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

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