Under the grantor trust provisions, a grantor is taxed on trust income if the grantor retains a reversionary interest whose value is initially greater than five percent of the value of the trust or specified rights to control beneficial enjoyment of the corpus or income or if the grantor retains or vests in a nonadverse party certain administrative powers. Examples #1 and #2 will surprise many people because there is no change in beneficial interest.  However, evaluating documentary stamps is a two-pronged test:   Prong #1: Has there been a change in beneficial interest?  No.   Prong #2: Has there been consideration for the exchange of the property?  Yes – the mortgages are the consideration for the exchange of property. The tax rate is $.35 per $100 (or portion thereof) based on the face value of the bond. 79 Fla. B. J. ... A deed between revocable trusts and their grantors are not taxable Under Crescent, there was no documentary stamp tax due on steps one or three since each of these transfers is a mere book transaction where beneficial ownership of the property has not changed. Since Key West is in Monroe County, you would be paying the non-Miami-Dade tax rate listed above. This article discusses these two significant recent developments. No- the vacation home is a gift from father to son. The statute contains three notable exceptions from the application of documentary stamp tax on the conveyance of ownership interests of conduit entities within three years of the conveyance of real property to such entities. First, a gift of an ownership interest in a conduit entity is not subject to tax to the extent that there is no consideration.17 This exception is consistent with the general rule that the documentary stamp tax does not apply to gifts of unencumbered realty.18. For example, one issue that was somewhat raised is that Documentary Stamp taxes are a tax in Florida that have to be paid on deeds that are recorded. The stated purpose of the transfer was to segregate the property in order to facilitate future unsecured financing. If asset protection is a concern, you should consult with an attorney before transferring real estate to your trust. When the full amount of the consideration for the execution, assignment, transfer, or conveyance is not shown in the face of such deed, instrument, document, or writing, the tax shall be at the rate of 70 cents for each $100 or fractional part thereof of the consideration therefor. The failure to provide the required disclosure results in the ability of the property appraiser to determine for a period of 10 years that the assessed value of the property should have been higher as a result of the change in control transaction. (Conveyances Not Subject to Tax), is to remove the provision stating that a corrective deed is subject to minimum documentary .... 5156925: 1/25/2008 Vol. If the consideration paid or given in exchange for real property or any interest therein includes property other than money, it is presumed that the consideration is equal to the fair market value of the real property or interest therein, The Legislature recognizes that the Supreme Court’s opinion in, is limited to the facts of the case and accepts the court’s interpretation of s. 201.02, Florida Statutes, that no consideration exists when owners of real property unencumbered by a mortgage convey an interest in such property to an artificial entity whose ownership is identical to the ownership of the real property before conveyance. Thus, a potential buyer would be hesitant to acquire interests in an entity that was funded with real estate and has been operating for more than three years. The Crescent Case and Its Aftermath In Crescent, the Florida Supreme Court addressed the application of the Florida documentary tax to the conveyance of a commercial building located in downtown Miami from a limited partnership to a wholly owned, second-tier subsidiary limited liability company called Crescent Miami Center, LLC (CMC). Think of a Florida lady bird deed as the real estate equivalent of a pay-on-death designation on a bank account. Estate planners often refer to these irrevocable grantor trusts as “intentionally defective grantor trusts.”. The Grantor may appoint themselves Trustee, which is an advantage over the irrevocable living trust. If there is no financing involved, then the documentary stamp tax will be calculated based upon the sales price of the property itself at a rate of $0.70 per $100 of value. The tax is called documentary stamp tax and is an excise tax on the deed or other instrument transferring the interest in real property. Notes and Other Written Obligations to Pay Money The treatment of a merger or conversion as a conveyance potentially accomplishes two goals. this stealth tax  must be considered in virtually all transfers, In conclusion, it is important to analyze the impact of documentary stamp taxes in virtually all transfers of Florida real estate and all transfers between or within Florida entities, Remote Online Notarization For Trusts & Wills Begins July 1: Watch For These 5 Sand-Traps, Planning for Guardianship of Minor Child During the Coronavirus Outbreak. The 2007 Notice of Change of Control Legislation In 2007, the Florida Legislature enacted §193.1556, which requires any person or entity that owns nonhomestead real property to promptly notify the property appraiser of any change of ownership or control. Section 201.02 of the Florida Statutes governs certain transfers or conveyances that are subject to documentary stamp taxes. The only county in Florida with a different schedule is free-thinking Miami Dade County where the rate is $0.60 per $100 of value when the property is a single family residence. He is board certified by The Florida Bar in taxation. Both parties moved for summary judgment in the circuit court, and final summary judgment was entered in favor of the DOR. For owners who pass away during 2013, there is an estate tax exemption of $5.25 million for S. citizens and permanent residents. 