Under the State of Florida's Intangible Personal Property Tax, all Florida residents who own, manage or control non-exempt intangible assets as of January 1 of a calendar year will be subject to the Florida Intangible Tax for that year. Intangible assets are assets that lack physical existence, such as corporate securities, interests in mutual funds and notes receivable. The prevailing rate of the tax is .50 mill (.0005) of the fair market value of such intangible assets (or $.50 in tax per every $1,000 in intangible assets). Single taxpayers are entitled to exempt from the tax $250,000 of intangible assets and married taxpayers filing a joint return are entitled to exempt from the tax $500,000 of intangible assets.

Under current law, assets held in trust are subject to the Florida Intangible Tax only if a Florida resident has a taxable "beneficial interest" in the trust. A Florida resident has a taxable beneficial interest in a trust if the resident has a current right to income and either (1) a power to revoke the trust, or (2) a general power of appointment as defined under Section 2041(b)(1) of the Internal Revenue Code. It is generally thought that a current right to income does not include a purely discretionary right given to the trustee to distribute income to a beneficiary, assuming that the beneficiary and the trustee are not the same person.

Thus, there is an opportunity to avoid the imposition of the Florida Intangible Tax by creating an irrevocable trust to hold a Florida resident's non-exempt intangible assets, making sure that the Florida resident does not possess a taxable "beneficial interest" in the trust. These types of trusts are commonly known as "FLITE" trusts.

In order to be effective, FLITE trusts should provide for the following: (1) the trust must be irrevocable; (2) while the trust may provide a purely discretionary income interest to the Florida resident, it must not provide the beneficiary with any type of revocation powers over the trust or powers that would be classified as "general powers of appointment" under the Internal Revenue Code; (3) the Florida resident transferring assets into the trust should not be the trustee, however, the trustee can be a Florida resident and could be a family member, and (4) the intangible assets of the Florida resident must be transferred to the trust prior to January 1 of the calendar year and should remain in the trust after January 1 for a sufficient period of time to indicate that the trustee acted like a fiduciary with respect to the management of the trust assets (generally not shorter than one month). Again, the important point in time at which the intangible assets must be titled in the trust's name and not in the individual Florida resident's name is January 1 of the calendar year.

Although in the past there had been some discussion about eliminating the Florida Intangible Tax, there certainly is no guarantee that the Florida Intangible Tax will be repealed. In June of 2005, the rate of tax was reduced going from 1 mill to .50 mill, but attempts to eliminate the tax entirely during the 2005 Florida legislative session were unsuccessful. In recent years, the structure of the tax has become more flexible in allowing taxpayers to create vehicles such as FLITE trusts to effectively avoid the imposition of the tax. If you would like to create such a trust prior to year end, please contact either the Foley & Lardner LLP attorney with whom you usually work, or Debra K. Smietanski, an attorney who specializes in estates and trusts in our Tampa office. It is very important to start the process as soon as possible to ensure that all of your non-exempt intangible assets are properly transferred to the trust well in advance of January 1. The FLITE trust has become an excellent opportunity and a very flexible vehicle to legally avoid paying the Florida Intangible Tax.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.