Under Florida's 1996 intangible tax, were an irrevocable trust and its income beneficiary taxable when no Florida-situs person could serve as trustee?

Plain-English summary

Florida found that neither the irrevocable trust nor the taxpayer's interest in it was subject to the state's intangible personal property tax. The trust terms barred any person or entity with Florida tax situs from serving as trustee, and the ruling treated trust situs as depending on the trustee's location, records, management, and control.

The taxpayer received annual trust income and could receive principal only in the trustee's discretion for health and reasonable comfort. But the taxpayer could not revoke or amend the trust, remove or replace the trustee, appoint successor beneficiaries, or exercise a power of appointment over the trust. Under the cited rule, the current income right was not a taxable beneficial interest without one of the additional specified powers.

The Department therefore agreed that the trust and taxpayer did not have to report or pay Florida intangible tax on the otherwise taxable trust property under the submitted arrangement.

What this means for you

The historical analysis separated trust situs from beneficiary taxation. Trustee location and control governed the trust, while the beneficiary's enforceable powers—not merely the possibility of receiving income or discretionary principal—governed the beneficial-interest question.

Common questions

Q: Was the trust subject to Florida intangible tax? A: No, under the trustee and situs restrictions described.

Q: Did the taxpayer's annual income right create a taxable beneficial interest? A: No, because the taxpayer lacked the additional revocation, corpus-invasion, or unlimited appointment powers identified by the rule.

Q: Could a Florida resident serve as trustee? A: No person or entity with Florida tax situs could serve as trustee under the submitted terms.

Citations and references

• Fla. Admin. Code r. 12C-2.002(1)(c) — taxable beneficial interest in a trust
• Fla. Admin. Code r. 12C-2.002(1)(ee) — trust situs and filing responsibility
• Fla. Stat. ch. 199 — intangible personal property tax
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-004

Original ruling text

Jan 17, 1996

Re: Technical Assistance Advisement No. 96(C)2-004 Intangible Personal Property Tax; Trust XXX (Taxpayer) XXX (Trust) XXX (Trustee)

Dear :

This is in response to your request for a technical assistance advisement regarding the taxability of a trust agreement; letter and trust agreement are both dated November 6, 1995.

Facts

The Taxpayer has established the Trust and plans to transfer to it publicly traded securities which are not exempt from the Florida intangible tax. Those securities will be held in a brokerage account at a national brokerage company, which may or may not have offices in Florida.

In addition, Taxpayer plans to transfer to the Trust stock in non-publicly traded corporations, one of which is in Florida and one out-of-state.

Taxpayer waives any right to alter, amend or revoke the Trust, and to remove or replace the Trustee.

The terms of the Trust provide that Taxpayer will receive all of the income from the Trust annually, and may receive principal from the Trust in the Trustee's discretion for Taxpayer's health and maintenance in reasonable comfort.

Trustee may also appoint the Trust principal to Taxpayer and must appoint the Trust principal as directed by the trust protector. Taxpayer has no power of appointment over any part of the Trust.

As of Taxpayer's death, the remaining Trust property is to be distributed by the Trustee to Taxpayer's revocable trust, as it is then in existence, otherwise to Taxpayer's estate.

The trust protector, who may be a resident of Florida, shall appoint a successor trustee in the event Trustee ceases to be Trustee.

No person or entity with Florida tax situs may serve as trustee. The trust protector may remove the Trustee. Trustee may use the services of an advisor, who might be the Taxpayer.

Requested Rulings

1. The Trust will not be subject to Florida intangible
   personal property tax on any property not otherwise exempt from Florida intangible tax owned by the Trust on January 1 of each year, and the Trust will not be subject to the reporting and return requirements under Chapter 199 or applicable administrative code provisions; and
2. Taxpayer will not have a beneficial interest in the
   Trust which would be subject to Florida intangible personal property tax with respect to any property not otherwise exempt from Florida intangible tax owned by the Trust on January 1 of each year, and Taxpayer will not be subject to the reporting and return requirements under Chapter 199 or applicable administrative code provisions.

Discussion and Law

Rule 12C-2.002(1)(c), F.A.C., defines "Beneficial Interest in a Trust" as one or more valuable property rights in a trust. A taxable beneficial interest in a trust is 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.

A trust having a taxable situs in Florida is primarily

taxable to the trustee. A beneficiary, having a taxable beneficial interest, where there is no Florida trustee, is responsible for filing a return for the taxable trust assets. (See Rule 12C-2.002(1)(ee), F.A.C.

The taxable situs of a trust shall be in Florida if the trustee's usual place of business where the books and records pertaining to the trust are kept is in Florida; or if the trustee has no principal place of business, then taxable situs shall be determined as follows: (a) If a Florida resident is sole trustee of a foreign trust, the trust is deemed to have a taxable situs in Florida and the corpus is subject to tax. (b) If there is more than one trustee, and all are Florida residents, only one return is to be file. (c) When trustees are both residents and nonresidents and management and control of the trust is with the Florida trustee, then a return for the trust is to be filed by the Florida trustee. (d) When trustees are both residents and nonresidents, and management and control of the trust is with an out of state trustee, then no return is necessary by the Florida trustee. (e) When there are two trustees, one is a resident and one a nonresident and they share equally in management and control of the trust, the assessment of property shall be apportioned between them. (f) When there are three or more trustees and they are residents and nonresidents and they share equally in management and control, the trust has a taxable situs in this state if the majority of the trustees are residents of this state. In such a case only one return is to be filed for the trust. If the majority of the trustees are nonresidents, the trust does not have a taxable situs in this state and no return is to be filed.

Conclusion

Based upon the statutory provisions and the information provided, the requested rulings are answered in the affirmative.

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,

Nadine C. Posey
Senior Tax Specialist
Tax Policy and Dispute Resolution
Office of General Counsel

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