries.

Under state law, the trustee of a land trust may have the authority to manage, buy, sell, or lease the property. However, he or she may only exercise powers that are granted expressly in the trust agreement. A trustee has a fiduciary duty to always act in the best interests of the trust beneficiaries. A land trust may have a specific or indefinite duration, or it may be designed to terminate by agreement of the parties or upon the occurrence of a specific event.

What Are the Advantages of Land Trusts for Miami Real Estate Investors?

Land trusts provide important advantages for real estate investors in Florida. The pros include:

• Privacy protection: A land trust names the trust as the owner and keeps the identity of the beneficiaries confidential. This provides a high level of privacy for those who want to shield their investments from prying eyes.
• Asset protection: Placing real estate in a land trust separates the property from personal assets and makes it possible to shield investments from potential lawsuits or creditors.
• Transaction flexibility: The trustee of a land trust can execute documents required for a transfer without directly involving the beneficiary. This can expedite the process and make buying, selling, or transferring go smoother.
• Estate planning benefits: Creating a land trust can help ensure seamless property transfer to a real estate investor’s beneficiary after his or her death. It can potentially allow beneficiaries to avoid probate and associated costs and delays. Transfer of beneficial interest in a land trust does not require a change of title, which streamlines the process and helps avoid transfer fees and taxes. If a grantor/beneficiary dies or becomes incapacitated, the trust continues to hold the property without disruption, and beneficial interests are automatically transferred to successor beneficiaries named in the trust.

What Are the Limitations of Florida Land Trusts?

Land trusts are surrounded by an evolving legal landscape that may change over time. It is important for investors to consult with an experienced attorney and stay abreast of changes in state laws to ensure compliance with regulations. Land trusts offer an alternative method for acquiring, holding, and transferring property that provides important benefits. However, they also have certain limitations, including:

• Financing restrictions: Lenders may require trustees to personally guarantee loans when they are seeking financing for property held in a land trust.
• Loss of direct control: Under the typical land trust agreement, the beneficiary controls the sale or use of the property and receives all income, appreciation, and tax benefits. However, the beneficiary must give up a degree of direct control of the property to the designated trustee. Although the trustee is required to act according to the beneficiary’s instructions, some control is still relinquished.

What Are the Tax Implications of Land Trusts?

A land trust can help minimize taxes on real property. In many cases, it can help you avoid estate taxes. In the event of a sale of the property, it provides the lowest individual tax rate. While you are alive, you report any income or capital gain from a sale by the land trust and pay the appropriate taxes individually. You are not required to obtain a federal ID number for the trust. Land trusts in Florida are treated as grantor trusts for federal tax purposes. All income and deductions associated with the property pass through to the beneficiaries. A land trust has no special distinction in the Internal Revenue Code, as stated by the IRS.

Why Choose Perez-Roura Law for Estate Planning in Miami?

At Perez-Roura Law, our legal team provides high-quality estate planning services. We are compassionate and responsive, and we understand the concerns families are facing today. If you have real estate investments, our Miami estate planning attorney can help you plan effectively for property transfers as part of a comprehensive estate plan. Contact us at (305) 359-3888.