Under Florida's 1996 intangible tax, were a non-Florida trust, its grantor-beneficiary, or a Florida custodian liable for the trust assets?

Plain-English summary

Florida found no 1996 intangible-tax liability for the non-Florida trust, its grantor-beneficiary, or the Florida investment advisor holding trust property.

The Florida grantor created an irrevocable trust with his non-Florida father as trustee. The trustee could make discretionary distributions for the grantor's health and living standard. The grantor held only a limited appointment power and could not appoint assets to himself, his estate, or their creditors. The trust required removal of a trustee who became taxable in Florida.

Merrill Lynch could hold physical evidence of trust property in Florida, but it had no discretionary management or control. The Department treated its advice and safekeeping as ministerial, so custody did not create trust situs or a filing duty. The grantor also lacked the revocation, corpus-invasion, or unlimited appointment rights required for a taxable beneficial interest.

What this means for you

• Florida custody alone did not create tax liability without discretionary control.
• The trustee's domicile and the trust's own situs restrictions mattered.
• A current benefit from discretionary distributions was not enough without the additional control rights stated in the statute and rule.

Common questions

Q: Did the trust or trustee have Florida taxable situs?
A: No.

Q: Did the grantor have a taxable beneficial interest?
A: No.

Q: Did the Florida investment advisor have to file or pay tax on property in its custody?
A: No, because its functions were advisory, ministerial, and custodial rather than discretionary management.

Citations and references

• Fla. Stat. § 199.023(7) — taxable beneficial interest
• Fla. Stat. § 199.032 — annual intangible tax
• Fla. Stat. § 199.052(1), (5), (6) — control and trust filing duties
• Fla. Stat. § 199.175 — taxable situs
• Fla. Admin. Code r. 12C-2.002(1)(c) — taxable beneficial interest
• 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 96C2-032

Original ruling text

Mar 29, 1996

Re: Technical Assistance Advisement 96(C)2-032
Intangible Tax - Taxable Beneficial Interest in Trust
Section 199.023(7), F.S., and Rule 12C-2.002(1)(c), F.A.C.
XXX (Grantor/Beneficiary)
XXX (Trust)
XXX (Trustee)

Dear :

Your letter requesting technical advice on the taxability of a
non-Florida trust, having its principal place of business in the
state of its creation, has been received and examined by this
office. The scenario presented for consideration is summarized
below:

FACTS

The Grantor/Beneficiary of the trust is a resident of Florida.
On September 13, 1995, the 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. The Grantor has only a
limited power of appointment over the assets of the trust. This
limitation states that the grantor may not appoint to or for the
benefit of the grantor, or the grantor's estate, or the grantor's
creditors, or the creditors of the grantor's estate, any asset or
income of the trust. Upon the death of the Grantor, any remaining
trust principal will be distributed to or in trust to the Personal
Representative of the Grantor's estate.

The Trust contains very strict requirements regarding residency
and the conduct of business within Florida. The Trust provides that
an individual trustee may not be a resident of Florida and that any
corporate trustee may not be qualified to do or be doing business in
Florida. If either of the trustees becomes taxable in Florida the

Trust requires that the trustee be removed.

The Trustee may employee Merrill Lynch as the investment
counsel for the custody of part or all of the Trust's Property. The
physical evidence of such Property will be held by Merrill Lynch in
Florida. However, Merrill Lynch shall have no discretionary
authority to manage or control the Property in the account.

LAW & DISCUSSION

Subsection 199.023(7), F.S., and Rule 12C-2.002(1)(c), F.A.C.,
state that a taxable beneficial interest in a trust is the current
right to income coupled with either a right to revoke the trust, the
right to invade the corpus of the trust or an unlimited power of
appointment of future beneficiaries.

Subsection 199.052(5), F.S., places primary responsibility for
payment of the intangible tax on the Florida trustee. To have a
taxable situs in Florida the provisions of s. 199.175, F.S., must be
met. The trustee must be a Florida resident or legally commercially
domiciled in Florida to have a taxable situs in Florida.

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
and 199.175, F.S.) Subsection 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 ss. 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.)

REQUESTED ADVISEMENT

• 1. Since January 1 of each year (1) the Trustee will be the
     only person to possess discretionary authority to control or manage
     the Trust assets and not be domiciled in Florida, and (2) the
     Property will not independently have a Florida situs, the Trustee
     will not be required to return the Property, nor will the Trust's
     Property be subject to the Tax.

RESPONSE:

Based upon the provisions of the statutes and the Trust,
neither the Trustee nor the Property would have taxable situs in
this State.

• 2. The Taxpayer will not possess on January 1 of each year a
     beneficial interest in the Trust which is subject to intangible tax.

RESPONSE:

Based upon the provisions of the Trust, the Taxpayer (the
Grantor/Beneficiary of the Trust) has only a limited power of
appointment over the assets of the Trust, does not have a power to
invade the corpus of the Trust, nor the power to revoke the Trust.
Therefore, the Taxpayer does not have a taxable beneficial interest
in the Trust.

• 3. Since Merrill Lynch will not possess the discretionary
     authority to manage or control the property on January 1 of each
     year, it will not be required to either return the Property or pay
     the tax, nor will Merrill Lynch's activities on behalf of the Trust
     cause the Trust to be domiciled in Florida should it have custody of
     any Trust Property on January 1.

RESPONSE:

Based upon the provision of the statutes and the provision of
the Trust, Merrill Lynch as 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. 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.

CONCLUSION

In summary, neither the Trustee nor the Trust's property would

have taxable situs in Florida. Likewise, the Taxpayer (Grantor)
does not have taxable beneficial interest in the Trust, and Merrill
Lynch will not be required to pay intangible tax on the Trust's
property in its custody.

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,

Moses O. Daramola
Senior Tax Specialist
Tax Policy and Dispute Resolution
Office of General Counsel

MOD/md