Did an irrevocable trust or its settlor owe Florida intangible tax when an out-of-state trustee managed and controlled the assets?

Plain-English summary

The Florida Department of Revenue concluded that the irrevocable trust was not subject to Florida intangible tax as long as management and control of its assets remained with the out-of-state trustee. The account was maintained at the trustee's office outside Florida, even though the trustee had a related entity in Florida.

The taxpayer also was not taxed on a beneficial interest in the trust. Under the stated agreement, the taxpayer could not alter, amend, or revoke the trust and could not invade its corpus. The trust protector's authority was limited to directing the trustee to appoint property and removing the trustee.

The ruling explained that a trust had Florida taxable situs when its trustee was domiciled in Florida. It also defined a taxable beneficial interest as a current income right combined with a right to revoke, invade the corpus, or exercise an unlimited power to appoint future beneficiaries.

What this means for you

Settlors of irrevocable trusts

The retained powers mattered. The ruling relied on the taxpayer's inability to revoke or amend the trust or invade its corpus.

Trustees and trust protectors

The location of management and control was central to trust situs. The ruling also described the trust protector's powers as limited rather than unlimited.

Accountants and tax professionals

This was a 1996 determination under the cited intangible-tax statutes and rules. Its result was expressly conditional on management and control remaining with the out-of-state trustee.

Common questions

Q: Did the trustee's related Florida entity create Florida taxable situs?
A: Not under the stated facts. The account remained outside Florida, and management and control stayed with the out-of-state trustee.

Q: Could the taxpayer revoke the trust or reach its principal?
A: No. The taxpayer could not alter, amend, or revoke the trust and could not invade its corpus.

Q: What powers did the trust protector have?
A: The trust protector could direct the trustee to appoint property and could remove the trustee.

Q: Was the ruling unconditional?
A: No. The trust's no-tax result depended on management and control of the assets remaining with the out-of-state trustee.

Citations and references

• Fla. Stat. § 199.023(7) and Fla. Admin. Code r. 12C-2.002(1)(c) — taxable beneficial interests in trusts
• Fla. Stat. § 199.052(1) and (5) and Fla. Admin. Code r. 12C-2.006(3) — management, control, and taxation of trusts
• Fla. Stat. § 199.175(1) — taxable situs
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-143

Original ruling text

Dec 26, 1996

Re: Technical Assistance Advisement No: 96(C)2-143
Intangible Tax - Trust
Sections 199.023(7), 199.052(5), and 199.175(1), F.S.
XXX - Taxpayer
XXX - Trust
XXX - Trust Protector
XXX - Trustee

Dear :

Your request for a Technical Assistance Advisement
concerning the taxability of intangible assets held in an
irrevocable trust has been reviewed and is addressed in the
following paragraphs.

Statement of the Facts

The Taxpayer established a Trust and transferred intangible
assets to the trust. A Trustee was appointed which resides
outside the State of Florida. Although the Trustee of the Trust
has a related entity in the State, the account for these assets
will be maintained at the Trustee's office outside the State of
Florida. The Taxpayer will not have the right to alter, amend or
revoke the trust, nor will the Taxpayer have the right to invade
the corpus of the trust. The trust agreement also provides for
the Taxpayer to appoint a Trust Protector. The power of the
Trust Protector is limited to directing the Trustee to appoint
the property and to remove the trustee.

Requested Advisement

You requested an advisement confirming that:

1. The Trust will not be subject to Florida intangible
   tax.
2. The Taxpayer will not have a taxable beneficial
   interest in the Trust.

Provisions of the Law

Section 199.052(5), F.S., and Rule 12C-2.006(3), F.A.C.,
tax a trust that has a taxable situs in Florida. A trust has
taxable situs if the Trustee is domiciled in this State.

Section 199.175(1), F.S., defines taxable situs as being
owned, managed, or controlled by a person or business domiciled
in this State on January 1 of the tax year. For purposes of the
intangible tax, s. 199.052(1), F.S., provides that "management
or control" does not include ministerial functions.

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.

Conclusion

The Trust will not be subject to Florida intangible tax
provided management and control of the assets remains with the
out of state Trustee. The Taxpayer will not be subject to
intangible tax on assets held in the trust because the Taxpayer
has no beneficial interest in the trust.

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