So You Left Your Trust at Home When You Moved to Florida

Florida is a popular place for retirees because of the warm weather and tax benefits. Many people who move to Florida from other states may have irrevocable trusts that need to be reviewed. These trusts may have outdated rules and may need to be changed. This article talks about how it may be possible to update these trusts and change the laws that govern them to Florida. Basically, when someone sets up a trust, they can choose which state’s laws will apply to it. If they don’t choose a state, the laws of the state that has the closest connection to the trust will apply. This can be complicated to figure out. Also, each state has its own rules for taxing trusts, so that’s another factor to consider. Florida is one of seven states that don’t have a specific income tax for trusts. This means that if you have a trust in Florida, you won’t have to pay a special tax on any money the trust earns. However, in other states, trusts have to pay a tax on the money they make, with rates ranging from three percent to 10.3 percent. The tax usually applies to the money the trust makes from things like investments and property. If the trust gives money to someone, that person will have to pay tax on it instead. If the trust makes money from things like real estate or a business, it will have to pay tax in the state where the real estate or business is located. Some states tax trusts based on where the person who made the trust lived, where the trustee lives, where the trust is managed, or where the beneficiaries live. If a trust is taxed based on where the trustee lives or where the trust is managed, it can be easier to plan for and potentially move to a state with lower taxes. However, if a trust is taxed based on where the person who made the trust lived, it can be harder to plan for or change. Some northeastern states like New York and New Jersey tax trusts based on where the person who made the trust lived, so it can be difficult to avoid taxes in those states. Other states like Illinois and Pennsylvania also have similar rules for taxing trusts. Michigan taxes a testamentary trust if the person who made the trust (testator) was a resident of Michigan. For a living trust, Michigan taxes it if the person who made the trust (settlor) is a Michigan resident, unless all beneficiaries and trustees are outside of Michigan. Massachusetts taxes can be avoided by making all trustees live in Florida. In Connecticut, a testamentary trust is taxed the same way as in Illinois (based on a resident testator), while a living trust with a resident settlor is only taxed if there is a resident beneficiary who is not “contingent.” If state taxes are an issue in Connecticut, steps similar to those in Illinois and Pennsylvania would be needed for a testamentary trust. For a living trust with both resident and nonresident beneficiaries, it might be possible to divide the trust under Connecticut law. It may also be helpful to revise the original trust and change the place of administration or governing law to Florida. Decanting is the transfer of assets from one trust to a new trust. Some states have laws that allow this, but most do not. In those cases, you can try to use the common law in the state where the trust was created to make the transfer. Another option is to move the trust to a state with decanting laws and then make the transfer. It’s not clear if just moving the trust would allow you to change the terms of the trust, though. If a trustee wants to make changes to a trust that go beyond just administrative matters, they may need court approval to change the jurisdiction or governing law. If they can’t get court approval, they may consider modifying the trust with the consent of the beneficiaries and the court. Reformation, which involves showing a court that there was a mistake in the trust, may also be an option but it’s harder to prove. If an old trust needs to be changed, merging it with a new trust can be a solution, as long as it doesn’t hurt the beneficiaries or the purpose of the trust. This can be done if the state’s laws allow it. The new trust can have different rules than the old one, but they can’t be so different that it harms any beneficiaries. Also, the same restrictions about changing the rules of the trust will apply to merging as they do to changing the trust through decanting. If an irrevocable trust needs to be changed, it’s important to be careful not to lose its tax exemptions. Changing the trust could result in gift or estate taxes, and could also affect income taxes. It’s best to review the laws of the original state before making any changes. Florida had a lot of people moving in compared to other states from 1990 to 2006, while northeastern states had a lot of people leaving. It looks like this trend will continue. According to Florida law, the rules for a trust are determined by the state with the most connection to the trust, like where the property is or where the people involved live. This is also supported by legal experts and the Uniform Trust Code. When it comes to trusts and taxes, the laws can be different depending on where the trust was created and where the property is located. For real estate, the laws of the testator’s home state apply to testamentary trusts, and the laws of the property’s location apply to living trusts. For personal property, the laws of the place where the trust is being administered apply to both living and testamentary trusts. If the trust document doesn’t specify a jurisdiction, the laws of the settlor’s residence at the time of trust creation will apply. If you want to minimize state income tax on trusts, there are ways to plan for it, and it may be possible to transfer the trust to a different state to reduce taxes. This author worked on a case about a trust set up by someone who died in Illinois in 1981. The trust was thought to have been moved to Florida, and a Florida company was the trustee. The money from the trust was given to the person’s spouse each year. The author also talks about tax laws in New York, New Jersey and Illinois. Legal experts have written articles on minimizing state income taxes on trusts, and professionals should file any missed tax returns for the trust. Some specific state laws and instructions for filing taxes for trusts are referenced. Certain states have rules for the distribution of trust funds to beneficiaries, and some states have trust laws that offer creditor protection and other benefits. Several states have enacted trust decanting statutes, allowing trustees to change the terms of an irrevocable trust. Some legal experts have written about these developments. The passage talks about changing the administration of a trust. It mentions that there are rules and procedures for this, and that court approval may be needed in some cases. It also discusses modifying a trust to achieve tax objectives, and mentions specific laws related to this. It’s important to follow the rules to keep a trust’s tax-exempt status. There are some safe ways to make changes to a trust without losing this status, like using a special power of appointment or following specific trust laws. It’s also important to consider the tax consequences of any changes to a trust. This article was written by lawyers who are experts in tax and estate planning. They discuss a specific section of the tax code and how it might apply in different situations. The lawyers have a lot of experience and knowledge in this area of law. The article was written for the Tax Section, an organization that is focused on improving the legal system and helping the public.

Source: https://www.floridabar.org/the-florida-bar-journal/so-you-left-your-trust-at-home-when-you-moved-to-florida/