Did a revocable trust move its intangible-tax situs outside Florida when one doctor said its Florida grantor was totally and permanently disabled and a non-Florida successor trustee was named?

Subject

Taxable Situs - Trust

Plain-English summary

The Department concluded that the trust still had taxable situs in Florida and had not become a foreign-situs trust. The grantor was domiciled in Florida, had created the trust, served as its original trustee, and retained powers to revoke the trust, withdraw property, direct payments, and otherwise manage or control its assets.

The trust agreement treated the grantor as incapacitated only if two practicing physicians stated in writing that the grantor could not manage the grantor's affairs. The request supplied only one doctor's letter. Although that letter described a severely debilitating stroke, total and permanent disability, and an inability to drive or provide personal care, the Department said those limitations were not the same as an inability to manage one's affairs.

Because incapacity had not been established under the trust agreement or Florida's statutory procedures, the Department did not treat the non-Florida successor trustee as having sole control. The trust therefore remained taxable in Florida, and a return reporting the just value of its intangible assets was due.

The ruling also explained the conditional future result: if incapacity were later properly established and the successor trustee assumed administration, situs would follow that successor trustee only while the grantor remained incapacitated. If the grantor regained capacity, situs would return to the grantor.

What this means for you

Under the 1995 statutes applied in this ruling, naming an out-of-state successor trustee did not by itself move a trust's intangible-property situs out of Florida. The governing trust terms, evidence of incapacity, and the grantor's retained powers all mattered.

A medical condition or disability also did not automatically prove loss of property-management capacity. Here, the trust expressly required two written medical opinions, and the evidence supplied did not satisfy that procedure.

Common questions

Q: Was the trust a foreign-situs trust when the ruling was issued? No. The Department concluded that it still had taxable situs in Florida.

Q: Why was one doctor's letter insufficient? The trust agreement required written opinions from two practicing physicians that the grantor could not manage the grantor's affairs, and the one letter supplied addressed disability and personal care rather than establishing that specific inability.

Q: Did the successor trustee's non-Florida domicile control the result? Not yet. The Department found that the successor trustee had not assumed sole control because the grantor's incapacity had not been established.

Q: What retained powers kept the property connected to the grantor? The ruling identified powers to revoke the trust, withdraw or convey trust property, direct payments, and otherwise manage or control the property.

Q: Could the situs change later? Yes. The ruling said situs would rest with the successor trustee while a properly established incapacity placed administration with that trustee, but would return to the grantor if capacity returned.

Citations and references

• Fla. Stat. § 199.052(5)-(6) — returns and tax for Florida-situs and foreign-situs trusts
• Fla. Stat. § 199.175(1) — taxable situs for intangible personal property owned, managed, or controlled by a Florida-domiciled person
• Fla. Stat. § 199.023(7) — beneficial interest in a foreign trust
• Fla. Stat. §§ 744.3201(f) and 744.3215 — incapacity petition and rights that an incapacitated person may retain
• Fla. Stat. §§ 199.032 and 199.052 — intangible-tax liability and return requirements
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97C2-003

Original ruling text

May 12, 1997

Re: Technical Assistance Advisement No. 97(C)2-003 Intangible Tax - Taxable Situs - Trust Section 199.052, F.S.

Dear :

The letter dated January 24, 1997, requesting a Technical Assistance Advisement has been received by this office. The request deals with the situs of the XXX Trust (hereinafter "Trust").

ISSUE

Based upon the facts presented, technical advice is requested on the following issues:

1) Is the Trust, now administered by XXX successor trustee (hereinafter "Successor Trustee"), a foreign situs trust for Florida intangible tax purposes; and, 2) Based on the facts presented in the request, does XXX (hereinafter "Grantor/Trustee) now lack both the general power of appointment over the Trust and the power to revoke the Trust?

STATEMENT OF FACTS

The facts that you have provided to the Department are as follows:

Grantor is domiciled in the State of Florida. Furthermore, Grantor created the Trust XXX, for the purpose of providing for the convenient administration of the assets of Grantor without the necessity of court supervision in the event of the Grantor's incapacity or death. Subsequent to the creation of the trust, the Grantor assigned, conveyed and delivered to the Trustee, i.e., XXX, all of the Grantor's right, title, and interest in and to all real and personal property, tangible or intangible,

of any nature, in any location, which may be owned by the Grantor or later acquired. Additionally, a voluntary conveyance by the Grantor of a Trust asset which may remain registered to the Grantor individually shall convey the interest held by this Trust.

In the Trust agreement, the Grantor's XXX was named as the Successor Trustee. Moreover, the agreement instructed the Trustee to manage the property of the Trust, collect the income, and pay from the income or principal of the Trust such amount and to such persons as the Grantor may from time to time direct. In the absence of direction, the Trustee may accumulate the net income or may disburse the net income to or for the benefit of the Grantor in monthly or other convenient installments. In the event of the Grantor's incapacity, the Trust document stipulates that the Trustee may apply or expend all or a part of the income and principal of the Trust, or both, for the health and maintenance of Grantor in the Grantor's accustomed manner of living.

The Grantor reserves the right while alive, except during any period when incapacitated, to revoke the Trust. Also, the Grantor has the authority to, from time to time, withdraw any or all of the Trust property.

Article V of the Trust agreement addresses incapacity, rehabilitation, and guardianship. Specifically, if the Grantor is under a legal disability or by reason of illness, or mental or physical disability is, in the written opinion of two doctors currently practicing medicine, unable to manage XXX affairs, XXX shall be deemed incapacitated for the purposes of this Trust Agreement.