2009-131, §4. Calculations. The legislature was probably aware of this dynamic in requiring a three-year holding period. Adi Rappoport is a shareholder of Gunster, Yoakley & Stewart, P.A., residing in the firm’s West Palm Beach office. As an initial matter, it is difficult to properly define “a transfer for purposes of estate planning,” as estate planning itself is an extremely broad concept. Because there is a separate exception for gifts, the “estate planning” exception in the amendment likely refers to a sale to an irrevocable grantor trust that completes the transfer for estate tax purposes, but which is ignored for income tax purposes by application of the grantor trust rules. In Florida, as long as the beneficial ownership of the property remains the same, documentary stamps will not be due upon transfer of the property to your trust. He received his J.D., summa cum laude, in 2006 and his LL.M. You'll need to pay transfer tax … While the legislature voiced its endorsement of the opinion issued by the Third District Court of Appeal in Crescent, which the legislature stated interpreted §201.02 in a manner that prevented tax avoidance, it also stated that it does not intend to overturn the Florida Supreme Court’s decision in Crescent with respect to the conveyance of unencumbered Florida real property to artificial entities. 76 Fla. B. J. at 42 (May 2002). A Lady Bird Deed (also known as an "enhanced life estate deed") is an alternative way to transfer ownership of property. The purpose of the proposed amendments to Rule 12B-4.014, Florida Administrative Code (F.A.C.) Under current law, Florida Statute 201.02 imposes documentary stamps on most conveyances between spouses, if there is an underlying mortgage. © 2020 The Florida Bar. Documentary stamps are the states' tax upon the real estate conveyance. S and P end up in the same exact place, except that the documentary stamp tax has been avoided. These stamps are not assessed on property transferred to a Living Revocable Trust. Generally, the grantor will either make an outright gift to such trust or make a small “seed” gift to the trust followed by a larger sale. In acquiring the ownership interests of an entity, the buyer assumes all known and unknown liabilities of the entity. 2.    Husband and wife own a $2 million apartment complex as tenants by the entirety with a $1.5 million mortgage; they transfer this property to their LLC, owned by them as tenants by the entirety.  Documentary stamps are $10,500 calculated on the mortgage balance. The Florida Documentary Stamp Tax Florida imposes a documentary stamp tax on transfers of real estate by deed at a rate of $.70 per $100 or part thereof of consideration. For purposes of this section, consideration includes, but is not limited to, the money paid or agreed to be paid; the discharge of an obligation; and the amount of any mortgage, purchase money mortgage lien, or other encumbrance, whether or not the underlying indebtedness is assumed. Finally, the amendment to §201.02 provides that a transfer for purposes of estate planning by a natural person of an interest in a conduit entity to an irrevocable grantor trust as described in subpart E of part I of subchapter J of chapter 1 of subtitle A of the United States Internal Revenue Code is not subject to documentary stamp tax.20 There is no requirement that the transfer to such irrevocable grantor trusts be without consideration. Over the years the answer to this question has shifted from “no” to “yes” and back to “no” as Florida courts and the Florida Legislature interpreted and refined the concepts of “purchaser” and “consideration” for purposes of the deed tax.1 The most recent (and presumably final) answer to this question came in 2005, when the Florida Supreme Court held in Crescent Miami Center, LLC v. Florida Department of Revenue, 903 So. This makes it difficult for a county property appraiser to determine when the property has been sold. Another provision in the legislation addresses trust conversions and mergers. However, you should really talk to an estate planning attorney to see if it is is a good idea to transfer a home that you (presumably) currently own as tenants by the entirety into a revocable trust. For example, on real estate being purchased for $1 million, the documentary stamp taxes are $7,000 (or $10,000 in Miami-Dade). For over half a century, Florida tax practitioners have struggled to answer a relatively simple question. A change of ownership or control generally means any sale, foreclosure, transfer of legal title or beneficial title in equity to any person, or the cumulative transfer of control or of more than 50 percent of the ownership of the legal entity that owned the property when it was most recently assessed at just value.21 The change of ownership is reported on Form DR-430, Notice of Change of Ownership or Control Non-Homestead Property, by the owner to the property appraiser in the county where the property is located. The rate is equal to 70 cents per $100 of the deed's consideration. If the property has a current mortgage and the trust beneficiaries are individuals other than or in addition to the grantor, the documentary stamp tax will be assessed. Virtually all states are looking to increase tax revenues and Florida is no exception.  