Land Trusts vs. Living Trusts: What's the Difference?
How Is a Land Trust Different?
If you’re a real estate investor, or in the real estate industry in general, you’ve probably heard the term “Land Trust” before. Similarly, if you’re unfamiliar with all the specifics of the different legal entities and arrangements, you might wonder if there’s any meaningful difference between a trust and a Land Trust or is it all fluffy language. Good news! There is! Despite having the word “Trust” in its name, there are important differences between a regular trust and a Land Trust.
Who Serves as Trustee
Like regular trusts, Land Trusts are created by written agreements. In a trust, a Grantor gives legal title to property to a Trustee, who manages the property of the benefit of the Beneficiary, who receives the equitable title to the Grantor’s property. Similarly, the roles of Grantor, Trustee, and Beneficiary, but there’s a difference in who serves in these roles.
Trustees in a Revocable Living Trust
In a regular trust, which this article takes to mean a Revocable Living Trust, the Grantor is typically also the first Trustee and Beneficiary of the trust. That’s because Revocable Living Trust is set up to avoid probate upon the death of the Grantor while giving the Grantor as much control over the assets in the trust during their lifetime.
Trustees in a Land Trust
In a Land Trust, the Grantor does not typically serve as the Trustee. Instead, the Trustee is a third party, either an individual or a business entity who is given both legal and equitable title to the real estate placed in the Land Trust. By giving the Trustee both legal and equitable title, the Trustee of a Land Trust can take all actions necessary to record a deed or take out a mortgage in their own name. This is because the main purpose of a Land Trust is to protect the anonymity of the Grantor and Beneficiaries.
Applicable Law
Applicable Law in a Florida Living Trust
As a legal concept, Trusts were carried over to the American legal system from the English legal system, so they’ve been around for a long time. Due to their longevity, there is a rich body of common law precedent (laws created by court cases) that were applicable to trusts. Nowadays, most laws are passed by a legislature and courts decide what how that law applies in the specific circumstances before it. This is the case with trusts in Florida, which are governed by Chapter 736 of the Florida Statutes, also known as, the Florida Trust Code.
Applicable Law in a Florida Land Trust
In Florida, the concept of a Land Trusts was created by statute, meaning that the Florida Legislature passed a law which allows Land Trusts to exist and be valid. This law, called the Florida Land Trust Act, is found in Chapter 689 of the Florida Statutes. If you have a Land Trust you may choose whether the Florida Trust Code or the Florida Land Trust Act will apply to your Land Trust.
Living Trusts vs. Land Trusts: Control
Who Has Control in a Florida Living Trust
In a Revocable Living Trust, the Grantor retains control and can change the trust at will. After the Grantor dies, however, the trust becomes irrevocable and the Successor Trustee, the person or entity who takes over after as Trustee, can only be changed based on the instructions in the Trust Agreement. If the Trust Agreement gives the Trustee full discretion, then the Beneficiaries generally have little in the way of controlling the Trustee. If the Trust Agreements gives the Beneficiary the power to change the Trustee, then they may exercise that power, but even then, unless the Trust Agreement gives the Beneficiary to control the Trustee, they will not have it.
Who Has Control of a Florida Land Trust
In a Land Trust, the Grantor does not necessarily maintain the ability to control the Trustee’s actions. This is instead handled through the Power of Direction. This ability to control the actions of the Trustee is usually distributed among the Beneficiaries. They can exercise this authority by majority, supermajority, or unanimous vote and the Trustee must comply with the directions.
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