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The Legislature expressly rejects any application of the court’s interpretation where the facts are not comparable to the facts in Crescent. The tax is called documentary stamp tax and is an excise tax on the deed or other instrument transferring the interest in real property. in taxation at the University of Florida. 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. Grantor trusts tax the grantor on trust income as though the grantor had retained the property instead of creating the trust. So, for example, on a $500,000 mortgage, the documentary stamp taxes payable to the state at the time of the transfer would be $3,500, which, for some, may not be worth the benefits of the transfer in the first place. 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. © 2020 The Florida Bar. 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. In addition, the statute borrows the federal income tax concept of “grantor trusts” to define a nontaxable transfer. Submitting a contact form, sending a text message, making a phone call, or leaving a voicemail does not create an attorney-client relationship. 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. 3.    Dad gifts son a Florida vacation home valued at $500,000 with no mortgage. 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. This column is submitted on behalf of the Tax Section, Guy E. Whitesman, chair, and Michael D. Miller and Benjamin Jablow, editors. 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. One of these situations is the transfer of property into a trust where the beneficiaries of the trust are different than the property owner. 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. That means if your property is worth $1,000, you will owe $7 in documentary stamps. The deed stated that CMC paid $10 and “other good and valuable consideration” for the property.  Evaluating this tax can be tricky! The amendment to the statute accomplishes this result by creating the concept of a “conduit entity,” which is defined as a legal entity to which real property is conveyed without full consideration by a grantor who owns a direct or indirect interest in the entity, or a successor entity.13 The term “full consideration” means the consideration that would be paid in an arm’s length transaction between unrelated parties.14, The amended statute provides that when real property is conveyed to a conduit entity and all or a portion of the grantor’s direct or indirect ownership interest in the conduit entity is subsequently transferred for consideration within three years of such conveyance, then tax is imposed on each such transfer of a conduit entity interest for consideration at the rate of $.70 for each $100 or fraction thereof of the consideration paid or given in exchange for the ownership interest in the conduit entity.15, When an ownership interest is transferred in a conduit entity that owns assets other than the real property conveyed to the conduit entity, the tax is prorated on the percentage the value of such real property represents of the total value of all assets owned by the conduit entity.16. In acquiring the ownership interests of an entity, the buyer assumes all known and unknown liabilities of the entity. Notably, in Florida a “documentary stamp tax” is levied on certain documents, including deeds. After paying the tax, the transferee filed for a refund of the documentary stamp tax. Deed stamps are tax by the State of Florida on 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. The stated purpose of the transfer was to segregate the property in order to facilitate future unsecured financing. CMC recorded the deed and paid documentary stamp tax on the full value of the conveyance. 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. No probate is needed for either asset to pass to intended heirs. You must then record the quitclaim deed in the county where the property was located. Please do not include any confidential or sensitive information in a contact form, text message, or voicemail. I don't know your individual circumstances, but generally, in almost all cases, it's a bad idea. 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. Code R. 12B-4.014(2)(a) (2009). It is advisable to contact a Florida attorney to assess the documentary stamp taxes on transfers of LLC interests. 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 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. In days gone by, the tax was evidenced by affixing stamps to the deed. In other words, you can calculate the transfer tax in the following way: (Total Price/$100) x .70 = Doc Stamps Cost. Section 201.02 of the Florida Statutes governs certain transfers or conveyances that are subject to documentary stamp taxes. If this property is transferred into a revocable trust, however, nominal documentary stamp taxes would be due on the transfer. The potential liabilities associated with real property can be significant, including environmental exposure and premises liability. 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. 1 Bernard A. Barton, Jr., David P. Burke & Mitchell I. Horowitz, Kuro and Muben-Lamar in the Eye of the Beholder? Also commonly referred to as an inter vivos trust or just a living trust, a revocable living trust is a method of ownership that allows you to avoid probate, retain effective control of trust assets during life, and direct how assets will be used or distributed after death. 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. 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. 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. Calculations. 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. 3 2009 Fla. Laws Ch. 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. revocable trust. ~ 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 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). 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. If the properties in Examples #1 and #2 had been free of mortgages the transfers would have been free of documentary stamp taxes. 1. 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. This underscores the importance of understanding all terms of a contract before you sign. Contract Review: Does Covid-19 Excuse Performance. 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. 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