Did a Florida grantor owe intangible tax on an irrevocable trust when he could withdraw corpus only during a stated eight-month period each year?

Plain-English summary

The Florida grantor was liable for intangible tax on the trust's taxable intangible property because he retained a power to withdraw any or all of the corpus.

The trust allowed him to exercise that right only from March 1 through October 31 each year. The Department rejected the argument that the right disappeared outside that window. It said the grantor continuously held a power of revocation; the trust merely limited when he could exercise it.

The non-Florida trustee had no Florida taxable situs. A Florida investment advisor providing only advice and safekeeping also had no liability because those duties did not amount to management or control.

What this means for you

A timing restriction on exercise did not eliminate the underlying withdrawal power. Trust analysis therefore must distinguish between whether a power exists and when the document permits the holder to use it.

Common questions

Q: Did the grantor owe intangible tax? A: Yes. His right to withdraw all or part of the corpus was treated as a power of revocation.

Q: Did the March-through-October exercise window make the power temporary? A: No. The Department said the window limited exercise but did not take the power away.

Q: Was the non-Florida trustee taxable? A: No. The trustee had no Florida taxable situs under the stated facts.

Q: Was the Florida investment advisor taxable on the trust assets? A: No. Its advice and safekeeping duties were ministerial and did not give it management or control.

Citations and references

• Fla. Stat. § 199.032 — annual intangible tax
• Fla. Stat. § 199.052(1), (5), (6) — management, trustee situs, and beneficial interests
• Fla. Stat. § 199.175 — taxable situs
• Fla. Stat. § 199.023(7) — taxable beneficial interests
• Fla. Admin. Code r. 12C-2.006(3) — trust situs
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95C2-030

Original ruling text

Dec 14, 1995

Re: Technical Assistance Advisement 95(C)2-030 Intangible Tax - Trust XXX (Grantor/Beneficiary) XXX (Trustee) XXX (Trust)

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:

On August 23, 1995 Grantor established an irrevocable trust designating his father, a non-Florida resident, as Trustee. The Trustee is directed to pay or apply for the benefit of the Grantor all or any part of the Trust income or principal that the Trustee considers advisable for maintenance of the Grantor's health and reasonable comfort or standard of living. Trustee may at any time distribute the Trust assets among a class consisting of the Grantor and the Grantor's descendants. Grantor has reserved the right to invade the corpus of the Trust. This right of invasion allows the Grantor to withdraw all or any part of the Trust corpus and may be exercised at any time during the period March 1 to October 31 by delivering a written request to Trustee. Upon the death of Grantor, Trustee is to distribute any remaining Trust assets in accordance with Grantor's testamentary written direction, or in default of such exercise, to the Grantor's then living decedents, per stirpes. The testamentary power may not be exercised in favor of the Grantor, the Grantor's estate or creditors of the Grantor's estate. The Trust also provides that the Trustee may not be domiciled in Florida. Trustee may employee investment counsel, custodians and brokers that may be domiciled in Florida. However, such persons may not have any management or control over the assets of the

Trust.

Provisions of Law

Section 199.032, F.S., imposes an annual tax of 2 mills on all intangible property that is owned, managed or controlled by a person domiciled or having a taxable situs in Florida. (See ss. 199.052 & 199.175, F.S.) Section 199.052(1), F.S., also provides that management or control does not include any ministerial function or processing activity. A trust will have a taxable situs in Florida if the Trustee is domiciled in this State. (See s. 199.052(5), F.S., and Rule 12C-2.006(3), F.A.C.) Chapter 199, F.S., also provides for the taxation of an individual's beneficial interest in a trust. (See ss. 199.023(7) and 199.052(6), F.S.)

Taxpayer's Position

It is the opinion of the taxpayer that, based upon the Trustee's responsibilities for management and control of the Trust property, and the belief that the Grantor does not have, as an individual, a taxable beneficial interest in the Trust, neither the Trustee, nor the Grantor is required to file a Florida Intangible Personal Property Tax Return, nor to pay a tax. Furthermore, the investment advisor will have only ministerial duties with respect to the Trust property. Therefore, the investment advisor has no filing requirement for trust property that it might have in its possession on January 1.

Discussion of Statutory Provisions

Based upon the provision of the statutes and the provision of the Trust, Trustee would have no taxable situs in this State. The investment advisor's functions have been limited to providing advice and safekeeping of the property. Therefore, the investment advisor, located in Florida, would have no liability for the Trust assets it holds for the Trustee.

The Grantor has reserved for himself a right to invade the corpus of the Trust. The Grantor has asserted the position

that, because his power to exercise the right of invasion is limited to a specific period each year, he does not possess this right at any time, other than the period during which the power may be exercised. It is the Department's position that because the Grantor may remove all or any part of these assets from the Trust, he has a power of revocation for the assets of the Trust. The Grantor has the power to invade the corpus at all times under the provisions of the Trust. The provision of the Trust governing the exercise of the invasion right only serves to limit to a specific time the Grantor's right to exercise the power of revocation and does not at anytime take away the Grantor's right to revoke the provisions of the Trust governing the assets. Therefore, the Grantor is liable for the intangible tax on the taxable intangible property held by 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 and your request are public records under Chapter 119, F.S., which are subject to disclosure to the public under the conditions of s. 213.22, F.S. Your name, address, and any other details which might lead to identification of the taxpayer must be deleted by the Department before disclosure. In an effort to protect the confidentiality of such information, we request you notify the undersigned in writing within 15 days of any deletions you wish made to the request or the response.

Sincerely,

J.V. Parramore, Jr.
Tax Law Specialist
Tax Policy and Dispute Resolution

Office of General Counsel

JVP/mh