Was unencumbered property transferred from a trust to its wholly owned LLCs subject to deed tax?

Plain-English summary

A court-appointed special trustee managed Florida real estate held for a family joint venture. To simplify future sales, the trustee planned to move legal title into two Florida LLCs wholly owned by the trust.

The beneficiaries received no consideration and retained the same beneficial interests after the transfer. The properties were unencumbered.

Florida found that the deeds were subject only to the minimum documentary stamp tax because the transfer merely changed the form of legal title without changing beneficial ownership or exchanging value. If a property were mortgaged, tax would instead apply based on the encumbrance.

What this means for you

Moving title into a wholly owned entity can avoid value-based deed tax when ownership is unchanged, the property is unencumbered, and no consideration passes. Debt can change the result.

Common questions

Did beneficiaries receive anything for the transfer? No. They retained the same beneficial percentages and received no consideration.

Why use the LLCs? The structure let the trustee control title and avoid obtaining each title holder's signature for future sales.

What if a property had a mortgage? The ruling said tax would apply based on the amount of the encumbrance.

Citations and references

• Fla. Stat. § 201.02(1) (documentary stamp tax and consideration)
• Fla. Admin. Code r. 12B-4.013(32) (trust deeds and beneficial ownership)
• Kuro, Inc. v. Department of Revenue, 713 So. 2d 1021 (Fla. 2d DCA 1998)
• Crescent Miami Center, LLC v. Department of Revenue, 903 So. 2d 913 (Fla. 2005)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 06B4-001

Original ruling text

SUMMARY
QUESTION: Will the conveyance of unencumbered real property from the trust to the LLC which is wholly-owned by
the trust be subject to tax.
ANSWER - Based on Facts Below: The conveyance of unencumbered property from the trust to the related LLC is
not subject to tax.

January 30, 2006

Re: Technical Assistance Advisement No. 06B4-001
Documentary Stamp Tax
Conveyance of real property from individuals and trust to LLC
Section 201.02 (1), F.S.
Rule 12B-4.013(32), F.A.C.
XXX( hereinafter Taxpayer)
Dear:
Your letter requesting a Technical Assistance Advisement has been referred to this office for response. The
specific scenario for which advice has been requested is summarized below.
Facts as Presented by Petitioner
In the XXX and XXX, real property was acquired in Florida and initially held in the name of a corporation formed by
four brothers. Over the years, each brother's interest in the property was transferred, in whole or in part, to various
entities and individuals. Disputes among the successor property owners over the management of the property gave
rise to litigation in the XXX to determine, inter alia, the nature of the relationship between the title holders with respect
to the real property, and to request an order for dissolution and distribution of the assets. An out-of-state Superior
Court Appellate Division Judge determined that, although there was no formal agreement, the family had formed a
joint venture for the purchase, management, and sale of real estate. The court directed the trial court to order the
appointment of a trustee to liquidate the venture. The order indicates that regardless of how title to each parcel is held,
all of the parcels are assets of the family joint venture, and as such the proceeds from the sale of each parcel will be
divided according to the interests in the joint venture, not according to the title of the particular parcel. With the
exception of a certain real property, the order indicated that each family held a different percentage of ownership
interest in the property. In the other certain real property, each family held an equal ownership interest in the real
property.
When an asset of the joint venture is sold, regardless of how title to such asset is held, the proceeds are distributed
in accordance with the ownership percentages held by each family. The current title holders merely hold the property

