Introducing the Canadian Florida Land Trust
TITLE CONCERNS. Transferring funds to purchase a home or condominium is a simple process for Canadian buyers, however, many foreign buyers often overlook the consequences of their purchase. The acquisition of U.S. real estate by a Canadian citizens poses significant issues including but not limited to U.S. estate tax, capital gains tax, incapacity issues, complex Florida probate rules and creditor protection issues. Proper cross-border planning for Canadian Citizens must address all of these issues. A deep analysis is required to find the best solution. There is no simple answer or one size fits all. However, as a general rule, the vast majority of concerns can best be addressed by creating and taking title in a Canadian Florida Land Trust which is considerably more advantageous then owning property in a buyer's individual or corporate name or even a Canadian Trust. INTRODUCING THE FLORIDA LAND TRUST. This vehicle often referred to as an "Illinois Land Trust" because of its origin is a unique legal entity. This form of ownership is unfamiliar to most U.S. Lawyers and tax advisors due to the fact that Illinois and Florida are the only states that have a specific nearly identical land trust statute. This form of ownership is so far removed from classic trust law that calling it a trust can be misleading. The land trust is very versatile and differs from conventional trusts in many ways. A land trust is a legal arrangement whereby the trustee holds legal title to the property, yet all ownership interest in the property lies with the beneficial owners of the trust. The trustee takes action, solely upon the direction of the beneficiaries. Among countless list of benefits to holding property in a Florida Land Trust is: o The interest of the beneficiaries are not disclosed except upon choice, upon sale or upon order of the court. o The beneficial interest is deemed personal property and avoids expensive and lengthy probate requirements. o Provisions can be made in cases of disability which negate guardianship proceedings which otherwise may be required. o It serves as a substitute for a will and provides planning providing direction for distributing the property upon death. o It can serve as a substitute for a partnership agreement and outline the various partners rights and interest in the property. o Transferring interest within a land trust is simple and not subject to state imposed documentary transfer tax. o In the event of sale, provided the property has been held for one year or longer, favorable individual capital gain rates of 15% apply rather than the regular corporate rate of 34%. In Florida there is further a state income tax for corporations, but not for individuals which can push the effective combined rate to 40%. o When creating the land trust you can determine who will serve as trustee. Typically, in a Canadian Florida Land Trust this is the owner, though it does not need to be. Trustees serve a ministerial role as the beneficiaries direct the trustee on how they wish to manage the property. Trustees are the individuals whose name is made public and is the individual who signs deeds or mortgages at the direction of the beneficial owners. Successor Trustees can be listed and set forth in the event of death or incapacity of the initial trustee. B. Another tool to avoid or minimize estate tax is to make children beneficiaries at the time of purchase thereby increasing the tax exemption amount by increasing the number of individuals possessing an interest in the land trust. There is no gift tax in Canada. If the funds are gifted to the children in Canada and transferred for closing there is no taxable event. However, if the property is located in the United States, a subsequent transfer of property to children will trigger a gift tax owed to the U.S. C. Yet another technique to reduce exposure to the U.S. estate tax is to split interest ownership within the Land Trust. Under such an arrangement, an individual may acquire a life interest in the land trust share and his children could acquire the remainder interest in the property. Upon the death of the individual, there would be no estate tax on the life interest, since the life interest would have no value upon death. However one caveat: Should the children die while holding a remainder interest, the estate tax would be assessed on the value of the remainder interest. As a practical matter, children can obtain term life insurance at lower costs (due to their age) to protect them from estate tax exposure.