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. 8 Jeff Ostrowski, Critics Push to Plug Hole in Tax Loophole, Palm Beach Post, August 12, 2007. The conveyance or merger would start the three-year clock running. For owners who pass away during 2013, there is an estate tax exemption of $5.25 million for S. citizens and permanent residents. 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. 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. He is board certified by The Florida Bar in taxation. © 2020 The Florida Bar. 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. When real property is sold, the property is typically assessed the following January 1 in part based on the recorded sales price. This article discusses these two significant recent developments. The treatment of a merger or conversion as a conveyance potentially accomplishes two goals. This example also fails Prong #2: Has there been consideration for the exchange of the property? 2d 913 (Fla. 2005), that such conveyances are not subject to documentary stamp tax. revocable trust. 79 Fla. B. J. However, the transaction could alternatively be structured as follows: 1) S contributes the real estate to a wholly owned, special purpose limited liability company formed solely for the transaction, S LLC; 2) S then sells the membership interests in S LLC to P for the $5 million purchase price; 3) P then dissolves S LLC and takes title to the real estate. 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. ... A deed between revocable trusts and their grantors are not taxable 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. 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. If asset protection is a concern, you should consult with an attorney before transferring real estate to your trust. You must then record the quitclaim deed in the county where the property was located. Daniel J. Glassman is an associate in the Tax Practice Group at Gunster, Yoakley & Stewart, P.A. The purpose of the proposed amendments to Rule 12B-4.014, Florida Administrative Code (F.A.C.) 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. 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. 3 2009 Fla. Laws Ch. No probate is needed for either asset to pass to intended heirs. After paying the tax, the transferee filed for a refund of the documentary stamp tax. 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. The law is effective where the first transfer to a “conduit entity” occurred after July 1, 2009. The purchase and sale of ownership interests in an entity that owns Florida real estate may result in the imposition of deed tax and change of control disclosure obligations. However, if no consideration is given but the deed recites “$10 and other valuable consideration” only the minimum tax is due. You'll need to pay transfer tax … Previous posts in this Blog discussed the recent Florida Supreme Court decision on the documentary stamp tax in the Crescent case. Adi Rappoport is a shareholder of Gunster, Yoakley & Stewart, P.A., residing in the firm’s West Palm Beach office. 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). in taxation at the University of Florida. Instead, it objects to the concept that ownership interests in entities may be conveyed without the imposition of a Florida documentary stamp tax. ‘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.’ 76 Fla. B. J. at 42 (May 2002). 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. Another provision in the legislation addresses trust conversions and mergers. Estate planners often refer to these irrevocable grantor trusts as “intentionally defective grantor trusts.”. A will or trust can be a better tool for planning for unexpected contingencies. 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. The Florida revocable living trust is a legal form created by a person (a Grantor) into which assets are placed with instructions on who will benefit from them.The Grantor appoints a Trustee to manage the Trust in the event they become mentally incapacitated. 18 Fla. Admin. Thus, the provision excludes from documentary stamp tax a transaction that for state law purposes is a sale for consideration, but which is ignored under a fiction created by federal tax law. The tax is called documentary stamp tax and is an excise tax on the deed or other instrument transferring the interest in real property. (Note: the doc stamp rate is $.70 per $100 for all Florida counties except Miami-Dade where the rate is $.60 per $100. 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. The rate is equal to 70 cents per $100 of the deed's consideration. One of these situations is the transfer of property into a trust where the beneficiaries of the trust are different than the property owner. The buyer would typically prefer to acquire the real property outright. 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. 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. 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. 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 other words, you can calculate the transfer tax in the following way: (Total Price/$100) x .70 = Doc Stamps Cost. The deed stated that CMC paid $10 and “other good and valuable consideration” for the property. Florida imposes a transfer tax on the transfer of real property in Florida. In general, documentary stamp taxes are: Determined based on the consideration given for the transfer. In days gone by, the tax was evidenced by affixing stamps to the deed. In acquiring the ownership interests of an entity, the buyer assumes all known and unknown liabilities of the entity. It is advisable to contact a Florida attorney to assess the documentary stamp taxes on transfers of LLC interests. 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 Florida Supreme Court held that the documentary stamp tax did not apply to the conveyance to CMC because the transaction lacked “consideration” and a “purchaser” as required by the statute. 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. 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. 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. The Florida documentary stamp tax statute provides in pertinent part: 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. Deed stamps are tax by the State of Florida on real estate. 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. 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. 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. The legislature was probably aware of this dynamic in requiring a three-year holding period. 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. Revocable Living Trust vs. TOD or POD in Florida. The Grantor may appoint themselves Trustee, which is an advantage over the irrevocable living trust. In addition to the payment of any increase in taxes during such 10-year period, the property owner would be required to pay interest at a 15 percent annual rate on such increase in taxes and a penalty of 50 percent of such increase in taxes.22. As outlined in Florida Statue §201.02, this stealth tax  must be considered in virtually all transfers of interests between or within Florida corporate entities, and all transfers of real estate, including real property gifts between family members. Contract Review: Does Covid-19 Excuse Performance. The Legislature expressly rejects any application of the court’s interpretation where the facts are not comparable to the facts in Crescent. 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. 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 stated purpose of the transfer was to segregate the property in order to facilitate future unsecured financing. 34/04 : Development 12B-4.014 When transferring real property into a revocable trust, a deed must be executed to effectuate the transfer. Please do not include any confidential or sensitive information in a contact form, text message, or voicemail. This makes it difficult for a county property appraiser to determine when the property has been sold. Notes and Other Written Obligations to Pay Money Estate Taxes – Tax clearances must still be obtained when a life tenant dies. All rights reserved. However, the subsequent sale of the ownership interest in such entity within three years of the conveyance of the Florida real property would be subject to the documentary stamp tax. In such case, the documentary stamp tax would not apply to the grantor’s sale of ownership interests in such public company. 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. Since Key West is in Monroe County, you would be paying the non-Miami-Dade tax rate listed above. in accounting, J.D., and LL.M. 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. The legislature addressed its stated concerns by amending §201.02 to confirm the essence of the Florida Supreme Court’s opinion in Crescent that a conveyance of unencumbered real property to an entity is not subject to documentary stamp tax. Florida documentary tax stamp rates are the same in each county, with the exception of Miami-Dade. (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 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. 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. Finally, it is important to evaluate documentary stamp taxes when transferring interests in a LLC that holds Florida real property.   In the past transfers of interests in a LLC did not trigger payment of documentary stamp taxes, but recent legislation has attempted to close this loophole. Florida imposes a documentary stamp tax on deeds and other documents that transfer an interest in Florida real property. He earned his B.S. 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. 1 Bernard A. Barton, Jr., David P. Burke & Mitchell I. Horowitz, Kuro and Muben-Lamar in the Eye of the Beholder? 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. 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. Fla. 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