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Florida Land Trusts vs LLCs for Real Estate Investors [Which is Best?]

Florida Land Trust vs. LLCs

This topic is a key Florida asset protection question for real estate investors who hold multiple properties.  This question concerns whether to title your real estate investment property in Florida in Florida Land Trusts vs. LLCs in Florida and this depends upon the goals and preferences of the investor.

The 2 most common “recommended” ways to hold real property investments in Florida are a Florida LLC or Florida Land Trust.

Exploring the pros and cons of these Florida estate planning options is the stuff of this week’s article.

Florida Land Trusts vs Florida LLCs for Real Estate Investors

For Florida investors doing estate planning, Florida LLCs and Florida land trusts are both effective ways to hold real property depending upon one’s goals.

The Florida LLC

LLCs are extremely simple to set up in virtually every State and everyone in the real property world, from brokers to County workers, essentially knows about them.

This means that people are not typically confused by your asset protection structure (of holding assets in an LLC) and this means that your daily life may be less complicated.

LLCs are extremely flexible, and if prepared properly, offer key asset protection benefits.

Of course, by prepared properly, I mean that setting one up yourself without an Operating Agreement may not be an effective strategy, whereas, getting professional help and creating a solid LLC structure goes a long way.

If you set up an LLC for estate planning purposes to hold your real property investments, you’ll need to decide whether you’ll be the only owner of the membership units (a single member LLC) or whether you’ll have other partner members (multi-member LLC).

In many jurisdictions, such as Florida, multi-member LLCs offer a more solid asset protection plan than the single member LLC.

My recommended process to create an LLC is to file Articles of Organization with your State of choice and then have supporting documents created to support your LLC.   The State will require a renewal fee every year and you’ll need to decide who your Registered Agent will be…whether you or a third party.

We’ve also discussed in previous posts what should be considered in creating a Florida LLC operating agreement.

After this, the real property may be transferred to the LLC and you’re good to go.  An LLC will require an annual state maintenance fee and needs to be administered with certain formalities.

Finally, an LLC can be set up to avoid probate in Florida either by placing the ownership of membership interest in a revocable living trust in Florida OR by including a transfer upon death provision in the Florida LLC Operating Agreement.

The Florida Land Trust

A Land Trust is essentially holding real property by contract. The Florida Land Trust option is different from an LLC in Florida because the former is typically is not filed with the State and thus offers greater privacy and anonymity.

So, the Land Trust document (contract) is created and the Trustee (who must be a third person or entity) is appointed by the Trust.  The Trustee will essentially hold the real property for you or your entity of choice as the Beneficiary.  Therefore, a key advantage to Land Trusts is privacy.  The public records for property that is held by a Land Trust is afforded greater privacy because only the land trust name needs to appear on the deed.

FL Homestead Options

Another possible advantage to Florida Land Trusts vs. LLCs is that a Florida homestead property may be held in a Land Trust.  As a quick overview of homestead protection in Florida, the FL Constitution affords asset protection of the full value of a home that is within certain parameters and is a primary residence in Florida. Although it varies from county to county, a Land Trust may be used to provide additional privacy around homestead ownership.

Finally, avoiding having to open a probate in Florida is another distinct advantage of Florida Land Trusts because a beneficiary is designated for the real estate and if an individual beneficiary passes, a successor can be designated.

Key disadvantages are that City and County officials may become confused by Land Trusts whether dealing with a homestead or not. You also need to be comfortable essentially conveying your title to a third party as the Trustee if you go this route, noting that the Trustee will be bound by fiduciary duties and the terms of the Trust.

Florida Land Trustees often charge annual fees as well.

If you decide to go with the Land Trust option, you can still utilize an LLC as the Beneficiary of the Land Trust, which can double your asset protection.  For more information about getting a Florida Land Trust visit here.

Real Estate Investors In States Other Than Florida, Texas, Arizona, Ohio, Illinois, Indiana, North Dakota, Virginia and possibly California, may not have the estate planning option of a Land Trust.

The states referenced above are the only ones that have land trust statutes and generally the real property must be situated in the State that the Land Trust is created.

This is a key distinction with Land Trusts vs LLCs because a Florida LLC can hold real property located in Texas, and this is usually the case with LLCs in various States.

Moreover, ideally the Trustee should also be located in that same jurisdiction as the Trust and the real property, so the rules for Land Trusts may be more restrictive than LLCs, because the LLC Managers can be anywhere (although the Registered Agent must be locally based in the State).

Also, with Land Trusts, if you have multiple real properties in the same State, they must be “contiguous” (next to each other) in order to title them in the same Land Trust, and this is not the case with LLCs.

Of course, all of the above is a basic distinction and a great asset protection plan may utilize both Land Trusts and LLCs.

All of the above should also tie into your overall estate plan and this may require directing the real property in your LLC or Land Trust to your Florida revocable living trust upon death.

 

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