One area in which the state is becoming more aggressive is the collection of documentary stamp taxes. Finally, the amendment to §201.02 provides that a transfer for purposes of estate planning by a natural person of an interest in a conduit entity to an irrevocable grantor trust as described in subpart E of part I of subchapter J of chapter 1 of subtitle A of the United States Internal Revenue Code is not subject to documentary stamp tax. The law is effective where the first transfer to a “conduit entity” occurred after July 1, 2009. There are a few exceptions to the 2009 Documentary Stamp Tax law, including an exception for transfers to grantor trusts. After paying the tax, the transferee filed for a refund of the documentary stamp tax. An interesting consequence of the Crescent decision is its impact on ad valorem taxes and the ability of property appraisers to determine the value of Florida real estate. 3 2009 Fla. Laws Ch. If the consideration paid or given in exchange for real property or any interest therein includes property other than money, it is presumed that the consideration is equal to the fair market value of the real property or interest therein.4. On this point, the legislature stated: The Legislature recognizes that the Supreme Court’s opinion in Crescent is limited to the facts of the case and accepts the court’s interpretation of s. 201.02, Florida Statutes, that no consideration exists when owners of real property unencumbered by a mortgage convey an interest in such property to an artificial entity whose ownership is identical to the ownership of the real property before conveyance. in taxation at the University of Florida. 1. in combination with transfers of ownership of, or distributions from, artificial entities. Florida statute granting power to the trustee: In order to avoid problems when a title examiner is determining whether the trustee of a trust has the requisite authority to transfer, mortgage, encumber or convey the real property in question, the deed should contain the Florida … in accounting, J.D., and LL.M. Hank transfers a Florida beach house valued at $1 million with a $750,000 mortgage balance to a LLC that is 100% owned by him. Thereafter, it is conceivable that in the future P would sell its membership interest in S LLC and that this pattern would continue for all future sales. (C) DOCUMENTARY STAMP TAX: $ If the total consideration is not an even $100 amount, round the total consideration up to the next even $100 and multiply result x .007. following isprovided only as a guideline for thesimplest conveyances.The If you have any doubt about total on which tax to The provision in Section 1896 689.071(4), F.S., 1898 which defines the interest of a beneficiary under a trust agreement to be personal property only, does not exempt a transfer of the beneficial interest in the trust from documentary stamp tax. (Note: the doc stamp rate is $.70 per $100 for all Florida counties except Miami-Dade where the rate is $.60 per $100. ‘To inculcate in its members the principles of duty and service to the public, to improve the administration of justice, and to advance the science of jurisprudence.’ Follows through to florida revocable trust florida real estate at every step of duty and take care of the balancing of interests in tenancy by using a family law. According to the court, there was no consideration or purchaser with respect to the transfer of the property to CMC, since “nothing was exchanged by CMC for the grant of property from [the transferor]; [and] thus, there was no consideration or purchaser in the transaction, just a ‘mere change in form of the stockholder’s equity in the corporation.’”5 Furthermore, the court stated “[t]he argument that the increase in the value of [the transferor’s] interest in CMC constituted consideration is not persuasive, as this increased interest resulted from the transfer and was not the consideration for making the transfer.”6 The Florida Supreme Court quashed the Third District Court of Appeal’s decision and remanded the case to the district court for further consideration consistent with the Florida Supreme Court’s opinion.7. 