Rental property owners often hear that a revocable trust can protect their real estate. That’s only partly true. A revocable trust is a strong tool for probate avoidance and keeping management continuous if the owner becomes incapacitated, but it isn’t built to shield rental property from lawsuits.
Florida’s trustee-powers statute, Fla. Stat. § 736.0816, gives a trustee broad default authority to lease, insure, repair, and manage trust property, which makes a trust practical for holding a rental once it’s properly drafted. A trustee can also use a certification of trust under Fla. Stat. § 736.1017 to prove authority in a real estate transaction without disclosing the trust’s dispositive terms.
However, a revocable trust does not create a liability shield. Under Fla. Stat. § 736.0505, property in a revocable trust generally stays reachable by the settlor’s own creditors during their lifetime, to the same extent it would be if owned outright. The IRS also treats every revocable trust as a grantor trust, meaning the income and the underlying assets stay attached to the owner for tax purposes rather than shifting to a separate entity.
There is also the aspect of a mortgaged rental property. Federal law under the Garn-St. Germain Act, 12 U.S.C. § 1701j-3, limits a lender’s ability to call the loan due when residential property with fewer than five units is transferred into a trust, but only if the borrower stays a beneficiary and doesn’t transfer occupancy rights. It isn’t a blanket pass for every transfer.
For actual liability separation, many owners pair the trust with an LLC, since Florida’s LLC statute, Fla. Stat. § 605.0304, generally keeps company obligations separate from the owner personally, with the trust then holding the LLC membership interest. If the property was once your homestead, review whether renting it out affects its tax status before making the switch.
At Schnauss Naugle Law, we help Florida rental property owners think through whether a trust, an LLC, or both makes sense for their situation. Contact us at 904-643-6342 or through our contact form.
