Did making an otherwise revocable trust temporarily irrevocable from December 1 through January 31 avoid Florida's January 1 annual intangible tax?

Subject

Revocable Trust Containing Limited Irrevocable Period

Plain-English summary

The trust's intangible assets remained subject to annual tax even though the document barred the grantor from exercising trust powers from December 1 through January 31. The temporary restriction covered January 1 but did not remove the underlying powers or change the trust's revocable character.

The Florida-resident grantor was also trustee and lifetime beneficiary and retained rights to income, corpus, revocation, amendment, and unlimited beneficiary changes. Those rights created a taxable beneficial interest, so the grantor-beneficiary had to report the trust intangibles.

What this means for you

Temporarily declining to exercise retained powers across the assessment date was not the same as eliminating those powers from the trust.

Common questions

Q: Did the December-to-January lockout avoid tax? No.

Q: Why was January 1 still relevant? It determined Florida domicile and valuation timing, not whether a temporary no-exercise period changed the trust's character.

Q: Who reported the assets? The beneficiary, who was also the grantor.

Citations and references

• Fla. Stat. § 199.023(7) — taxable beneficial interest
• Fla. Stat. §§ 199.032, 199.052, and 199.175 — annual intangible tax, filing, and situs
• Fla. Admin. Code r. 12C-2.002(1)(c) — beneficial interests in trusts
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01C2-001

Original ruling text

SUMMARY

QUESTION: If a revocable trust contains a period in which
it is stated to be irrevocable including the date January
1, is it subject to the annual intangible tax?

ANSWER - Based on Facts Below: Yes, if the grantor has the
right to revoke the trust and the right to income or the
right to invade the corpus of the trust, or the right to
appoint successor beneficiaries, the fact that the grantor
stated a particular period in which he states he cannot
exercise those rights is not determinative of taxability of
the intangibles in the trust.

Therefore, when a beneficiary of a revocable trust has a
taxable beneficial interest in a trust wherein he has the
right to revoke the trust and the right to income, or the
right to invade the corpus of the trust, or a general power
of appointment, the intangibles within the trust are
subject to the tax regardless if there is a stated period
during which the grantor has decided he will not exercise
those rights.

Jul 25, 2001

Re: Technical Assistance Advisement No. 01C2-001
Intangible Tax-Revocable Trust Containing Limited
Irrevocable Period
Sections 199.023(7), 199.032, 199.052, and 199.175, F.S.
Rule 12C-2.002(1), F.A.C.
XXX (hereinafter, Grantor)

Dear :

This is in response to your request for a technical
assistance advisement asking for an opinion on the taxability of
Florida intangible personal property held in a revocable trust
where a specific window of time is provided within which the

grantor may not revoke the trust.

FACTS AS PRESENTED BY PETITIONER

Under the terms of the trust, the Grantor has the right to
revoke the trust, the right to receive income from the trust and
a general power of appointment, except for a limited period
during the year: from December 1 to January 31. The Grantor of
the Trust, the Beneficiary of the Trust while living, and the
Trustee of the Trust are one and the same. The Grantor is a
resident of the State of Florida on January 1 of the year.

Under Article III of the trust, the Grantor has the right
to:

(1) Withdraw property from the Trust in any amount and at any
time upon giving reasonable notice in writing to the
Trustee;

(2) Add other property to the Trust;

(3) Change the beneficiaries, their respective shares and the
plan of distribution;

(4) Amend this Agreement in any other respect;

(5) Revoke this Trust in its entirety or any provision
therein;....

Article XIV of the trust provides that the trust is
irrevocable for a limited period. It states that
notwithstanding the provisions (as listed above), as long as the
State of Florida would tax this trust for intangible tax
purposes, this trust shall be irrevocable from December 1 of
each year until January 31 of the following year. During this
period, the Grantor does not have the right to revoke or amend
the trust, appoint the assets out of the trust corpus, change
the beneficiaries, or withdraw the principal of the trust during
this two-month period. The Grantor has the right to withdraw
the income that is earned during this period and the
undistributed income from the period beginning October 1 through

November 30 of each year.

During the period of irrevocability the Grantor has a
special power of appointment, which excludes the Grantor, his
estate, his creditors and the creditors of his estate from being
the permissible beneficiaries of the power.

Upon the death of the Grantor, the remaining trust property
will be distributed to the various beneficiaries specified in
the trust, including the Grantor's spouse and children.
(Articles V, VI and VII).

REQUESTED RULING

The Grantor (taxpayer) believes that he will not have a
beneficial interest on future assessment dates (January 1) for
purposes of the Florida intangible personal property tax. He
requests a ruling that the Grantor/Beneficiary is not subject to
the intangible tax for any property in the Trust and is not
subject to the reporting and return filing requirements under
Chapter 199, F.S., or any applicable provision of the Florida
Administrative Code.

DISCUSSION AND LAW

The control a person has over a trust through the stated
rights in the trust and the powers a person has with regard to
the assets, income and trustees of the trust are determinative
of whether one has a taxable beneficial interest that is subject
to the annual intangible tax.

Sections 199.032 and 199.175, F.S., state that the annual
intangible tax is imposed on intangible personal property that
has a taxable situs in Florida when it is owned, managed, or
controlled by any person domiciled in Florida on January 1 of
the tax year.

The January 1 date marks the date on which the taxpayer
must be domiciled in the State of Florida in order to be subject
to the tax. The fact that the January 1 date is in a period
within which the trust states that it is irrevocable does not

negate the revocable status of the trust itself.

Under Rule 12C-2.002(1)(c), F.A.C., a taxable beneficial
interest in a trust holding intangibles is defined as "the
current right to income coupled with: the right to invade the
corpus of the trust; or the right to revoke the trust; or the
right to appoint successor beneficiaries without limitation."
(e.s.) The Grantor of the trust in this instance has all of
these rights.

Regardless of the limitations stated in Article XIV for the
period December 1 through January 31, the Grantor of the trust
does have a taxable beneficial interest in the trust. The
Grantor has the rights that subject the beneficial interest in
the trust to the annual intangible tax.

Simply because the Grantor has placed a limitation upon
exercising those rights for the stated period, including January
1 of each year, this does not remove the rights from the trust
or change its character in such a way that it is not under the
power and will of the Grantor.

The basis for the annual intangible personal property tax
is the value on January 1 for the intangibles held on December
31 of the preceding year to those persons who are domiciled in
Florida on January 1. January 1 is not a date upon which the
taxability of the trust is determined by reference to
irrevocability of the trust on that date.

DEPARTMENT'S POSITION

In defining "beneficial interests", s. 199.023(7), F.S.,
includes having the right to revoke the trust. The intangible
tax statutes do not exempt a trust that states that exercising
that right is limited for a brief time. The Grantor has the
right, whether he chooses to exercise that right or not. As
required under the statutes to be subject to the tax, the
Grantor has total control of the revocable trust containing
intangible personal property and is domiciled in Florida on
January 1 of the tax year.

Therefore, the intangibles in this trust are subject to the
tax and are reportable by the beneficiary of the trust, who is
the same as the Grantor of the trust.

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 this letter.

Sincerely,

M.E. Clemens, C.P.A.
Senior Tax Specialist
Technical Assistance and Dispute Resolution
Office of General Counsel

MEC/mh