Land Trusts In Florida

Land Trust

I. Introduction

Florida’s Land Trust Act was substantially amended on June 28, 2013.

In 1977, the Second District Court of Appeal explained the origins of Florida’s Land Trust Act in the case of Taylor v. Richmond’s New Approach Association, Inc., 351 So.2d 1094 (Fla. 2DCA 1977), as follows:

[[“The so-called Illinois land trust contemplates that title to real property be taken in the name of a trustee under a recorded deed of trust while a second unrecorded agreement between the trustee and the beneficiaries declares the trustee to be vested with full legal and equitable title subject to certain specified rights of the beneficiaries which are declared to be personal property of the beneficiaries. *** In 1963 our legislature insured the validity of the Illinois land trust by enactment of Chapter 63-468, Laws of Florida, which has now become Section 689.071, Florida Statutes (1975). *** The statute permits the trustee to convey freely without joinder of spouses or beneficiaries and allows third parties to deal with the trustee without having to inquire into his authority.”

II. Definitions

Land Trust

Florida Statutes Section 689.071(2)(c) defines a “Land Trust” as:[edit]

“(c) “Land trust” means any express written agreement or arrangement by which a use, confidence, or trust is declared of any land, or of any charge upon land, under which the title to real property, including, but not limited to, a leasehold or mortgagee interest, is vested in a trustee by a recorded instrument that confers on the trustee the power and authority prescribed in s. 689.073(1) and under which the trustee has no duties other than the following:[edit] •1. The duty to convey, sell, lease, mortgage, or deal with the trust property, or to exercise such other powers concerning the trust property as may be provided in the recorded instrument, in each case as directed by the beneficiaries or by the holder of the power of direction; •2. The duty to sell or dispose of the trust property at the termination of the trust; •3. The duty to perform ministerial and administrative functions delegated to the trustee in the trust agreement or by the beneficiaries or the holder of the power of direction; or •4. The duties required of a trustee under chapter 721, if the trust is a timeshare estate trust complying with s. 721.08(2)(c)4. or a vacation club trust complying with s. 721.53(1)(e). However, the duties of the trustee of a land trust created before June 28, 2013, may exceed the limited duties listed in this paragraph to the extent authorized in subsection (12).” [Emphasis added].

Additionally, F.S. 689.071(12)(a) provides that:

“A trust is not a land trust governed by this section if there is no recorded instrument that confers on the trustee the power and authority prescribed in s. 689.073(1).” •Land Trust Powers

Prior to June 28, 2013, the statutory land trust powers were contained in F.S. 689.071(3). However, on June 28, 2013, the land trust powers were moved to newly created F.S. 689.073(1), which provides, as follows:

“Every conveyance, deed, mortgage, lease assignment, or other instrument heretofore or hereafter made, hereinafter referred to as the “recorded instrument,” transferring any interest in real property, including, but not limited to, a leasehold or mortgagee interest, to any person or any corporation, bank, trust company, or other entity duly formed under the laws of its state of qualification, which recorded instrument designates the person, corporation, bank, trust company, or other entity ‘trustee’ or ‘as trustee’ and confers on the trustee the power and authority to protect, to conserve, to sell, to lease, to encumber, or otherwise to manage and dispose of the real property described in the recorded instrument, is effective to vest, and is declared to have vested, in such trustee full power and authority as granted and provided in the recorded instrument to deal in and with such property, or interest therein or any part thereof, held in trust under the recorded instrument.” [emphasis added]. •Legal Title and Equitable Title

Non-Land Trusts. When title to real property is vested in the trustee of a non-land trust, legal title is held by the trustee and equitable title is held by the beneficiary(s). In re Wells, 259 B.R. 776 (Bankr.M.D.Fla. 2001); Axtell v. Coons, 82 Fla. 158 (Fla. 1921). Both interests are considered to be real property.

Land Trusts. When title to real property is vested in the trustee of a land trust, both legal and equitable title are vested in the trustee. F.S. 689.071(3) provides as follows:

“(3) OWNERSHIP VESTS IN TRUSTEE.—Every recorded instrument transferring any interest in real property to the trustee of a land trust and conferring upon the trustee the power and authority prescribed in s. 689.073(1), whether or not reference is made in the recorded instrument to the beneficiaries of such land trust or to the trust agreement or any separate collateral unrecorded declarations or agreements, is effective to vest, and is hereby declared to have vested, in such trustee both legal and equitable title, and full rights of ownership, over the trust property or interest therein, with full power and authority as granted and provided in the recorded instrument to deal in and with the trust property or interest therein or any part thereof. The recorded instrument does not itself create an entity, regardless of whether the relationship among the beneficiaries and the trustee is deemed to be an entity under other applicable law.” [emphasis added].

