Creation of Land Trusts

Before creating a land trust Section 689.071 should be carefully reviewed.

1. As noted earlier, Ferraro v. Parker, 229 So.2d 621 (Fla. 2d DCA 1969) holds that Section 689.071 is an adoption of the Illinois land trust.

2. Careful thought should be given as to who the trustee will be. If the trustee is to be an individual, it is a wise idea to name successor trustees in the deed to cover that situation in which the individual trustee dies or becomes incompetent. The 2006 revisions to the land trust act provides a procedure for appointment of successor trustees where they are not named in either the deed or trustee agreement, and also in the situation where successor trustees are named in the unrecorded trust agreement, but not in the deed. Section 689.071.9(b) and (c), F.S. These procedures eliminate the need to obtain appointment of a successor trustee by court order, as was the case under prior law if a successor was not named in the deed.

a. Many bank trust departments are reluctant to act as land trustee or charge trustee fees which are so high that they prohibit the use of land trusts. The 2006 revisions to the land trust act did expressly provide that a trustee of a land trust may also be a secured creditor of the trust without such dual roles being deemed a breach of fiduciary duty. Section 689.071.10(a) and (b), F.S.

3. As mentioned earlier, it is important that beneficiaries not be named in the deed. Doing so will place others on notice of the fact that there are other parties having an interest in the property and may result in a title company requiring the recordation of the trust agreement and quit claim deeds from all of the beneficiaries on a conveyance of trust property.

4. Section 689.071(1) provides that trustees will have such powers as are set forth in the deed of conveyance.

a. It is very important that the deed of conveyance contain, at a minimum, the following language:

b. It is important that the deed into the trust specifically state that the interest of the beneficiary is personal property and that no beneficiary has any title, legal or equitable, in the real property.

c. A sample form of deed into a land trust is attached hereto as Exhibit B.

d. Prior to the 2006 revisions to the land trust act, in some counties, homestead was lost or questioned by the county assessors because of their interpretation of the Homestead constitutional provision requiring the owner to have the exclusive right to occupancy, possession and use of the property. Some county assessors believed naming a trustee as owner of the property placed that right in question. The 2006 revisions to the land trust act expressly provide that " the principal residence of a beneficiary may be another to the homestead tax exemption even if such homestead is held by a trustee in a land trust." Section 689.071.8(h), F.S.

B. The trust agreement is the instrument entered into by the trustee and beneficiary. An example of a trust agreement is attached hereto as Exhibit A.

1. It should provide that the interests of the beneficiaries have the powers to direct the trustee to deal with the title, control and operation of the property.

2. It also should provide that the interest of the beneficiary is personal property and that at the death of the beneficiary the trust will not terminate.

3. The trust agreement sets forth the duties of the trustee and provides that it is not the duty of any purchaser to see to the application of the purchase money, nor does any such person have the right to inquire into the necessity of any act of the trustee.

4. The trust agreement should not be recorded.

5. Note that mortgages may also be placed in land trusts. When this is done the Land Trust Agreement should be modified accordingly to provide for the holding of fee title to the real estate if foreclosure occurs and to ensure that the trustee has the power to institute foreclosure proceedings.

C. There may be other collateral agreements among beneficiaries which are generally called "Beneficiary Agreements" which relate to the relationship among beneficiaries.

1. The kind and variety of collateral agreements and beneficiary agreements is a very wide one. Some take the form of co-ownership agreements. Some others are very sophisticated partnerships.

2. Limited partnerships, corporations and limited liability corporations may be beneficiaries under a land trust agreement.

3. Examples of beneficiary agreements creating a co-ownership relationship or a general partnership relationship between the beneficiary are attached as Exhibit D.

4. The 2006 revisions to the land trust act expressly recognize that " [t]he beneficiaries' duties may be expanded or restricted in a trust agreement or beneficiary agreement." Section 689.071.8(d), F.S.

D. With respect to the relationship of the trustee to the beneficiary, it has been held that the trustee is not the agent of the beneficiary Robinson v. Chicago National Bank, 32 Ill. App. 2d 55 (1961), and the beneficiary is not the agent of the trustee, Brazkowski v. Chicago Title and Trust Company, 280 Ill. App. 2d 293 (1935).

1. In connection with the assignment of beneficial interest, the court in Goldman v. Mandell, 403 So.2d 511 (Fla. 5th DCA 1981) held that since the interests of the beneficiaries were personal property no witnesses were required to an assignment of beneficial interest under the land trust and that Florida Statutes Section 689.06 had no applicability to that situation.

2. With respect to personal liability, it is important to note that Taylor v. Richmond's New Approach Association, Inc., 351 So.2d 1094 (Fla. 2d DCA, 1977), held that in a case where the trustees were also the beneficiaries of the land trust and were involved in the development of a real estate project, the court looked to Florida Statutes Section 737.03 relating to personal liability of trustees to third parties and noted that the deed said nothing about the limitations of liability on the trustees. Therefore, every deed should contain language indicating that the liability of the trustee is limited to persons on constructive notice as to the obligations of the trustee. This limitation of liability should be placed on other documents executed by the trustee. The land trust act now includes language expressly providing that the provisions of Section 737.306, F.S., apply to the trustee of a land trust. Section 689.071(7), F.S.