Did the Florida grantor, out-of-state corporate trustee, or nonresident trust advisor owe intangible tax on the described irrevocable trust?

Plain-English summary

Florida concluded that the grantor, trustee, and trust advisor were not liable for intangible tax on the irrevocable trust.

The sole corporate trustee was outside Florida, kept no Florida office, and was required to hold and exclusively manage the assets outside the state. The grantor could not amend, revoke, terminate, or manage the trust, and the trustee alone decided whether income or principal should be distributed for the grantor's welfare.

The grantor therefore lacked a taxable beneficial interest. The Department found no current income right, no power of appointment, no right to change beneficiaries, no revocation right, and no right to invade corpus. The trust also required annual assets above a redacted threshold to revert by operation of law, but the Department's final conclusion still found no liability under the submitted provisions.

The grantor's son served as trust advisor and could remove the trustee and appoint another corporate trustee that also had to keep the assets outside Florida. The son lived outside Florida, and his expressly limited fiduciary rights had no Florida intangible-tax effect.

What this means for you

Grantors and beneficiaries

The ruling depended on the absence of enforceable income, revocation, principal, appointment, and management rights. A discretionary benefit from the trustee was not treated as a current right.

Corporate trustees

The no-situs conclusion relied on a sole nonresident trustee exclusively holding and managing assets outside Florida, with no Florida office or business location.

Trust advisors and tax professionals

An advisor's removal power did not create Florida tax here because the advisor was a nonresident, acted under limited fiduciary authority, and could appoint only another corporate trustee required to keep the assets outside Florida.

Common questions

Q: Did the trust have Florida taxable situs? A: No. Its sole trustee held and managed the assets outside Florida and had no Florida office.

Q: Did the Florida grantor have a current right to trust income? A: No. Distributions were within the trustee's discretion.

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

Q: Did the annual reversion of excess assets make the grantor taxable? A: The ruling disclosed that provision but still concluded the grantor had no taxable beneficial interest under the full submitted terms.

Q: Did the nonresident son's trust-advisor role create tax? A: No.

Q: Who was liable for Florida intangible tax? A: None of the trustee, grantor, or trust advisor.

Q: Can another trust rely on this TAA? A: Not automatically. The advisement states that it binds the Department only on the management, distribution, reversion, advisor, trustee, and redacted trust terms described.

Citations and references

• Fla. Stat. § 199.032 — annual intangible personal property tax
• Fla. Stat. § 199.175(1), (1)(a)3. — trust domicile and Florida taxable situs
• Fla. Stat. §§ 199.052(6) and 199.023(7) — foreign-trust return and taxable beneficial interest
• Fla. Admin. Code rr. 12C-2.006(3) and 12C-2.002 — trust situs and beneficial interests
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-122

Original ruling text

Nov 13, 1996

Re: Technical Assistance Advisement No. 96(C)2-122 Florida Intangible Tax; Trust Section 199.032, F.S. XXX (Grantor/Taxpayer) XXX (Trust) XXX (Trustee) XXX (Grantor's Son/Trust Advisor)

Dear :

Your letter dated September 27, 1996, requests a Technical Assistance Advisement regarding the applicability of Florida intangible tax pursuant to s. 199.032, F.S., under the facts and documents set forth herein. This request is made pursuant to Chapter 12-11, F.A.C., and is issued to you under the authority of s. 213.22, F.S.

Statement of Facts

The Taxpayer is a domiciliary of Florida and maintains his permanent residence in XXX. The taxpayer is subject to and must file the applicable return with FDOR for the Florida intangible tax with respect to the value of such taxable property which he owns, controls or manages, either directly or indirectly through an agent or other third party, in the State of Florida as of January 1 of each year.

The Taxpayer, as the Grantor, intends to establish a Trust with the Trustee, in accordance with the specific terms and conditions set forth in the Trust documents. The Trust, which is to be governed by the laws of the State of XXX, is irrevocable and no person, including the Trustee, has the power to terminate the Trust at any time.

The Grantor may not alter, amend, revoke or terminate any provision of the Trust. The assets of the Trust will be held and exclusively managed by the Trustee in XXX. The Grantor is

precluded from managing any of the assets held by the Trustee during the term of the Trust. The assets of the Trust may never be managed by the Trustee within the State of Florida and the Trustee does not maintain any office or place of business within the State of Florida. The Trustee, in its discretion, may make distributions of income and principal to the Grantor as it may deem necessary for the benefit and general welfare of the Grantor.

