Under Florida's 1996 intangible tax, what happened when a Florida individual resigned as trustee and transferred all trust control to a foreign corporate trustee?

Plain-English summary

After the proposed trustee change, neither the trust nor the individual beneficiary's interest would be subject to Florida intangible personal property tax. The individual planned to resign as co-trustee, replace the existing corporate trustee with a foreign corporate trustee, and delegate all management and control to that foreign trustee. The foreign trustee would hold the assets and keep the trust records.

Although the individual received trust income and could receive principal when the corporate trustee considered it necessary or advisable, the Department found no taxable beneficial interest because the individual could not revoke the trust, invade its corpus, or exercise a general power of appointment.

The result applied only after the transaction was completed. The foreign corporate trustee also had to remain neither authorized to do business nor actually doing business in Florida.

What this means for you

The ruling made actual trust administration decisive. Resignation on paper had to be accompanied by a real transfer of management, control, custody, and records to the foreign trustee, while the beneficiary's retained rights had to remain below the statutory beneficial-interest threshold.

Common questions

Q: Was the trust untaxed before the trustee change was completed? A: The ruling's conclusion applied once the proposed transaction was completed.

Q: Did receiving trust income make the individual taxable? A: No, because the individual lacked the revocation, corpus-invasion, and general appointment powers identified by the Department.

Q: Could the foreign trustee do business in Florida? A: No. The favorable filing and tax result required it not to do business or be authorized to do business in Florida.

Citations and references

• Fla. Stat. § 199.052(5) and (6) — trust and beneficiary filing responsibility
• Fla. Stat. § 199.023(7) — beneficial interest
• Fla. Admin. Code r. 12C-2.006 — trust situs
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-005

Original ruling text

Jan 17, 1996

Re: Technical Assistance Advisement No. 96(C)2-005 Intangible Personal Property Tax; Trust XXX (Trust) XXX (Individual Trustee/Beneficiary) XXX (Corporate Trustee) XXX (Foreign Corporate Trustee)

Dear :

This is in response to your request for a technical assistance advisement with respect to Florida intangible personal property tax on a trust.

Facts

The Trust was established under a prior trust instrument. The trustees are presently Individual Trustee/Beneficiary and Corporate Trustee. Individual Trustee/Beneficiary has the authority to remove Corporate Trustee and replace it with another corporate trustee. Individual Trustee/Beneficiary may delegate any or all powers of the Trust to the Corporate Trustee. Individual Trustee/Beneficiary intends to execute an instrument changing the Corporate Trustee to Foreign Corporate Trustee and resigning her position as Individual Trustee. In addition, Individual Trustee / Beneficiary will delegate all management and control of the Trust to Foreign Corporate Trustee. The Foreign Corporate Trustee will have custody of the Trust's property and keep the records of the Trust.

The terms of the Trust provide that the income shall be paid to Individual Trustee/Beneficiary, and if not needed, to be accumulated. The principal of the Trust may also be distributed to Individual Trustee/Beneficiary as Corporate Trustee determines necessary or advisable for maintenance in health and reasonable comfort.

Anticipated Transaction

Individual Trustee/Beneficiary anticipates executing an instrument which will result in the change of Corporate Trustee to Foreign Corporate Trustee, resigning as individual trustee and delegating the authority to remove and appoint trustees in the future to another individual in Florida.

Requested Ruling

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 as long as the Foreign Corporate Trustee is not authorized to do business in Florida and the Individual Trustee/Beneficiary has delegated all management and control to the Foreign Corporate Trustee, and the Trust will not be required to file a return under Chapter 199, F.S., or applicable administrative code provisions; and
2. Individual Trustee/Beneficiary 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, and would not be required to file a return under Chapter 199, F.S., or applicable administrative code provisions for her interest in, or assets of, the Trust.

Discussion and Law

Section 199.052 (5) and (6), F.S., provides that the trustee of a Florida-situs trust is primarily responsible for returning the trust's intangible personal property and paying the tax on it. A Florida resident with a beneficial interest in a foreign-situs trust (that is, a trust with situs outside this state) is primarily responsible for returning their share of the trust's intangible personal property and paying the tax on it.

Rule 12C-2.006, F.A.C., provides that a trust has a taxable situs in Florida if the trustee's usual place of business where the books and records pertaining to the trust are kept is in

Florida. Further, when trustees are both residents and nonresidents, and management and control is with the out of state trustee, then no return is necessary by the Florida trustee. The proposed change from Corporate Trustee to Foreign Corporate Trustee provides that Individual Trustee/Beneficiary is resigning her position as co-trustee and delegating management and control of the Trust to Foreign Corporate Trustee.

Therefore, Individual Trustee/Beneficiary does not possess a beneficial interest in the Trust since she neither has the power to revoke the Trust, to invade the corpus of the Trust, nor the general power of appointment as provided in S. 199.023(7), F.S.

Conclusion

Once the proposed transaction is completed, whereby the Foreign Corporate Trustee is appointed, and all management and control of the Trust has been delegated, by the Individual Trustee/Beneficiary to the Foreign Corporate Trustee, neither the Trust nor the Individual Trustee/Beneficiary's interest in the Trust will be subject to the Florida intangible personal property tax. Furthermore, Individual Trustee/Beneficiary will not be required to file a Florida intangible tax return, since she does not have a beneficial interest in the Trust as defined in s. 199.023, F.S., and Foreign Corporate Trustee will not be required to file a Florida intangible tax return as long as it is not doing business in Florida or authorized to do business in Florida.

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

NCP/mh