See also, 689.073(1); In re Wells, 259 B.R. 776; Goldman v. Mandell, 403 So.2d 511 (Fla. 5 DCA 1981); In re Lilia Belcova, 2015 WL 5438844 (Bankr M.D. Florida 2015); Lawyers Title Insurance Corporation v. JDC (America) Corporation, 818 F.Supp 1543 (S.D. Florida 1993). •Beneficiary’s Interest In Trust •◦Non-Land Trusts. When title to real property is vested in a trustee of a non-land trust,

the beneficiary has equitable title to the property and a beneficial interest in the trust. Both the equitable title and the beneficial interest are considered to be real property. Taylor v. Richmond’s New Approach Association, Inc., 351 So.2d 1094. •◦Land Trusts. Under F.S. 689.071(6), the beneficiary’s interest in a land trust is considered to be personal property if the land trust or the deed expressly make that provision. However, if the trust and the deed are silent on that issue, the beneficiary’s interest in the land trust is considered to be real property. See also, F.S. 689.073(3); Lawyers Title Insurance Corporation v. JDC (America) Corporation, 818 F.Supp 1543; Goldman v. Mandell, 403 So.2d 511; In re Povia, 224 B.R. 209 (Fla. M.D. 1998); Taylor v. Richmond’s New Approach Association, Inc., 351 So.2d 1094.

•Merger of Title •◦Non-Land Trusts. As referenced above, when title to real property is vested in a trustee of a non-land trust, legal title is vested in the trustee and equitable title is vested in the beneficiary(s). If the trustee is also a beneficiary of the trust, the legal title held by the trustee merges with the equitable title held by the beneficiary resulting in fee title being vested in the beneficiary(s) in his individual capacity. Axtell v. Coons, 82 Fla. 158; In re Wells, 259 B.R. 776; Hansen v. Bothe, 10 So.3d 213 (Fla. 2d DCA 2009); Contella v. Contella, 559 So.2d 1217 (Fla. 5DCA 1990);

•◦Land Trusts. Prior to the amendments to Florida’s Land Trust Act on June 28, 2013, the merger of title doctrine was erroneously applied by the courts and the title industry to title held by a trustee of a Land Trust. In re Saber, 233 B.R. 547 (Bankr.Fla. S.D. 1999); U.S. v. Barnes, 883 F.Supp 2d 1156 (Fla. M.D. 2011), affirmed in part, vacated in part at 509 Fed.Appx 837 (2012).

•Passive Trusts •◦Non-Land Trusts. A trust is passive when, under the provisions of the trust agreement, the trustee has no real authority to convey or mortgage trust property without the permission, consent, or direction of the beneficiaries. When a trust is passive, title is considered to be vested in all of the beneficiaries of the trust. Elvins v. Seestedt, 141 Fla. 266 (Fla. 1940); Ferraro v. Parker, 229 So.2d 621 (Fla. 2 DCA 1969).

•◦Land Trusts. Prior to the amendments to Florida’s Land Trust Act on June 28, 2013, the passive trust doctrine was applied to Land Trusts by the courts and by the title industry.

•Power of Direction

A Power of Direction in a Trust authorizes a third party to tell the Trustee what to do. Under F.S. 689.071(2)(d), a “’Power of Direction’” means the authority of a person, as provided in the trust agreement, to direct the trustee of a land trust to convey property or interests, execute a lease or mortgage, distribute proceeds of a sale or financing, and execute documents incidental to the administration of a land trust.”

III. Title Problems

•Merger of Title •◦Under the merger of title doctrine, when the trustee is also a beneficiary, the legal title held by the Trustee merges with the equitable title held by the trustee - as a beneficiary, resulting in fee title being vested in the beneficiary. Therefore, the Trustee must execute the deed or mortgage individually and as trustee to convey or mortgage fee title to the property.

•Passive Trusts •◦Under the passive trust doctrine, title is considered to be vested in all of the beneficiaries. Therefore, in addition to the trustee, all of the beneficiaries must execute the deed or mortgage to convey or mortgage fee title to the property.

•Judgments •◦Merger of Title. If the merger of title doctrine applies, the Trustee is considered to be in title in his individual capacity as a beneficiary. Therefore, all judgments against the Trustee in his individual capacity attach to the property and would have to be released.

•◦Passive Trusts. If a Trust is passive, all of the beneficiaries are considered to be in title. Therefore, judgments against any of the beneficiaries attach to the property and would have to be released.

•Successor Trustees •◦If the Trustee dies, becomes incapacitated, or is otherwise unable to serve as Trustee, the Trust must be reviewed to ascertain the identity of the successor Trustee and the requirements for the successor trustee to become the acting trustee. Proof of compliance with those requirements must be attached to and recorded with a Trust Certificate.