2d 913 (Fla. 2005), that such conveyances are not subject to documentary stamp tax. The Crescent decision resulted in the proliferation of transaction planning that avoided the imposition of the deed tax and caused a headache for property appraisers attempting to determine the valuation of Florida real property for ad valorem tax purposes.2 In response to the “abuse” of Crescent, the legislature amended §201.02 in 2009 to apply the Florida documentary stamp tax to the sale of ownership interests in an entity that owns Florida real property where such real property was conveyed to the entity within three years of sale.3 In addition, in 2007, the legislature enacted §193.1556 to require notice to property appraisers upon the change of control of certain entities owning Florida real estate. Instead, it objects to the concept that ownership interests in entities may be conveyed without the imposition of a Florida documentary stamp tax. Florida imposes a documentary stamp tax of 70 cents ($1.00 in Miami-Dade) per $100 of the purchase consideration for the sale of real estate located in Florida. In other words, you can calculate the transfer tax in the following way: (Total Price/$100) x .70 = Doc Stamps Cost. ~ From the Rules Regulating The Florida Bar, On deeds, instruments, or writings whereby any lands, tenements, or other real property, or any interest therein, shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or any other person by his or her direction, on each $100 of the consideration therefor the tax shall be 70 cents. The provision in Section 689.071(4), F.S., which defines the interest of a beneficiary under a trust agreement to be personal property only, does not exempt a transfer of the beneficial interest in the trust from documentary stamp tax. 3.    Dad gifts son a Florida vacation home valued at $500,000 with no mortgage. Revocable Living Trust vs. TOD or POD in Florida. When transferring real property into a revocable trust, a deed must be executed to effectuate the transfer. Documentary stamp tax (“doc stamps”) are important for Florida asset protection planning because this tax is potentially assessed whenever a person conveys property titled in his individual name into an asset protection entity wholly owned by the same transferor. The revocable, or “living,” trust is often promoted as a means of avoiding probate and saving taxes at death and is governed by Chapter 736, Florida Statutes. That means if your property is worth $1,000, you will owe $7 in documentary stamps. A taxpayer cannot avoid the result by conveying Florida real property to a trust, which then converts or merges into a Florida entity. Unencumbered real property conveyed as a gift is not taxable since there is no consideration and there is no mortgage on the property. However, because the Supreme Court’s interpretation, combined with other settled law regarding the application of s. 201.02, Florida Statutes, allows for the tax-free transfer of ownership interests in real property from one owner to another through the use of artificial entities, it is the Legislature’s intent by this act to impose the documentary stamp tax when the beneficial ownership of real property is transferred to a new owner or owners by the use of techniques that apply the Supreme Court’s decision in. When the full amount of the consideration for the execution, assignment, transfer, or conveyance is not shown in the face of such deed, instrument, document, or writing, the tax shall be at the rate of 70 cents for each $100 or fractional part thereof of the consideration therefor. It is advisable to contact a Florida attorney to assess the documentary stamp taxes on transfers of LLC interests. 34/04 : Development 12B-4.014 Notably, in Florida a “documentary stamp tax” is levied on certain documents, including deeds. — The 10-cent tax increase in the documentary stamp tax levied by s. 2, chapter 92-317, does not apply to deeds and other taxable instruments relating to real property located in any county that has implemented the provisions of chapter 83-220, Laws of Florida, as amended by chapters 84-270, 86-152, and 89-252, Laws of Florida. For purposes of this section, consideration includes, but is not limited to, the money paid or agreed to be paid; the discharge of an obligation; and the amount of any mortgage, purchase money mortgage lien, or other encumbrance, whether or not the underlying indebtedness is assumed. The Legislature expressly rejects any application of the court’s interpretation where the facts are not comparable to the facts in Crescent. Please do not include any confidential or sensitive information in a contact form, text message, or voicemail. No probate is needed for either asset to pass to intended heirs. 44 (Oct. 2005). ... calls for the seller to pay the documentary stamp tax. 1.     Hank transfers a Florida beach house valued at $1 million with a $750,000 mortgage balance to a LLC that is 100% owned by him.  Documentary stamps are $5,250 calculated on the mortgage balance amount.  (Note:  the doc stamp rate is $.70 per $100 for all Florida counties except Miami-Dade where the rate is $.60 per $100.  The following rates noted are for counties other than Miami-Dade.). Conclusion The 2007 and 2009 statutory revisions described in this article create new requirements and issues for Florida practitioners that deal with the conveyance of Florida real estate. 10 The Florida Legislature’s response is discussed later in this article. Contract Review: Does Covid-19 Excuse Performance. One of these situations is the transfer of property into a trust where the beneficiaries of the trust are different than the property owner. 2d 913 (Fla. 2005), interprets s. 201.02, Florida Statutes, in a manner that permits tax avoidance inconsistent with the intent of the Legislature at the time the statute was amended in 1990.”11. 