December, 2006

Year-End Planning to Minimize Florida Intangible
Personal Property
Tax Liability No Longer Necessary


For the first time in decades, year-end planning to avoid the Florida Intangible Personal Property Tax (the “Intangibles Tax”) will not be necessary for Florida residents and their tax advisors. This past summer, Florida Governor Jeb Bush signed legislation repealing the Intangibles Tax, effective January 1, 2007. Intangibles Tax liabilities for 2006 and prior tax years are unaffected by the repeal.

Subject to certain exceptions, the Intangibles Tax is an annual tax on the market value, as of January 1 of the tax year, of stocks, bonds and other intangible personal property owned, managed or controlled by a person domiciled in Florida. For 2006, each taxpayer is entitled to an annual exemption of the first $250,000 of the value of property otherwise subject to the tax. Thereafter, the rate of the Intangibles Tax is 0.5 mils per dollar ( e.g., $5 per $10,000) of taxable intangible personal property. The rate of the Intangibles Tax was significantly reduced over the decade preceding the repeal.

In order to avoid the Intangibles Tax, many Florida residents created irrevocable trusts to hold their intangible assets, frequently near the end of a calendar year as January 1 of the next year approached. Following numerous Florida Technical Assistance Advisements issued in response to inquiries regarding the use of such trusts, the Florida Department of Revenue amended the Florida Administrative Code in 1998 to provide “safe harbor” requirements that, if met, would enable trusts to avoid the Intangibles Tax. Trusts meeting the safe harbor requirements popularly became known as Florida intangible tax trusts (“ FLINTs”) and Florida intangible tax exempt trusts (“FLITEs”). Now that that the Intangibles Tax has been repealed, FLINTs and FLITEs will no longer be essential tools of Florida estate planners.

What about existing FLINTs and FLITEs? If a FLINT or a FLITE was established as part of a broader estate plan, and not just to minimize exposure to the Intangibles Tax, it may make sense for the trust to be retained in its present form. If, however, a FLINT or a FLITE is no longer desirable or is no longer desirable in its existing form, it may be possible to amend the trust pursuant to an amendment power included in the trust agreement. Depending on the terms of the trust, it may also be possible for trust assets to be distributed to a beneficiary ( e.g., the settlor or the settlor’s spouse) or for the settlor to exercise a limited power of appointment over trust assets in favor of individuals or other trusts, thereby effectively terminating the FLINT or FLITE.