IV. Title Problems Solved By the Land Trust Act

•After the June 28, 2013 amendments to the Land Trust Act, the title problems arising due to the Merger of Title Doctrine and the Passive Trust Doctrine do not apply to title held by a Trustee of a Land Trust. •Merger Of Title •◦Prior to the 2013 amendments to the Land Trust Act, F.S. 689.071(3) provided that “both legal and equitable title” were vested in the Trustee of a Land Trust. However, even with that language, the courts and the title industry erroneously applied the merger of title doctrine to Land Trusts. In the In re Saber case, 233 B.R. 547, at Footnote #5, the Court stated:

•◦◾“Because the Florida Legislature did not specifically exempt Florida Land Trusts [from the merger of title doctrine], this Court holds that the merger Doctrine operates on them.”

•◦The Florida Legislature answered the Saber Court in June 2013 when F.S. 689.071(5) was added to the Land Trust Act as part of the amendments. F.S. 689.071(5) provides, as follows:

•◦◾“(5) DOCTRINE OF MERGER INAPPLICABLE.—The doctrine of merger does not extinguish a land trust or vest the trust property in the beneficiary or beneficiaries of the land trust, regardless of whether the trustee is the sole beneficiary of the land trust.”

•◦Based on F.S. 689.071(5), the doctrine of Merger of Title is not applicable to title held by a Trustee of a Land Trust. Additionally, pursuant to F.S. 689.071(3) and 689.073(1), both legal and equitable title are vested in the Trustee of a Land Trust. Therefore, even if the Trustee is also a beneficiary, the Trustee is only required to execute a deed or mortgage as Trustee of the Trust and not in his individual capacity as long as the property is not the homestead of the Trustee or any of the beneficiaries.

•Passive Trusts •◦The Passive Trust Doctrine vests title in all of the beneficiaries of a passive trust. However, F.S. 689.071(4), which was added to the Land Trust Act as part of the 2013 Amendments, provides as follows:

•◦◾“(4) STATUTE OF USES INAPPLICABLE.—Section 689.09 and the statute of uses do not execute a land trust or vest the trust property in the beneficiary or beneficiaries of the land trust, notwithstanding any lack of duties on the part of the trustee or the otherwise passive nature of the land trust.”

•◦◾Based on F.S. 689.071(4), a passive Land Trust does not vest title in the beneficiaries. Therefore, as long as the property is not the homestead of the trustee or any of the beneficiaries, only the Trustee would be required to execute a deed or mortgage on behalf of the Land Trust.

•Judgments •◦Due to the Merger of Title and Passive Trust Doctrines, judgments against the beneficiary(s) of a Land Trust were deemed to attach to the property and were required to be released. However, F.S. 689.071(8)(d), which was added to the Land Trust Act as part of the 2013 Amendments, provides as follows:

•◦◾“(d) The trustee’s legal and equitable title to the trust property of a land trust is separate and distinct from the beneficial interest of a beneficiary in the land trust and in the trust property. A lien, judgment, mortgage, security interest, or other encumbrance attaching to the trustee’s legal and equitable title to the trust property of a land trust does not attach to the beneficial interest of any beneficiary; and any lien, judgment, mortgage, security interest, or other encumbrance against a beneficiary or beneficial interest does not attach to the legal or equitable title of the trustee to the trust property held under a land trust, unless the lien, judgment, mortgage, security interest, or other encumbrance by its terms or by operation of other law attaches to both the interest of the trustee and the interest of such beneficiary.” [emphasis added].

•◦Since the Merger of Title and the Passive Trust Doctrines do not apply to Land Trusts, judgments against a beneficiary(s) do not attach to the property and do not have to be released.

•Successor Trustees •◦Non-Land Trusts. If the initial trustee dies, becomes incapacitated, resigns or is otherwise unable to serve as Trustee, the trust must be reviewed to determine who the successor trustee is and what the trust requires for that trustee to become the active successor trustee. Proof of the identity of the successor trustee and proof of compliance with the requirements of the Trust for the successor trustee to become the active trustee must be recorded in the public records. Prior to July 1, 2007, that proof would have been in the form of a recorded Trust Affidavit signed by the successor trustee with the relevant pages from the Trust attached to and recorded with the Trust Affidavit. In addition - if applicable, the death certificate for the Trustee would have to be recorded separately or with the Trust Affidavit. If the Trustee was incapacitated rather than deceased, typically - but it depended on what the trust required, a letter(s) from the Trustee’s doctor(s) confirming the incapacity of the Trustee would also have to be attached to and recorded with the Trust Affidavit.

