Wednesday, October 21, 2020

What You Should Know About Setting Up Florida Trusts with Out-of-State Beneficiaries or Trustees

By Carol K. G. Lutz, LL.M., Law Clerk, Morris Law Group
One of the benefits to living in Florida, beyond the nice weather and easy access to beaches anywhere in the state, is the lack of a state income tax. The amount of potential tax savings is what attracts many high net worth individuals, including celebrities, to be domiciled in Florida and have Florida trusts.
However, if the trust contains assets from another state, it may be subject to that state’s income tax. This can be costly for states with high taxes, like New York.
In order for a trust to be subject to New York income tax, it must be set up by a New York resident or have a New York domiciled trustee to be considered a resident trust. If neither of these facts are true, the trust is considered an exempt trust.
However, if there is any New York sourced income, the entire trust is subject to New York income tax and loses its tax exempt status. New York also has a throwback tax on distributions to New York resident beneficiaries from a trust.
This essentially means that a Florida trust with a New York trustee, beneficiary, or New York property that generates income will have to pay New York state income tax. This defeats the purpose of having a Florida trust if the entire trust must pay another state’s income tax.
If you would like more information about setting up a Florida trust or would like to meet with one of our attorneys, please contact us, call (561) 750-3850 or email us at Info@Law-Morris.com.

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