as nominees of the trust for the benefit of the members of the joint venture or their successors in trust
("Beneficiaries"). If the title holder transfers title to the property, the property is still subject to the terms of the trust and
either the transferee takes the property subject to the trust, or the sales proceeds, if any, are distributed in accordance
with the beneficial interests in the trust.
In XXX, the out-of-state Judge issued a letter appointing the Special Trustee for purposes of liquidating the joint
venture. The trustee is required, in conformance with the Appellate Court decision, to liquidate the assets and pay all
creditors of the joint venture prior to distribution of the proceeds to the Beneficiaries in accordance with their
respective interests in the venture.
The real property, however titled, is an asset of the joint venture, and therefore any documentary stamp taxes due
on the transfer of such asset would be a liability of the joint venture. The Taxpayer as the Special Trustee would be
required to pay the tax. It is upon this ultimate liability that an advisement is being requested.
When the Taxpayer, as Trustee, sells an asset of the joint venture, he must obtain the signature of the respective
title holder on the deed. The Taxpayer then distributes the net proceeds from the sale to the Beneficiaries, in
accordance with their interests in the joint venture. No consideration passes to the title holders.
In order to facilitate the sale of the real property, the Taxpayer proposes to have title to all of the properties
transferred to two member-managed Florida LLCs. Both LLCs are wholly owned by the trust. The LLCs are
disregarded entities for federal tax purposes.
Neither the title holders nor the Beneficiaries would receive consideration for the transfers to the LLCs. They would
retain the beneficial interests that they currently have in each property, but legal title would now be held and controlled
by the Trustee in his role as the member/manager of the LLCs. The Beneficiaries would continue to hold the same
beneficial interest in the real property that they now hold, but legal title would now be held and controlled by the
Taxpayer, as Trustee, through the LLCs. The proposed change in title would eliminate the need for the Taxpayer to
obtain the signatures of the title holders for every sale, but there would be no effect on the beneficial ownership of the
property.
Request for Advisement
The Taxpayer is requesting the Department’s advice whether the imposition of documentary stamp taxes on the
instruments conveying the real property to the LLCs will be subject only to the minimum documentary stamp tax as
imposed under s. 201.02, F.S.
Provisions of Law and Discussion
Section 201.02, F.S., imposes a documentary stamp tax on deeds or other instruments that convey Florida real
property at the rate of $.70 per $100.00 or fraction thereof of the consideration.
Section 201.02(1), F.S., provides:

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. 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. 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 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.
Rule 12B-4.013 (32), F.A.C., states in part:
... A deed to or from a trustee conveying real property is taxable to the extent that the deed transfers the beneficial
ownership of the real property and to the extent that there is consideration for the transfer....
In Kuro Inc v. Department of Revenue, 713 So.2d 1021 (Fla. 2nd DCA 1998), the court determined that a deed
conveying real property between two individuals to their wholly-owned corporation was not subject to tax. In Kuro, the
property had been unencumbered and no consideration was said to have been given for the conveyance of the
property. The Court opined that the beneficial ownership of the real property was unchanged, that there was no
"purchaser" within the meaning of s. 201.02(1), F.S., and therefore, the conveyance was not subject to tax.
The Court's decision in Crescent Miami Center, LLC v. Department of Revenue, 903 So.2d 913 (Fla. 2005) is also
pertinent to this advisement. In Crescent Miami, unencumbered real property was transferred between related entities.
The court determined that the transfer of property between a grantor and its wholly owned grantee, absent any
exchange of value, is without consideration or a purchaser and thus not subject to documentary stamp tax imposed by
section 201.02(1), F.S. This transaction was merely a change in the form of ownership by the entities that had owned
and continued to own the property. However, the Court confirmed that an instrument transferring encumbered
property from a corporation to its sole shareholder is subject to tax based upon the amount of the encumbrance (see
Department of Revenue v. DeMaria, 338 So.2d 838 (Fla 1976)).
Position of the Department
In accordance with the laws, including the determinations rendered by the Courts in Kuro and Crescent Miami, the
instrument conveying unencumbered real property between the trust and its wholly owned LLCs will be subject only to
minimum tax. However, if the real property is encumbered by a mortgage, the instrument conveying such property will
be subject to tax based upon the amount of the encumbrance.
This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is binding on the
Department only under the facts and circumstances described in the request for this advice as specified in s. 213.22,
F.S. Our response is predicated on those facts and the specific situation summarized above. You are advised that
subsequent statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which this

advice is based may subject similar future transactions to a different treatment than expressed in this response.
You are further advised that this response, your request and related backup documents are public records under
Chapter 119, F.S., and are subject to disclosure to the public under the conditions of s. 213.22, F.S. Confidential
information must be deleted before public disclosure. In an effort to protect confidentiality, we request you provide the
undersigned with an edited copy of your request for Technical Assistance Advisement, the backup material and this
response, deleting names, addresses and any other details which might lead to identification of the taxpayer. Your
response should be received by the Department within 15 days of the date of this letter.
Sincerely,
Celestine Grantham
Technical Assistance and Dispute Resolution
CG/mh
Record ID: 17478