Florida Lawyer Trust & Probate Blog
A common over-sight of persons moving to Florida is failing to take their trust. They may have packed their trust and taken it with them, but the trust situs remains in their original state. This is usually a mistake.
The fact that a client has moved to Florida will not generally mean that the law governing the trust has moved here as well even if the client is the settlor, beneficiary, or trustee of the original trust. Clients moving to Florida are well advised to have all their trusts reviewed by a Florida attorney regarding such issues as:
(1) Transfer of governing law or place of administration;
(2) Change of trust from non-grantor to grantor status;
(3) Change of trustees or their successors;
(4) Transfer of insurance policies;
(5) Other desired revisions.
As an example, one common problem is if the trust names a non-Florida trust company or law firm as trustee or successor trustee. Under Florida law, a law firm or trust company not licensed in Florida cannot act as trustee or personal representative of a will unless it qualifies as a trust company in Florida. Also note: A non-Florida attorney cannot act as Personal Representative or Executor unless he or she is closely blood related to the testator.
Failure to make proper revisions in the trust for a person moving to Florida may result in tax exposure in their former state. Florida is one of only seven states that does not impose a fiduciary income tax. Other states impose a tax at top rates from 3% to 10.3%. See Jeffrey A. Kern and H. Allan Shore, So You Left Your Trust at Home When You Moved to Florida, The Florida Bar Journal, May, 2009. Here is a sampling of how some states determine their jurisdiction to tax a trust.
Illinois & Pennsylvania: These states tax the fiduciary income of a trust if the sole connection to the trust is a resident testator settlor of a living trust or resident testator of a testamentary trust or the estate earned or received income from the state.
Michigan: Taxes a living trust on the basis of a resident settlor unless all beneficiaries, all trustee, and all administration of the trust takes place outside the state. Michigan taxes a testamentary trust solely on the basis of a resident testator.
Massachusetts. Tax jurisdiction is based on residence of trustee and the extent to which income derived by the trustee from the carrying on of a profession, trade, or business in the state. It can be avoided by assuring all Trustees reside in Florida and that income derived by the trustee is not from the carrying on of a profession, trade, or business in the state.
Connecticut. Taxes the fiduciary income of a trust when the settlor is a resident of the state or when the settlor is not a resident of the state but had income derived from or connected with sources in Connecticut.
New York. Taxes on sole basis of the resident settlor or testator with the exception for a resident trust where all of the following are satisfied: (1) all trustees are domiciled outside of New York; (2) all trust assets are located outside of New York; (3) there is no New York source income. Note: One dollar of New York source income can trigger New York jurisdiction.
How to Avoid the Tax Traps
With the exception of Massachusetts, where the tax can be avoided simply by securing a Florida trustee, avoiding the claims of the original states can best be avoided by the settlor or testator clearly establishing Florida residence. Therefore, if the client has moved to Florida, some – not necessarily all – of following steps should be taken to establish Florida residence:
Note: Factors marked *** are highly advisable.
- File a Declaration of Domicile
- File for the Florida homestead property tax exemption***
- Execute a new Florida will and restate or amend trust documents***
Note: The new trust should have specific language concerning:
(1) Florida law to control validity and construction; (2) principal place of administration; (3) determination of situs; (4) transferring situs; and (5) substituting trustee upon change of trust situs.
- Refer to Florida residence in all estate planning documents***
- Register to vote in Florida and in fact vote***
- File federal income tax return with the IRS in Atlanta, Georgia***
- Change address on passport***
- Obtain Florida auto driver’s license (and, if feasible, relinquish license from other state)***
- Obtain Florida license plates (and relinquish plates from other state)
- Open a Florida Bank Account***
- Affiliate with Florida organizations
- Change credit cards to Florida address
- Transfer safe deposit box contents to Florida box
- Affiliate with a church, temple or mosque in Florida
If the client is unable or does not wish to establish Florida residence, the options are limited. One option is to restrict trust investments in assets producing tax-free income or growth, or distributing accumulated income and capital gains of the trust if possible.
Rarick Beskin & Garcia Vega, P.A. has been providing estate planning services for over 19 years. We have advised many families who have moved to Florida regarding the most cost-efficient way to update their estate plan now that they have decided to make Florida their home. For more information, contact attorney Phil Rarick at firstname.lastname@example.org.
The information on this blog is of a general nature and is not intended to answer any individual’s legal questions. Do not rely on information presented herein to address your individual legal concerns. If you have a legal question about your individual facts and circumstances, you should consult an attorney that is experienced in Florida estate planning law. Your receipt of information from this website or blog does not create an attorney-client relationship and the legal privileges inherent therein.