The Grantor shall be deemed rehabilitated when XXX is no longer under a legal disability or when, in the written opinion of two doctors currently practicing medicine, XXX is able to properly manage XXX affairs. Upon rehabilitation, that individual shall resume the duties and powers XXX had prior to incapacity and XXX successors shall relinquish all powers and be relieved of all duties.

No income or principal beneficiary of this Trust (except the Grantor) shall have any right or power to anticipate, pledge, assign, sell, transfer, alienate or encumber XXX interest in the Trust, in any way.

The letter from a doctor with a Florida health care association which saw Grantor states:

[Grantor] has had a severely debilitating stroke. XXX has been totally and permanently disabled. XXX is unable to drive or provide XXX own personal care.

A second doctors opinion concerning Grantor's capacity was not offered with this request.

DISCUSSION OF LAW

Section 199.052, Florida Statutes (1995), requires a return be filed by every corporation authorized to do business in this State or doing business in this State and by every resident, regardless of domicile, who on January 1 owns, controls, or manages intangible personal property which has a taxable situs in this State.

Section 199.175(1), F.S. (1995), provides in part:

(1) Intangible personal property shall have a taxable situs in this state when it is owned, managed, or controlled by any person domiciled in this state on January 1 of the tax year.... (a) For the purposes of this chapter, "any person domiciled in this state" means:

1. Any natural person who is a legal resident of this
   state;
2. ...
3. Any person, including a trust, who has established a
   commercial domicile in this state.... (Emphasis added.)

In this immediate matter, the Grantor, who is also the original Trustee, is domiciled in the State of Florida. In this regard, s. 199.052, F.S. (1995), states:

(5) The trustee of a Florida-situs trust is primarily responsible for returning the trust's intangible personal property and paying the annual tax on it. The trust's beneficiaries, however, may individually return their equitable shares of the trust's intangible personal property and pay the tax on such shares, in which case the trustee need not return such property or pay such tax, although the department may require the trustee to file an informational return. (Emphasis added.)

The situs of the Trust in this matter is not in question so long as the Grantor/Trustee has the capacity to manage the Trust in accordance with the terms outlined in the Trust agreement. However, it is now asserted that the original Trustee is incapacitated, and control of the Trust has been transferred to a Successor Trustee who is not domiciled in the State of Florida. Concerning intangible personal property owned, managed, or controlled by persons domiciled outside Florida, s. 199.052(6), F.S. (1995), states:

Each Florida resident with a beneficial interest, as defined in s. 199.023(7), in a foreign-situs trust, that is, a trust with situs outside of this state, is primarily responsible for returning the resident's equitable share of the trust's intangible personal property and paying the annual tax on it. The trustee of a foreign trust may return and pay the tax on the equitable shares of all Florida residents having beneficial interests, in which case the residents need not return such property or pay such tax. (Emphasis added.)

Subsection 199.023(7), F.S. (1995), states that:

(7) A resident has a "beneficial interest" in a foreign trust if the resident has a vested interest, 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, as defined in 26 U.S.C. s. 2041(b)(1).

Therefore, the issues raised in this request are essentially whether the Grantor has relinquished control of the Trust, and if so, whether the Successor Trustee now maintains sole control of the Trust. Generally, there are two ways under Florida Statutes for an individual to be found incompetent: either by an involuntary determination or a voluntary petition. In either case, the ward can petition the court for a finding of increased capacity as well as removal of a guardian in the event the ward believes the guardian has not acted in his/her best interest.

In the situation before the Department, the Trust agreement stipulates procedures for a finding of incapacity of the Grantor, and alternatively for XXX rehabilitation. However, without specific provisions for the removal of a guardian/successor trustee, it is assumed the provisions outlined in the Florida Statutes would prevail.

CONCLUSION

Under the provisions of the Trust agreement, for the Grantor to be found possessing a diminished capacity two licensed physicians currently practicing medicine must state, in writing, that XXX is unable to properly manage XXX affairs. The Department was only given documentation from one physician that the Grantor was having a problem. Although the doctor's letter stated that the Grantor had been "totally and permanently disabled," and that XXX could no longer "drive or provide XXX own personal care," such limitations are not synonymous with an inability to manage one's affairs. Indeed, persons determined to be incapacitated may retain certain rights including the right to manage property. See s. 744.3215, F.S. Even when petitioning to determine incapacity, the petitioner must state which one of the rights enumerated in s. 744.3215, F.S., the incapacitated person is incapable of exercising. See s. 744.3201(f), F.S. Consequently, under Florida Statutes, unless XXX was unable to do so, Grantor can have the Successor Trustee removed and appoint another trustee or manage the assets XXX.

Therefore, based on the documents presented in this request, the Grantor has not been found to be incapacitated

either in accordance with the provisions of the Trust agreement or under the provisions for such a finding as outlined in the Florida Statutes. Consequently, until such time as the Grantor is determined to be incapacitated so severely that XXX cannot manage XXX own affairs, resulting in the Successor Trustee assuming the Trustee's responsibilities as set forth in the Trust agreement, the Trust has a taxable situs in Florida and a return reporting the just value of the Trust's intangible assets is due the State.

If in the future the Grantor is determined to be incapacitated, and the Successor Trustee assumes the administration of the Trust, by the terms of the Trust agreement the situs of the Trust will then rest with the Successor Trustee only so long as the Grantor is in an incapacitated state. If the Grantor later regains enough capacity that XXX may once again manage XXX affairs, the situs of the Trust would once again reside with XXX.

Note also that, so long as the grantor has power to revoke the trust, to withdraw trust property, to convey trust property, to direct payment of trust property, or in any other manner to manage or control the trust property, the grantor is considered to own, manage or control the property. Then that property has taxable situs under s. 199.175(1), F.S., and the grantor is liable for tax under ss. 199.032 and 199.052, F.S.

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,

Paul J. Munyon
Tax Law Specialist