Out-of-State Trusts May Need to Be Revisited
Florida is a haven for incoming residents. Whether it’s young people coming to live on the water or retirees coming here to avoid the snow, Florida gets a lot of people moving here from other states. In many cases, those people may have executed trusts in the states that they left. When they come here, they often give little thought to the effectiveness of legal validity of their trusts. But that can be a mistake.
Out of State Trusts
In many cases, trusts are drawn up with choice of law provisions, which dictate which state law will govern the trust. Those are generally enforceable, but many “do-it-yourself” forms or poorly drawn up documents may not have such provisions.
In the absence of a choice of law provision, the Uniform Trust Code is unfortunately vague about which state law will apply to your trust. The code only says that the laws applicable will be the law of the state with the closest relationship to “the matter at issue.”
For people with property or assets in many states, this can be very problematic. Someone who puts land in Virginia and a business in New York into a trust, who then moves to Florida, may need to deal with which of the three state laws apply, and it may be that a different state law applies to each piece of property.
Making matters more problematic are each state’s tax laws. Florida contains no fiduciary income tax. Other states do. So even though someone moves to Florida, they may not get the benefit of Florida’s tax laws as applied to the trust, if the property in trust is in another state. Taxation rules for those states may be complex. A separate analysis of which state law applies may need to be done for each piece of property.
Revising the Trust
A trust can be revised, to reflect that Florida’s laws will apply (or any other state that may be advantageous). Often, to do that, the terms of the original trust will need to be revisited, and the state laws that governs the trust regarding changing it will have to be followed.
In some cases, court approval and the approval of the beneficiary of the trust will be needed in order to change the terms. But if all parties to the trust are in agreement, changing the terms to reflect Florida’s laws as being applicable becomes much easier.
One problem when it comes to changing the terms of a trust or modifying its terms, is the possibility of losing the benefit of any laws that the trust was grandfathered into. For example, a trust that was established before a tax law was passed may be allowed to operate under the older, more favorable laws that existed when the trust was created.
But if the trust is changed, or altered, those benefits may be lost. Thus, for older trusts, some diligence needs to be applied before making any changes to them.
Make sure your trusts are up to date and maximize your assets. Contact Tampa business, asset and probate attorney David Toback to discuss a comprehensive tax and estate plan.