The Florida real estate market is one of the nation’s most competitive business segments. In this fertile soil for avid entrepreneurs, it is crucial to rely on solid strategies to close profitable deals.
In this article, you will have a full overview of the pros and cons of trusts for real estate investments in Florida.
Real Estate Investment Strategies in Florida – Limited Liability Company vs. Trust
The standard strategy for real estate investors in Florida is to set up a limited liability company (LLC) tailored to their specific purpose. In an LLC, the owners (referred to as “members”) are not liable for the business debts and vice-versa.
A trust is an excellent option for those seeking an alternative to establishing an LLC exclusively for investment purposes.
Advantages of Trusts for Real Estate Investments Florida
Full Business Privacy
Many real estate investors need to shield their identities to take advantage of profitable business opportunities. Depending on the situation, preserving one’s identity and background can change the outcome of a negotiation.
For example, if a property seller knows that an investor has a wealthy portfolio, it may result in a significant increase in the property’s sale price.
The trust instrument (the document that creates the arrangement) is not public. The identity of the trustees, administrators, and beneficiaries in the trust remains shielded against unwanted exposition.
In an LLC, the members must file Articles of Organization with the Florida Department of State. Hence, the owners’ identities and addresses become public, which is not an advantage in most cases.
Protection Against Potential Liability
When a real estate investor transfers the title of a property to a trust, the asset is no longer under his or her direct control. The trustee (fiduciary) holds nominal ownership of the property on behalf of the beneficiaries named in the trust instrument.
As its name suggests, LLCs enjoy limited liability against the investor’s personal creditors. As long as the members of the LLC do not commingle personal funds with business money and respect the separation between them as distinct legal entities, the business is shielded against creditors.
Both trusts and LLCs have a long list of statutory regulations. Consult with an expert attorney to determine the best option to seize advantage of limited liability status.
Both LLCs and trusts help real estate investors avoid double taxation in Florida, as they are disregarded as separate business entities from their owners. After setting up a trust, the trust maker does not need to file a separate tax return to the IRS.
It is fundamental to sit down to talk with an experienced real estate attorney to identify the best option for your case in terms of tax advantages.
Disadvantages of Trusts for Real Estate Investments Florida
The primary disadvantage of a trust is that you lose nominal ownership of a property once the title is transferred to the trust.
When compared to LLCs, trusts also require significant costs for maintenance. Banks, insurance companies, and other entities may treat trust assets differently if the investor wants to use them as collateral for other investments.
The administrative procedures and fees required in this process may limit a real estate investor’s access to a new loan, an insurance policy, or other similar services. Depending on the type of service, holding property in a trust may result in additional costs.