•◦In 2006, the Florida Legislature passed Senate Bill 1170 creating F.S. 736.1017 which became effective on July 1, 2007. F.S. 736.1017 pertains to Certifications of Trust which are generally referred to as “Trust Certificates”. Trust Certificates replaced Trust Affidavits but old habits die hard and some agents still use Trust Affidavits. While Trust Affidavits may still be used, the better practice is to use Trust Certificates because F.S. 736.1017(2) provides protection to a purchaser or lender who in good faith relies on the facts asserted in the Trust Certificate regarding the trust. While F.S. 736.1017(1) provides that instead of furnishing a copy of the Trust, the Trustee may furnish a Trust Certificate, the documents listed above to evidence the identity of a successor trustee and the death, incapacity, resignation, or inability of the Trustee to serve, should be attached to and recorded with the Trust Certificate.

•◦Land Trusts. Regarding successor trustees, subparagraph (9) was added to the Land Trust Statute on October 1, 2006. F.S. 689.071(9) provides for a Declaration of Appointment of Successor Trustee(s), as follows:

•◦◾1. Recorded Document and Unrecorded Trust Do Not Appoint A Successor Trustee. When the deed / mortgage and the unrecorded trust do not appoint a successor trustee(s), F.S. 689.071(9)(a) provides:

•◦◾◾A. Person(s) having Power of Direction under the Trust may appoint a successor trustee(s) and record a Declaration of Appointment of Successor Trustee(s) in the Public Records of the County where the property is located; ◾B. The Declaration of Appointment must be signed by the beneficiary(s) and the successor trustee; and be acknowledged in the same manner as a deed; ◾C. The Declaration of Appointment must contain: ◾1. Legal description for the property; ◾2. Name and address of former trustee(s); ◾3. Name and address of successor trustee(s); and ◾4. Statement that the person(s) having power of direction appointed the successor trustee(s), together with an acceptance by the successor trustee(s).

•◦◾2. Recorded Document Is Silent Regarding Successor Trustee(s) But Unrecorded Trust Provides For Appointment of Successor Trustee(s). When the deed / mortgage is silent regarding successor trustees but the unrecorded trust provides for the appointment of a successor trustee(s), F.S. 689.071(9)(b) provides: ◾A. Upon appointment of the successor trustee under the terms of the trust, the successor trustee(s) shall record a Declaration of Appointment of Successor Trustee(s) in the Public Records of the County where the property is located; ◾B. The Declaration of Appointment must be signed by both the former trustee and the successor trustee; and be acknowledged in the same manner as a deed; ◾C. The Declaration of Appointment must contain: ◾1. Legal description for the property; ◾2. Name and address of former trustee(s); ◾3. Name and address of successor trustee(s); ◾4. Statement of resignation by the former trustee and a statement of acceptance of appointment by the successor trustee(s); ◾5. Statement that successor trustee was appointed by the terms of the unrecorded trust;

•◦◾◾If the appointment of the successor trustee is due to the death or incapacity of the former trustee, the Declaration of Appointment does not need to be signed by the former trustee. A copy of the death certificate or a statement that the former trustee is incapacitated or unable to serve must be attached to and recorded with the Declaration of Appointment.

◾3. If the recorded instrument i.e. deed or mortgage, provides for appointment of a successor trustee, no additional declarations of appointment are required.

•◦◾F.S. 689.071(9)(d) provides that each successor trustee is fully vested with all of the rights and powers of the former trustee; and that any person dealing with a successor trustee of a land trust pursuant to a Declaration of Authority is not obligated to confirm that authority of the successor trustee to act under the power granted in the deed / mortgage or the unrecorded trust.

Foreclosures

Non-Land Trust. When title is vested in a Trustee of a non-land trust, the trustee(s) and all of the beneficiaries of the Trust should be named as defendants in the foreclosure case against the Trust.

Land Trusts. When title is vested in a Trustee(s) of a Land Trust, there is no need to name the beneficiaries or appoint an ad litem in a foreclosure case because legal and equitable title are vested in the Trustee. Also, F.S. 689.071(8)(i) provides that the appointment of a guardian ad litem in a foreclosure case is not necessary. F.S. 689.071(8)(i) provides as follows:

“(i) In a foreclosure against trust property or other litigation affecting the title to trust property of a land trust, the appointment of a guardian ad litem is not necessary to represent the interest of any beneficiary.”

See also, Grammer v. Roman, 174 So.2d 443 (Fla. 2 DCA 1965).

Homestead

Homestead for ad valorem tax purposes. F.S. 689.071(8)(h) provides that:

“The principal residence of a beneficiary shall be entitled to the homestead tax exemption even if the homestead is held by a trustee in a land trust, provided the beneficiary qualifies for the homestead exemption under chapter 196.”

Therefore, even though title may be vested in a Trustee of a Land Trust, the beneficiary of the Trust is entitled to the homestead tax exemption as long as the property is the beneficiary’s homestead and the beneficiary otherwise qualifies for the tax exemption.