Did a Florida grantor or trustee owe 1997 intangible tax on securities placed in the described irrevocable trust, or when the assets returned after January 1?

Plain-English summary

Florida concluded that neither the grantor nor the trustee owed intangible tax on the trust assets and that returning the assets to the grantor after January 1, 1997 did not create tax for 1997.

The Florida resident grantor proposed transferring marketable securities to an irrevocable trust. The grantor could not alter, amend, or revoke the agreement and could not remove or replace the trustee. The grantor would receive income, while the trustee alone had discretion to distribute principal during the trust term.

The Department applied the rule that a taxable beneficial interest required current income plus a right to revoke, invade corpus, or exercise an unlimited appointment power. The grantor's income interest and possible discretionary principal distribution did not give the grantor those enforceable powers under the trust agreement described.

The public copy does not disclose the trustee's domicile or the trust's exact duration. Because trustee domicile was part of the cited situs rule, this ruling's result should not be generalized beyond the Department's complete but partly redacted submitted facts.

What this means for you

Grantors and beneficiaries

An income right and the possibility of a discretionary principal distribution were not treated as a personal right to revoke the trust or invade its corpus.

Trustees and trust administrators

The Department considered the trustee and situs provisions in the submitted agreement, but the public copy redacts facts needed to reproduce that branch of the analysis.

Accountants and tax professionals

The January 1 measurement date mattered. The ruling expressly said a later distribution back to the grantor did not create 1997 tax, but only on the complete facts provided to the Department.

Common questions

Q: Did the grantor owe 1997 intangible tax on the trust assets? A: No.

Q: Did the trustee owe the tax?
A: No under the Department's conclusion.

Q: Could the grantor revoke or amend the trust? A: No.

Q: Could the grantor remove or replace the trustee? A: No.

Q: Could the grantor demand trust principal? A: No. Principal distributions were within the trustee's discretion.

Q: Did distributing the assets after January 1, 1997 create 1997 tax? A: No.

Q: Does the public source disclose every situs fact? A: No. The trustee's domicile and the trust's exact duration are redacted.

Citations and references

• Fla. Stat. § 199.023(7) — taxable beneficial interest in a trust
• Fla. Stat. §§ 199.032 and 199.175 — annual intangible tax and Florida taxable situs
• Fla. Stat. § 199.052(1), (5) — ministerial functions and trustee responsibility
• Fla. Admin. Code rr. 12C-2.002(1)(c) and 12C-2.006(3) — beneficial interests and trust situs
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-118

Original ruling text

Nov 13, 1996

Re: Technical Assistance Advisement No: 96(C)2-118 Intangible Tax - Trust Sections 199.023(7), 199.032, and 199.052(1), F.S. XXX (Grantor) 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 the response is being written is presented below.

Statement of the Facts

The grantor is a Florida resident. The grantor intends to establish an irrevocable trust and transfer marketable securities to the Trust prior to XXX. The securities in the Trust shall be held and administered by the Trustee pursuant to the terms of the Trust Agreement. The Trust will terminate XXX months after the execution of the Trust Agreement. The Grantor shall not have the right to alter, amend or revoke the Trust Agreement. Additionally, the Grantor shall not have the right to remove or replace the Trustee. The Grantor shall receive income from the Trust and the Trustee shall have a discretionary right to distribute the Trust principal to the Grantor during the existence of the Trust.

Issues

Under the scenario above:

1. Will the Grantor or Trustee be required to report the
   Trust assets on the Florida Intangible Personal Property Tax Return?
2. Will the distribution of the Trust assets to the

Grantor after January 1, 1997, subject the Grantor or the assets held in the Trust to the Florida Intangible Personal Property Tax.

Provision of the Law

Section 199.023(7), F.S., and Rule 12C-2.002(1)(c), F.A.C., define taxable beneficial interest in a trust as 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.

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.)

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.

Conclusion

Based on the provisions of the statutes and the provision of the Irrevocable Trust Agreement, neither the Grantor or Trustee will be liable for Florida Intangible Personal Property Tax. Additionally, the distribution of assets from the irrevocable trust after January 1, 1997, will not subject the Grantor or assets to the Florida Intangible Personal Property Tax for the tax year 1997.

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,

Celestine Grantham
Senior Tax Specialist
Tax Policy and Dispute Resolution
Office of General Counsel

CG/mh