THE FLORIDA INTANGIBLE TAX WAS REPEALLED EFFECTIVE JANUARY 1, 2007

The Florida intangible tax (FIT) was radically amended in two significant ways effective July 1, 2000. As a result, the FIT has practically become a "voluntary tax."

The first change was to lower the rate from 1.5 mills to 1.0 mill with respect to the intangible assets subject to tax on January 1, 2001.

The second change related to trusts. In particular, trusts are no longer subject to the FIT. Instead, beneficial interests in trusts are taxed. A beneficial interest for such purpose is defined as an interest in a trust which consists of the right to income coupled with either (i) a right to revoke or (ii) a general power of appointment.

RLT’s. For example, so-called revocable "living" trusts (RLT’s) will generally be subject to the FIT because the grantor can demand the income and can revoke the trust. In contrast, most beneficial interests in testamentary trusts will now be exempt from the FIT because the holder either does not have a right to income (e.g., the trustee has discretion as to whether to make distributions) or the beneficiary cannot revoke the trust and cannot direct the trustee to distribute trust assets to the beneficiary or to a creditor of the beneficiary.

FLITE trusts. But an RLT can be amended to at least give the grantor an excellent argument that the FIT is not applicable. For example, the FIT could be avoided with respect to the intangible assets held by an RLT if the RLT were amended to provide that from the period of December 20, 2000 through, say, February 20, 2001 (i) the trust is irrevocable, (ii) the trust income must be accumulated and (iii) the grantor has no power to cause the trustee to transfer trust assets to himself or herself nor to his or her creditors. (That may be overkill because simply eliminating the right to income would seem to be enough, but the state might successfully argue that a power to revoke or to appoint the assets to oneself is tantamount to a right to the income.) Tax attorneys often refer to a trust which is designed to avoid the FIT as a FLITE (i.e., "FL"orida "I"ntangible "T"ax "E"xempt) trust.

FLP’s. Similarly, the FIT could be avoided with respect to taxable assets held in an entity such as a closely-held corporation or a family limited partnership (FLP) by causing the entity to create and fund an irrevocable trust on, say, December 20, 2000 with the entity forming such trust retaining no right to the income, no right to revoke and no power of appointment.

Other recent changes. As an aside, two other matters should be noted. First, accounts receivable are now exempt from the FIT. And second, the state recently took the position that a foreign entity, such as a Nevada FLP with a Nevada corporate general partner, would be subject to the FIT if anyone in Florida had indirect control. Accordingly, clients with that fact pattern should consider shifting the FLP assets to a FLITE trust with the FLP as grantor. (Partnership interests are not subject to the FIT unless publicly traded.)

Income tax. Fortunately, the FLITE trust would be considered a grantor trust and thus would have no separate existence for federal income tax purposes.

Fees and costs. Finally, avoiding the FIT must make sense from a cost-benefit perspective. For example, if the taxpayer has $1 million of taxable assets, the FIT would be $1,000. The attorney fees and costs would have to be sufficiently below $1,000 for it to make sense to take the time and hassle to establish and fund the FLITE trust. My standard fee for meeting with a client and drafting and overseeing the execution of a simple FLITE trust is $400. My fee for shifting title to closely-held stock is a function of the time required, but in the absence of unusual circumstances would not be more than $100. Opening a new brokerage account in the name of the FLITE trust and shifting title of the taxable assets to the new account is usually done as a free service by the brokerage firm.