1 Bernard A. Barton, Jr., David P. Burke & Mitchell I. Horowitz, Kuro and Muben-Lamar in the Eye of the Beholder? Section 212.02(c) provides that the conversion or merger of a trust that is not a legal entity that owns real property in Florida into a legal entity is treated as a conveyance of real property. An estate tax return may be required. It resolves the quandary created for property appraisers where the transfer of real property is accomplished through the sale of an ownership interest in an entity. This column is submitted on behalf of the Tax Section, Guy E. Whitesman, chair, and Michael D. Miller and Benjamin Jablow, editors. There should be no doc stamp taxes on the transfer. This underscores the importance of understanding all terms of a contract before you sign. The transfer for purposes of estate planning by a natural person of an interest in a conduit entity to an irrevocable grantor trust as described in subpart E of part I of subchapter J of chapter 1 of subtitle A of the United States Internal Revenue Code is not subject to tax under this paragraph. Following up on the previous example, in certain instances, there would be no need for P to dissolve S LLC, where the real estate is a commercial property. The buyer would typically prefer to acquire the real property outright. The Florida Department of Revenue (DOR) denied the application, and the transferee filed suit in Miami-Dade Circuit Court challenging the DOR’s refund denial. Second, the transfer of shares or similar equity interests in a conduit entity which are dealt in or traded on public, regulated security exchanges or markets is not subject to tax.19 This provision apparently contemplates a conveyance of real property to a conduit entity, which becomes a public company within three years of transfer. You must then record the quitclaim deed in the county where the property was located. First, it maintains the integrity of the three-year period during which the documentary stamp tax applies to the sale of conduit entities. Absent any documentary stamp tax planning, the sale of the real estate would generate a documentary stamp tax of $35,000. Irrevocable grantor trusts are frequently used in estate planning to create a vehicle that holds assets that are not included in the grantor’s estate for estate tax purposes, but treated as owned by the grantor for income tax purposes. The notification requirement provides the property appraiser with information concerning the sale of real property through entities so that a property’s assessed value for property tax purposes are determined by taking into account recent transactions that change beneficial ownership. In conclusion, it is important to analyze the impact of documentary stamp taxes in virtually all transfers of Florida real estate and all transfers between or within Florida entities. Fla. St. § 201.02 provides:This provision essentially piggybacks on the Internal Revenue Code grantor trust rules by treating transfers to grantor trusts as nontaxable events. A will or trust can be a better tool for planning for unexpected contingencies. Submitting a contact form, sending a text message, making a phone call, or leaving a voicemail does not create an attorney-client relationship. Florida documentary tax stamp rates are the same in each county, with the exception of Miami-Dade. in taxation in 2008, both from the University of Florida College of Law. CMC appealed the adverse summary judgment to the Third District Court of Appeal, which affirmed the order of the lower court in favor of the DOR. We serve clients throughout Florida including those in the following localities: Miami-Dade County including Doral, Hialeah, Kendale Lakes, Kendall, Miami, and Miami Lakes; and Broward County including Cooper City, Davie, Fort Lauderdale, Hollywood, Miramar, Pembroke Pines, Southwest Ranches, and Weston. In addition, the statute borrows the federal income tax concept of “grantor trusts” to define a nontaxable transfer. However, because the Supreme Court’s interpretation, combined with other settled law regarding the application of s. 201.02, Florida Statutes, allows for the tax-free transfer of ownership interests in real property from one owner to another through the use of artificial entities, it is the Legislature’s intent by this act to impose the documentary stamp tax when the beneficial ownership of real property is transferred to a new owner or owners by the use of techniques that apply the Supreme Court’s decision in Crescent in combination with transfers of ownership of, or distributions from, artificial entities.12. In the wake of the Crescent decision, which was published during one of the most active real estate markets in Florida’s history, practitioners began structuring sales of Florida real property to avoid the imposition of Florida documentary stamp tax.8 The benefit of this planning approach is illustrated by the following example: Assume seller S and purchaser P have entered into a purchase and sale contract with a purchase price of $5 million in connection with the sale of real estate. Additionally, there would be no public record of the consideration for the transfer of the membership interest for the property appraiser to consider in assessing the value of the property.10, The 2009 Documentary Stamp Tax Legislation In its 2009 amendment to §201.02, the Florida Legislature clearly articulated its disdain for the use of the Crescent decision as a deed tax avoidance device, stating: “The Legislature finds that the Florida Supreme Court opinion in Crescent Miami Center, LLC v. 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