Florida Family Trust Companies: Tax and Nontax Considerations

If a family-run investment company wants to avoid SEC regulation, it can qualify for exemptions. One way is if it only serves family members and is owned and controlled by family members. Another way is if it follows state regulations instead of SEC rules.

Using a family-run investment company for family trusts can cause tax issues, and the IRS is working on providing guidance for this. The IRS Notice 2008-63 provides guidelines for how trust companies can handle the taxes for family trusts. The guidelines ensure that the trust company’s decisions about distributing money from the trusts are fair and not influenced by the family members involved. It also outlines specific rules that the trust company has to follow to make sure everything is done correctly. The IRS proposed some rules about how family trusts set up by the Firewalls and their family members should be handled for tax purposes. They said that appointing the Family Trust Company (FTC) as trustee of the trusts won’t by itself cause any major tax issues, but there are still some uncertainties. The IRS has not given final guidance on this, so it’s still unclear how these trusts will be treated for taxes in the future. The rules for the DDC seem too strict. They prevent family members from making decisions about giving out money from a trust if they or their spouse are part of the trust, or if the money is for someone they need to support. But if the family member was the trustee instead, they could still make decisions about giving out money to themselves or other people, as long as it’s for important things like health and education. The rules also apply to the spouse of a family member, which is too broad. Spouses often are trustees for trusts made by their partner, and their responsibility to support their partner shouldn’t affect their ability to make decisions as a trustee. There are some parts of the notice that might worry you, but we believe they can be ignored because they don’t follow the law. It’s important to carefully write the trust document and the governing documents for the trust company. The person in charge of the trust should not give themselves too much money, and this rule should be in both the trust document and the governing documents. For example, if a member of the DDC who is a trust beneficiary is not allowed to give themselves more money than they need for their health, education, support, and living expenses, then they shouldn’t have to pay estate taxes on that money. In simple terms, the notice leaves some uncertainties about how certain rules apply to a family trust company. If someone wants to avoid certain tax rules applying to their trust, they need to be careful about who is involved in running the trust company. If someone wants to control their trust, they should not be an officer or director of the trust company. If they don’t want to control their trust, they should make sure that no more than half of the people running the trust company are related to them. In Florida, a new law allows families to set up their own trust companies to manage their wealth. This law gives families more control and flexibility in managing their money. Many other states have similar laws, and while there are some legal and tax considerations to keep in mind, this can be a good option for families looking to preserve their wealth for future generations. Two legal experts wrote an article about tax laws for the Tax Law Section. They mentioned a specific IRS code and a resource for more information.

Source: https://www.floridabar.org/the-florida-bar-journal/florida-family-trust-companies-tax-and-nontax-considerations/