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