Transferring real property to a limited liability company (LLC) is a widely utilized and effective estate planning tool, offering various benefits including liability protection. This technique allows individuals to safeguard their assets while providing opportunities for gifting and tax planning. In Florida, practitioners often advise individuals that may own secondary or rental properties in the state to transfer those properties to an LLC. However, recent developments in Florida law may impact the effectiveness of this strategy for non-homestead property owners.
According to a recent 2023 Florida District Court of Appeals (DCA) opinion, transferring non-homestead real property to business entities, such as an LLC, may result in an unintended increase in property taxes. Florida Statute §193.1554 limits the increase in the assessed value of non-homestead property to a maximum of 10% of its most recent assessed value, provided certain conditions are met. In relevant part, the statute further provides that the 10% cap is only applicable so long as there is no change in ownership and control of the property. The statute defines a change of ownership or control as “any sale, foreclosure, or transfer of legal title… to any person.” Id. While transfers between “legal and equitable title,” such as transfers to a trust, are not considered a change in “ownership or control,” this recent Florida DCA opinion states that a transfer to an LLC does not meet this exception.
In S and A Property Investment Services LLC v. Garcia, a married couple transferred non-homestead real property owned as tenants by the entirety to an LLC. The LLC was owned 51% by wife and 49% by husband. Subsequent to the transfer, the Miami-Dade Property Appraiser reassessed the value of the property at more than 160% above the previously assessed value, disqualifying it from the statutory 10% cap.
The couple argued that the property should retain the 10% assessment limitation because the transfer to the LLC was only a transfer of legal title and that the couple retained equitable title as the sole owners of the LLC. However, the court disagreed, finding that the transfer constituted a change in ownership or control. The court reasoned that the transfer was a change of ownership because (1) an LLC, by nature, is separate and distinct from its owners, and (2) the couple had no right to the LLC’s property as members of the LLC. Thus, the couple did not retain equitable ownership of the property after transfer to the LLC and the transfer disqualified the property from the statutory 10% limitation.
While the court found that merely transferring non-homestead real property to an LLC solely owned by the grantors does not automatically fall under the transfer between “legal and equitable title” exception as a transfer to a living trust would, certain proactive measures taken prior to transfer may persuade a court otherwise.
In light of this recent ruling, individuals who own non-homestead real property in Florida and seek asset protection or to take advantage of certain gift and tax planning techniques should consult closely with Florida advisors to navigate this recent development in Florida law and mitigate adverse tax consequences.
If you have any questions or request more information on the transfer of Florida non-homestead real property to an LLC, please contact the Estates & Trusts Practice Group.
Maria Garcia, JD Candidate 2024, Stetson University College of Law, contributed to the research and drafting of this article.