The Pros and Cons of Using Trusts to Purchase Real Estate


When it comes to using trusts to purchase Florida property, there’s definitely a lot to consider. What kinds of trusts can be used? Does it help avoid probate?  What are the tax implications? In short, what are the advantages and disadvantages of trusts and is it worthwhile?

Let’s tackle the last question first. Is it worthwhile? The answer is – there is no simple, universal answer. Whether this is worthwhile for you depends on your specific circumstances. Therefore, it is important to consult with legal and financial advisors before pursuing this option.

Having said that, there are several pros and cons worth thinking about that we can summarize here. In general, the advantages of using trusts for this purpose are:

  • The ability to maintain your privacy — By purchasing the property in the name of a trust, you do not have to divulge any information about your beneficiaries. You’ll also be able to protect your own identity because the only name that appears on the title to the property is the trustee’s.
  • The ability to avoid judgments and liens — This is because liens or judgments made against any beneficiary in the trust do not affect the trust itself. In other words, even if the lien stems from back taxes, it is not linked to the trust, as it would with an individual owner.
  • The ability to avoid probate – Probate applies only to property passed to heirs through wills or joint tenancies. Because it does not apply to trusts, there is no need for the court to decide who takes control of the property – and this, in turn, can save time and legal costs.

There are also some general disadvantages. These are:

  • Tax implications — Trusts are subject to higher tax rates, sometimes as much as 40 percent. To make matters worse, trusts are also subject to the highest possible inclusion rate. That means if the property is sold, two-thirds of the net gain must be included in the taxable income of the trust for that year. On the other hand, the inclusion rate for individuals is less than 50%.
  • Lack of Control – Because the trust legally owns the property and the trustees have the power to administer it, the founder may not have as much control as he or she would like.

Of course, this is largely contingent on what type of trust you use to make the purchase.  The two most common types are revocable living trusts and Florida land trusts, which are both legal mechanisms for the purchase, ownership, and transfer of real estate.

Then there’s the Real Estate Investment Trust (REIT). This type of trust is actually a “corporate entity” that is specifically created in order to make certain real estate investments. These investments in “income producing” real estate are designed to lessen or eradicate corporate income. In exchange, the REIT passes the bulk of its income to its investors. Because there are different subsets of REIT with their own advantages and disadvantages, it is crucial to consult with an experienced real estate attorney before pursuing this option.

For more information about all of these possibilities and to learn which, if any is best for you, contact Loshak Leach LLP today. One of our knowledgeable Estate Planning attorneys will be happy to speak with you and let you know how we can help.

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