USA – FLORIDA Law and Practice Contributed by: Jennifer Jordan McCall, Drew Reitz, Christine Tsai and Maria Williams, Pillsbury Winthrop Shaw Pittman LLP
3.4 Tax Consequences of Fiduciary and Beneficiary Roles Generally, transfer tax consequences only arise in irrevocable trusts where transfers are structured as completed gifts. In such trusts, the general practice is to not have a donor of the trust serve as trustee. Often, if a donor serves as trustee the tax planning goal of removing the trust’s assets from the donor’s taxable estate for estate tax purposes is often lost. A beneficiary can usually serve as a trustee, but any distribution decisions made by the beneficiary trustee must be limited to an ascertainable standard (such as health, education, maintenance, or support) to avoid including the assets in the beneficiary’ trustee’s tax - able estate for estate tax purposes. Often, in practice, a third party who is “independent” will serve as trustee, and may be a corporate trus - tee. This mitigates the many tax problems, as well as practical problems that could otherwise arise. Often, corporate trustees are “directed” meaning the trus - tee is a corporate entity in a state such as Wyoming, Delaware, or Nevada, who takes directions from an “adviser”. The adviser(s) control the investment and distribution decisions instead of the trustee. Distri - bution decisions are subject to the rules above with respect to donors or beneficiaries. Investment deci - sions can sometimes be given to donors, but one must be exceedingly careful in this circumstance. Sometimes, it may be permissible, but other times there can be severe gift and estate tax consequences. Usually, the difference turns on what type of assets the trust holds. Investments for cash and marketable securities may be able to be directed by a donor, but closely-held interests, particularly corporate stock, is a much more complex analysis.
The most common is a “revocable trust” which is designed to avoid the assets of the grantor from pass - ing by means of a court-supervised process of estate administration, which can be expensive, and which is public, called “probate”. By avoiding probate, the assets in a revocable trust are more efficiently admin - istered and retain privacy for the family. In addition, “irrevocable trusts” are used, many of which were described in 2.6 Transfer of Assets: Vehicle and Planning Mechanisms . These trusts per - mit not just planning to avoid probate, but also can achieve valuable income and/or gift and estate tax advantages, as previously discussed. There are also “private foundations” which many families choose to create for fulfilling the charitable inclinations of the family. These entities provide many tax benefits, but also come with administrative costs and require detailed adherence to various regulations. Depending upon the value of the assets involved and the family’s goals, some families choose to instead conduct their charitable planning by transferring assets to Donor Advised Funds (DAFs) instead of pri - vate foundations due to the relative simplicity of DAFs. DAFs are charitable funds held with an institution. The grantor can appoint themselves, during a grantor’s lifetime, or family members upon the grantor’s death as a Donor Advisor to direct how contributions to the DAF are distributed to one or more charities. 3.2 Recognition of Trusts Florida recognises and respects many different types of trusts, including but not limited to revocable and irrevocable trusts, land trusts, and community prop - erty trusts, all of which are commonly created and used in Florida. 3.3 Taxation of Trusts, Foundations and Similar Entities Located in Other Jurisdictions With respect to foreign trusts through which a US resident serves as a fiduciary, there are extensive and complicated reporting rules for foreign trusts at the federal level in the US. Anyone seeking advice with respect to such trusts should seek experienced legal and accounting advice.
4. Family Business Planning 4.1 Asset Protection
Asset protection strategies in the US and Florida include, but are not limited to, the use of limited lia - bility companies, use of irrevocable trusts, gift and estate tax planning, nuptial agreements, and insur - ance policies, such as private placement life insurance and umbrella policies, among others. Additionally in Florida, certain primary residence properties qualify -
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