When investors choose to acquire property in Florida, they often do so via a Limited Liability Company LLC.  One alternative to the LLC is to use a trust for real estate investment.

Quick Read Summary (TLDR)

The primary benefits of trusts include superior privacy since there’s no requirement to publicly file trust documents, strong liability protection because assets held in trust are legally separate from your personal assets, and potential tax advantages that allow the trust to be treated as a disregarded entity to avoid double taxation. However, trusts come with notable drawbacks, including the complexity and cost of proper administration, which typically requires hiring legal advisors, accountants, and third-party trustees whose fees can diminish profitability. Additionally, placing property in a trust means you lose legal ownership, as control transfers to trustees who administer the assets and may limit your access to income or property. Financing can also be more challenging since banks often treat trust assets differently and may impose additional administrative hurdles when using trust property as collateral for mortgages.

For legal representation, reach out to the real estate attorneys at South Floida Law at (954) 900-8885 or via our contact form. 

There are distinct advantages to using a trust, though the disadvantages should carefully be weighed in to determine if a trust is the right formation for a given real estate investment.

PROS

1. Privacy

Trusts for real estate investment are by far the best choice for properties in which there is an overriding need for privacy.  There is no legal requirement to publicly file your Declaration of Trust. This means that trustees, administrators and beneficiaries of a trust are not publicly listed.  Alternatively, an LLC or corporation is required to be file Articles of Organization or Incorporation with the Florida Secretary of State. This means that as an LLC owner your name and address will be publicly published as the owner of the business holding the property.  This makes a trust the clear winner over the LLC in terms of privacy.

2. Liability Protection

When you “have assets held in trust” they are legally not your assets. This means that if you are the beneficiary of a trust, you may default personally on a loan and not have the assets in the trust subject to a lien.  Likewise, financial and legal difficulties of the trust will not affect your personal assets. LLCs, though have “limited personal liability”. Limited personal liability is conditional on whether the owner of the business respects the separation of assets (ie does not commingle LLC funds with his own). The LLC must also remain compliant with Florida’s statutory regulations, annual filings and fees in order for the limited personal liability to remain in effect. (For legal requirements and tregulations affecting trust mangement see Florida Statutes Chapter 736).

3. Some Tax Advantages

Similarly to S Corporations and LLCs, trusts can file taxes in a way in which they are “disregarded as an entity separate from its owner.” This means that the entity does not need to file a separate federal tax return to its owner, avoiding “double taxation” at the individual and entity levels.  In Florida, LLCs are still required to file an income tax return even if they are disregarded entities for federal tax purposes.  Trusts that file as partnerships, and that have only one partner benefit from not having to file separately at either the state nor the federal level.

CONS

1. Complexity and Cost

It is true that trusts do not require registered agents in Florida, have no registration requirement, filing fees or annual fees. However, the proper administration of a trust can be very complex and costly.  Legal advisors, accountants and financial institutions (as well as any others used as third-party trustees) are required to manage the compliance hurdles and handle the administrative burden inherent with trusts.  The fees paid for their services can diminish the profitability of the trust.

“Trusts are by far the best choice for investments in which there is an overriding need for privacy.” 

2. Lost Ownership

You lose ownership of properties that are placed in trust. Legal ownership is transferred to trustees who administer all properties and assets in the trust and may have control over your access to significant portions of the assets in and income from the trust.

3. Access to Finance

Banks and other financial institutions may treat trust assets differently and make it difficult for them to be used as collateral.  While it is possible to receive a mortgage secured against properties in a trust, the administrative procedures, fees and other processes involved may limit access to the funds or make it prohibitively costly.

It is important to sit with an experienced real estate attorney to weigh the pros and cons of holding real estate assets in a trust.  Since trusts can be valuable as way to maintain privacy there are clear advantages under certain circumstances.  However, there are significant pitfalls of which any decision-maker needs to be aware.

South Florida Law

The attorneys of South Florida Law have the experience, required knowledge of state statutes, and now knowledge of federal law to represent real estate investors with properties in the State of Florida.  If you are preparing to invest in a Florida property are concerned about the legal structure of the investing entitiy, be sure not to attempt to “go it alone.”  Turn to the legal professionals at South Florida Law who can help you use an appropriate formation, structure your assets, as well as draft and review legal documents if required.  Reach out to us today via our contact form or by calling (954) 900-8885.