On XXX of each calendar year all assets held in trust in excess of $XX will revert back to the Grantor by operation of law and be transferred to the Grantor by the Trustee in accordance with such instructions as are provided in writing by the Grantor. Where no written instruction is given, the required distribution arising by virtue of the reversionary interest held by the Grantor (or his estate in the event of his death) shall be made to the Trustee of the Grantor/Taxpayer Amended and Restated (revocable) Trust Agreement dated XXX.

The Trust Advisor has the power to remove the Trustee at any time and appoint a successor corporate trustee which is prohibited from holding and managing the assets of the Trust within the State of Florida.

The Grantor's son is designated in the Trust instrument to serve as the "Trust Advisor". The Trust Advisor's rights with respect to the management of the Trust's assets are specifically limited by the Trust and the exercise of such rights is subject to applicable rules governing fiduciaries. The Grantor's son is domiciled in the State of XXX and has no residence within the State of Florida.

The Taxpayer intends to make additional contributions of cash or other property from time to time to the Trust, which Trust will, at all times, maintain a minimum balance of $XX in cash or value of other property.

Requested Ruling

You request that we answer the following:

1. Is the Taxpayer subject to Florida intangible tax with respect to any and all property held by the Trust; which property would otherwise be taxable property for intangible tax purposes?

2. Is the Trustee subject to Florida intangible tax with
   respect to any and all property comprising the trust estate, including property which would otherwise be taxable property for intangible tax purposes, under its management and control?
3. Is the Taxpayer's son, as Trust Advisor, subject to
   Florida intangible tax with respect to any and all property in the Trust?

Provision of the Law

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.

Intangible personal property shall have a taxable situs in this state when it is managed or controlled by any person domiciled in this state on January 1 of the tax year. (see s. 199.175(1), F.S.). A trust is deemed to be domiciled in this state if the trustee is domiciled in the state. (see s. 199.175(1)(a) 3., F.S.) 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. If the trustee has no principal place of business, then situs is determined by whether management and control exists in Florida, or by the residence of the trustee. (see Rule 12C-2.006(3), F.A.C.)

When there is no taxable situs in Florida, a beneficiary of a trust having a taxable beneficial interest in the trust may be responsible for filing a return for taxable trust assets. (see s. 199.052(6), F.S., and Rule 12C-2.002(1)(ee), F.A.C.) A resident has a taxable beneficial interest in a foreign trust if the resident has a vested interest in the trust, even if subject to divestment, which includes at least a current right to income and either a power to revoke the trust, or a general power of

appointment. (see s. 199.023(7), F.S.).

By rule, 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 beneficial interest in a trust is taxable only to the extent the trust corpus consists of property subject to the annual tax. (see Rule 12C-2.002, F.A.C.).

Conclusion

The Taxpayer has no current right to income of the Trust. The out-of-state Trustee has the full discretion for distribution of income of the Trust. The Taxpayer retains no power of appointment over any portion of the Trust, has no right to revoke the Trust, has no right to change the beneficiaries of the Trust or appoint successor beneficiaries, or any right to invade the corpus of the Trust. Therefore, pursuant to the statutory and administrative provisions, the Taxpayer has no taxable beneficial interest in the Trust.

When there is a sole Trustee who is not a resident of the State of Florida who manages and holds the Trust's assets at all times outside of the State of Florida as required by the Trust, then the Trust has no Florida situs and the Trustee is not required to file a return or pay the annual intangible tax on the assets of the trust.

The Taxpayer's son, who is designated by the Trust to serve as an Advisor to the Trustee, is domiciled outside of Florida. The Taxpayer's son is not a resident of the State of Florida. The exercise of all rights set forth under the Trust as Trust Advisor does not have any impact for Florida intangible tax purposes.

Therefore, based on the provisions of the statutes and the provisions of the Trust, neither the Trustee, the Grantor, nor the Trust Advisor are liable for the Florida intangible tax.

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,

Baldan E. Sulker
Senior Tax Specialist
Tax Policy and Dispute Resolution
Office of General Counsel

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