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